What is the Blockchain Trilemma?

Here is why the triad of security, scalability and decentralization is so difficult to achieve.

One of the problems that the blockchain industry has faced for a long time is the blockchain trilemma. The blockchain trilemma (also called the scalability trilemma) is the belief that decentralized platforms can only achieve two of the following three goals – security, scalability and decentralization – at a time.

The term was first coined by Ethereum founder Vitalik Buterin. He said that when developers create blockchains, they end up sacrificing one of the three goals to achieve the other two. This trilemma is so deeply rooted in blockchain technology that even the top two cryptocurrencies by market capitalization, Bitcoin and Ethereum, have failed to achieve all three goals. Let’s understand the blockchain trilemma by breaking down each of the three goals, the challenges they present, and how the blockchain community is tackling them.

The three goals blockchains must achieve

Decentralization

The main idea behind cryptocurrency was to facilitate transactions without a central authority, i.e. to have a decentralized network. For the sake of decentralization, this public blockchain information is stored on a wide network of nodes (computers of those using the blockchain) across different locations. This means that anyone can read and write on the blockchain. The presence of a large number of nodes makes it almost impossible to attack a public blockchain since transactions can be traced back to individual nodes.

However, the presence of many nodes (and consequently a high number of users) also slows down the number of transactions per second processed on the blockchain.

Scalability

The slow speed of the public blockchain leads us to the second goal, scalability. To become more useful and practical at scale, blockchains need to be able to process a myriad of transactions quickly without charging a high fee for them. Nevertheless, public blockchains are not very scalable yet due to low transaction speed.

Safety

Blockchains must be highly secure to ensure that those who put their savings in crypto investments do not lose them to hacks or malicious attacks. While public blockchains, such as Bitcoin and Ethereum (which will soon switch to proof-of-stake mechanism), are “almost impossible” to hack, their strength lies only in the number of miners on the blockchain. This is because these blockchains use the proof-of-work (PoW) consensus mechanism. Using a PoW system puts blockchains at risk of a 51% attack, which is a situation where fraudulent attacks can be initiated by a group of miners who control more than 50% of the mining power. This situation occurred three times on the Ethereum Classic Network in August 2020. Another problem with the PoW mechanism is that it consumes a lot of energy and has been avoided due to its environmental impact.

To put it simply, achieving these three goals simultaneously is exhausting because achieving one puts you in a position where you miss out on the other. If you are decentralized, it becomes more difficult to be scalable. If you are private and scalable, you are not transparent. If you are transparent and have many miners, you are safe, but this security comes at the cost of consuming a lot of energy in the mining process and low transaction speeds. But if you don’t have many miners, you are not safe anymore and risk being attacked.

So can these goals be achieved?

Ethereum’s proof-of-stake model

A lot of work is put into finding out how these different goals can be balanced out. One of the biggest steps taken in this direction is by Ethereum. As of June 8, 2022, the Ethereum network has been testing the proof-of-stake (PoS) consensus mechanism. Under the PoS system, miners (or validators) cannot mine more than a certain amount of coins, and their mining capacity is directly affected by how many coins they have staked (staked coins are blocked from withdrawal for a period of time).

PoS is less resource intensive than PoW and is also safe for 51% attacks. This system also provides for sidechains, which are Ethereum-powered blockchains that carry some of the load of the main Ethereum blockchain. This reduces network congestion and thus improves the scalability of the blockchain.

Algorand’s pure proof-of-stake (PPos) model

Another project that hopes to achieve all three of these goals is Algorand (ALGO). Algorand is a decentralized blockchain that uses the PPoS consensus mechanism. Here, no one is rewarded for mining, and instead users only earn for holding onto their ALGO coins. The Algorand blockchain uses the Byzantine consensus system, where a group of people agree on a decision even though some of them may be untrustworthy. Their assumption is that most people using the blockchain are honest. The premise works because everyone benefits by holding ALGOs, and if they choose to make a wrong move, the value of their own holdings will also fall. Algorand can process 1000 transactions per second (to put this in perspective, Bitcoin

can only handle five transactions per second).

Both of these come with the promise of solving the blockchain trilemma. Of these, Ethereum’s PoS has yet to be fully launched. Therefore, it is impossible to say whether it would actually live up to its goals. Coming to Algorand, the cryptocurrency has a price of USD 0.4129 as of June 9, 2022. Although it has indeed provided a unique solution to the blockchain trilemma and climbed up to the 29th rank, it remains to be seen whether it will be able to get the support needed to become a mainstream cryptocurrency.

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