In this post we dive into what the term “blockchain trilemma” encompases. In addition, we also describe current crypto trilemma solutions and fixes that the developers have figured out so far.
The term blockchain trilemma is used in the crypto ecosystem. It refers to the challenges that developers face when creating a blockchain. Currently it is believed that a blockchain can only provide its users with two out of three benefits at a time, without making the third one suffer. These benefits are: scalability, security and decentralisation of the blockchain. Crypto world as a whole is currently working on finding a solution which will fix this problem. They are also implementing Layer 1 and Layer 2 scaling to already existing blockchains as a solution to the problem.
The three major aspects of the blockchain trilemma, as mentioned above, are decentralisation, security and scalability. However, as suggested by some experts, security should actually not be considered as a variable, since without security you don’t have long term scalability if the project is prone to failure due to hack attacks.
The most important aspect of any blockchain is security. There is an enormous amount of hackers and scammers out there who search blockchains’ code for some sort of unnoticed security gaps or just an overall poorly designed blockchain security. Due to the open and quite easily accessible code that blockchains provide, they have become a main target of many.
This is why many blockchains have special bug bounty programs which enable users who have coding knowledge, typically referred to as white hackers, to search for bugs in the blockchain’s code and report them for what sometimes makes quite a decent prize. Many very promising blockchains have failed due to this exact problem; getting attacked by a hacker, because they didn’t have a high enough measure of quality security.
Proof of work blockchains operate on nodes, which guarantee security. However, to increase the blockchain’s bandwidth developers tend to reduce the amount of nodes that blockchain functions on, which results in much weaker security and makes the 51 % attack more possible, since it allows hackers to reach the sufficient hashing power more easily. 51 % attack is an attack where a single individual or a group owns more than 50 % of the blockchain, which allows them to sort of hijack the network and manipulate the transactions.
The term scalability refers to the blockhain’s ability to support a great amount of transactional throughput and its potential for future growth, so that when the blockchain becomes more popular it will not suffer and slow down, but rather perform at the same level as it did before. When a blockchain is not as scalable, this typically shows in the speed of transactions and in the gas fees that users have to pay in order for their transaction to come through.
The blockchain trilemma introduces us to the fact that greater scalability is possible, however in order to achieve it either decentralisation, security, or even in some cases both will suffer. Scalability is what actually matters when it comes to competing with other centralised platforms which are already well established and currently superior in terms of transactional throughput. For example, a relatively fast blockchain can cover around 4,000 transactions per second, while Visa can handle 63,000 transactions per second. However, we should note that there are blockchains that already offer such a high transactional throughput which can easily compete with centralised entities regarding scalability, such as Poylgon.
The whole idea of a blockchain revolves around the fact that it is decentralised. This is also one of the reasons why it was created in the first place. Traditional banking is centralised, meaning that it is controlled by a single authority, while blockchain serves as a fully transparent alternative, or at least it should.
Decentralisation has quite a couple of benefits when compared to the traditional banking system. Since it is not centralised, blockchains can instead step away from taking full profits of the transactional fees. The operations can then distribute them to their users and to the community. Decentralisation also enables users to build anything they want on the platform, as long as the decision of the new protocol implementation is supported by the majority of its users.
In addition, decentralised transactional systems function on a consensus where each transaction is approved by a greater number of nodes, rather than by a single one. A node in the crypto ecosystem represents a computer or a group of computers which are tasked with validation of transactions and blocks that make up the blockchain. The transaction cannot be changed after it gets verified by the majority. It also gets forever imprinted on the blockchain and the risk is not placed on one individual or entity.
However, the compromise that developers have to make when building a 100 % decentralised blockchain is the speed at which their transactions are executed. It is logical that if the transaction requires a few different confirmations, it will take longer than the transactional system, which is confirmed only by a single node, like in banking. That is why it is currently believed that it is impossible for a blockchain to have all those three main aspects at once.
There are two types of solutions that are currently being implemented. As we speak, developers are working on finding better ways to fix the blockchain trilemma issue.
Layer 1 solution is used for blockchain mechanisms such as Ethereum and Bitcoin. Proof of work mechanism is used on traditional blockchains such as Bitcoin, and even though it is quite secure it has a tendency to slow things down and is only capable of performing around 7 transactions per second. Majority of the blockchains which function on the proof of work protocol are switching, or have already switched, to the proof of stake mechanism, where instead of using miners to solve complex mathematical problems and therefore use a lot of computing power, the proof of stake protocol determines validators based on the amount they have staked in the network. Ethereum is one of these blockchains.
Sharding is another type of Layer 1 blockchain scaling solution. This mechanism allows a blockchain to process more transactions at once in parallel by the main network. This can be done by breaking transactions into smaller datasets called shards. On top of that, the majority of information is held in nodes rather than in the mainchain. Instead, mainchain’s blocks are filled with proofs from nodes that the transactions are “correct”.
Layer 2 solutions refer to the networks and systems that operate on top of already existing blockchains. The aim is to improve the transactional throughput and overall scalability. Layer 2 protocols have gained quite a lot of popularity and have seen significant rise in their use cases.
Nested blockchain is a system where multiple blockchains are connected to the mainchain. The mainchain is also referred to as the parent chain, while other chains are known as child chains. The parent chain assigns tasks to child chains. Child chains then process them and send the results back to the parent chain.
Sidechains are blockchains that are near the main blockchain and are used for greater piles of transactions. They operate on their own consensus mechanism, which is modified in a way where it offers more scalability and speed to the mainchain.
State channels create a communication between an off chain transactional channel and a blockchain, which improves the throughput of the transactions and the speed at which they are being carried out. State channels don’t operate with the help of miners, but rather work as a network adjacent resource which is shut off with the help of smart contracts. When a specific transaction is complete on a state channel, the final state and the transitions get recorded on the blockchain.