What Is the Blockchain Trilemma?

5 views 8:16 pm 0 Comments November 28, 2023

Although blockchain is a highly disruptive technology, some challenges hinder its mainstream adoption and integration with existing industry applications. The blockchain trilemma is a critical optimization challenge that revolves around the opportunity cost of choosing two of the three elements of blockchain: security, decentralization, and scalability.

In this guide, we discuss the three elements of the blockchain trilemma and what innovative solutions to the trilemma are available.

What Is the Blockchain Trilemma?

The blockchain trilemma suggests that developers are limited in achieving high levels of decentralization, security, and scalability for a blockchain, only being able to complete two of the three simultaneously.

The three elements desirable in a blockchain, security, decentralization, and scalability, are connected, so improving one part usually leads to weakening or enhancing another.

Vitalik Buterin, a co-founder of the Ethereum network, coined the term blockchain trilemma.

Understanding the Blockchain Trilemma

Public blockchains use a distributed network of nodes to achieve system consensus and transparency. The more participants in a network, the more secure the public blockchain is from hacking and data breaches.

However, scalability is affected while the blockchain attains the elements of security and decentralization. The public blockchain can only handle a limited number of transactions per second (TPS), and the network experiences congestion and inflated transaction fees.

For instance, Bitcoin, the most popular public blockchain, has a simple design that makes its base layer highly secure and decentralized. However, the blockchain has scalability issues due to its restricted number of transactions in a single block.

The Bitcoin blockchain has a block creation time averaging 10 minutes and a capacity to process around seven transactions per second. This transaction rate is meager compared to traditional payment methods like Visa, which can process thousands of transactions per second.

Let’s break down the three elements of the blockchain trilemma.

Decentralization

Decentralization refers to how control and decision-making are distributed through multiple participants in a network instead of being controlled by a central authority.

Public blockchains are open to anyone who wants to participate, and everyone can access the same data as a distributed ledger. The other participants can reject the faulty data if someone tries to manipulate the network.

Decentralized blockchains are designed to maintain the integrity of data. Once information is recorded on a block, it’s irreversible and can’t be changed.

However, to achieve optimal decentralization, many participants need to agree on the validity of data, which decreases network throughput. An increase in decentralization lowers transaction speed due to how data needs to be shared, which affects the scalability of the network and hampers widespread adoption.

Scalability

Blockchain scalability refers to the capacity of a blockchain to support more transactions at higher speed, store large amounts of data, and run more nodes to meet network demands efficiently.

Scalability ensures that increased use cases and adoption of blockchain technology don’t affect the performance of the network and its core elements: decentralization and security. 

Blockchain networks need to be able to process many transactions quickly as they expand to meet demand. However, when a public blockchain can only handle a few transactions per second, it reduces the usability and practicality of the network.

Factors that hinder blockchain scalability include limited throughput, long confirmation time, high fees, and low capacity. Achieving scalability generally requires raising the costs of running nodes and sacrificing decentralization and security to some degree.

Security

Most blockchain networks have inherent security features based on cryptography, consensus, and decentralization that make them secure.

A public network should resist manipulation, ensuring data stored in the blockchain cannot be tampered with and making exploits like 51% attacks impossible.

However, blockchain networks are not invulnerable to hacking as the technology is open-source, and any participant can try to hack the code. Hackers can overwhelm the system by gaining control of over half (51%) of the network and manipulating transactions.

The security of a public blockchain is directly affected by the level of decentralization. The higher the decentralization (number of participants in the network), the harder it is for hackers to gain control over the web, and the more secure the blockchain becomes.

Solutions to the Blockchain Trilemma

Several solutions have been introduced across the decentralized ecosystem to deal with the blockchain trilemma. Let’s look at some solutions categorized under Layer 1 and Layer 2.

Layer 1 Solutions

Layer 1 is the core protocol that serves as the network’s foundation for building secondary blockchains and decentralized applications. Layer 1 solutions make changes directly to the underlying architecture of the blockchain. The solutions optimize Layer 1 code to increase transaction throughput.

Examples of Layer 1 solutions include:

  • Sharding. This method splits large transactions into more minor, more manageable data ‘shards’ to avoid putting excessive burden on one node. These shards are processed simultaneously, and the network executes them in parallel, saving on transaction time.
  • Consensus protocol improvement. Consensus mechanisms validate network transactions and maintain security by recording all legitimate transactions. Different blockchains use different consensus mechanisms. An improved consensus can secure the network without affecting decentralization and scalability.

Layer 2 Solutions

Layer 2 is the secondary protocol built on a Layer 1 network. Layer 2 solutions aim to solve the blockchain trilemma by creating secondary frameworks on the underlying blockchain without changing the primary layer. These secondary protocols handle off-chain transactions to ease the main chain’s burden and reduce congestion.

Examples of Layer 2 solutions include:

  • Nested blockchain. A nested blockchain has a parent-child chain, where the parent chain delegates work to the child chain, reducing the load of the main chain. A nested blockchain improves scalability by processing transactions in interconnected webs of secondary chains without affecting Layer 1 security and decentralization.
  • Sidechain. Sidechains are adjacent blockchains attached to the leading network. They can operate on different rules and consensus protocols to the mainchain to enhance transaction speed and scalability. Sidechain transactions are recorded on a public ledger, and their security breaches don’t impact the main chain.
  • State channel. They allow participants to transact outside the blockchain securely. State channels use smart contracts to facilitate off-chain transactions with minimum interaction with the mainnet. Once the transaction is complete, the main chain records the opening and closing information. State channels help users transact directly and instantly, which improves scalability.

Do you know if the Blockchain Trilemma has been solved?

While several solutions for the blockchain trilemma are cropping up, they still need to wholly solve it (yet), and optimizing some elements of blockchain is the best solution presently. 

The blockchain trilemma is a big hurdle that stands in the way of blockchain technology gaining mass adoption. However, developers are still working on the future of blockchain scalability to find the right balance between scalability, decentralization, and blockchain security.