Stay a head above with advanced analytics
Media
How it works
How It Works

What Is the Blockchain Trilemma? Everything You Need to Know

Why it matters to you:
Many modern blockchain projects like Solana, Avalanche, Arbitrum, Optimism, and others are onto the blockchain trilemma, which defines their architecture. It is tough for any blockchain system to effectively achieve all three parts of this trilemma— decentralization, scalability, and security. But the technology is still in its infancy, and over time it will only improve.
What is the Blockchain Trilemma?Why does it matter?How does it influence projects?Closing Thoughts

People view the technology underlying the countless cryptocurrencies going mainstream as the force that will redefine finance and be the main component of a user-controlled Web3

But when it comes to practice, blockchain also has challenges in terms of decentralization, scalability, and security. It is called the Blockchain Trilemma, a term coined by Ethereum co-founder Vitalik Buterin. 

The Blockchain Trilemma refers to a situation when developers have to sacrifice one of the three widely desired features in the blockchain project: decentralization, scalability, and security. By sacrificing even one of these features, we get a blockchain project that is far from perfect.

Compromising on any of these features is not ideal while developing a world-class project.

But while some developers believe that blockchain has inherent limitations that prevent it from fulfilling all of them, others believe it is possible to build a blockchain project that covers all three. 

What is the Blockchain Trilemma?

As noted, the Blockchain Trilemma refers to the belief that blockchain systems cannot provide all three benefits — decentralization, security, and scalability, at any given time. But before the why, let us first establish what they are exactly.

Decentralization

Decentralization is the main component and selling point of a blockchain. It sets the base for a user-owned economy that is open, fair, and transparent, opposed to web 2.0, which has been all about centralization. 

A decentralized project does not rely on a central point of control. Let us look at Bitcoin as an example, the world's largest cryptocurrency by market cap. There is no centralized entity handling the issuance and storage of Bitcoin, effectively making it censorship-resistant. 

The control here is basically distributed over the network to different participants, which in the proof-of-work (PoW) consensus mechanism are miners and in proof-of-stake (PoS), validators. In the absence of a central entity, these miners and validators, scattered all over the globe, run the nodes.

These nodes confirm transactions in return for which they earn fees (paid by users) and rewards in the native currency of the network.

Security

Security refers to the ability of a blockchain system to operate as intended while protecting data from different attacks, bugs, and any other issues. It also covers blockchain’s defence against double-spending. 

Additionally, it refers to the ability of blockchain to maintain its immutability, so that transactions are irrevocable. The blockchain achieves this by spending resources to earn rewards, and the more resources (hashing power) network participants put to use, the more secure the blockchain becomes. 

51% attack

is where a single person or a group of people gain control of more than 50% of a blockchain’s hashing power. 

This concept is demonstrated by 51% attack. Also known as a majority attack, a 51% attack is where a single person or a group of people gain control of more than 50% of a blockchain’s hashing power. 

For instance, the cost of executing a 51% attack on Bitcoin for an hour is more than $2.1 million. In comparison, Bitcoin Cash (BCH) can be 51% attacked for less than $25k and Bitcoin Gold (BTG)can be attacked for even less, at just $2,200. All these figures clearly show that Bitcoin is much more secure. 

Scalability

Scalability refers to a blockchain system’s ability to handle an increasingly large number of transactions. It is all about just how much a blockchain system can sustain and if it can operate smoothly under increased demand.

Taking EOS as an example, this blockchain project is focused on scalability and also boasts a throughput of up to 4k TPS, much higher than the most used cryptocurrency networks, Bitcoin and Ether. But, as the trilemma suggests, there is a trade-off here. This is a centralized project and has received significant criticism for being too centralized.

Why does it matter?

Decentralization is of the utmost importance at the moment, where a few tech giants control the Internet. In addition, decentralized systems matter because they empower permissionless ownership where anyone can build and use the platform. 

When it comes to ensuring the security of a blockchain, it requires a lot more resources and investment. At the same time, this investment in security protects the data and value of the native crypto asset to the blockchain. Not to mention, the more secure a blockchain, the more people trust it.

Also, security-focused blockchain enables large value transfers that are quicker and cheaper than traditional value transfers. 

As for scalability, with crypto going mainstream and more users from all over the globe joining in, blockchain projects need to be able to handle much higher transactions than they could up until now. 

How does it influence projects?

The first major component is decentralization which, while distributing power among different participants of the network, comes with the trade-off of speed. 

In a centralized system, just one entity has to confirm your transactions, whereas here, multiple confirmations are required before a consensus is reached. This means transactions take much longer. 

When it comes to the speed of transactions, the leading network, Bitcoin, can only process seven transactions per second (TPS). Ethereum can do 13. Visa, on the other hand, processes 1,700 transactions per second on average. Mastercard has a capability of 5,000 TPS.

What’s interesting is that anyone can become a miner and validator. But this opportunity comes at a considerable price, as it involves costly hardware and significant operating expenses. 

In the same way that decentralization impacts speed, scalability is makes projects congestible. After all, we have seen evidence of this vulnerability numerous times with the popular Ethereum network during times of heightened market activity, which leads to extremely high fees for using the network, pricing out smaller users.

The crypto market has a lot of forks such as Ethereum Classic (ETC) and Bitcoin Cash (BCH) which, while solving the challenge of scalability, detrimented security as they were attacked several times.

Closing Thoughts

While the Blockchain Trilemma is a widely accepted problem, online innovation across the decentralized ecosystem has led to a diverse range of not only Layer-1 but also Layer-2 solutions.

Projects like Solana, Avalanche, Arbitrum, Optimism and many others are working to resolve this conundrum. 

While it is difficult for any blockchain system to effectively achieve all three—decentralization, scalability, and security—the technology is still in its infancy and over time it will only improve.

So, as crypto goes mainstream, technology progresses, and more innovative, creative, and talented brains enter the space, experimentation will continue to overcome these obstacles and solve the trilemma once and for all.

Published: Dec 8, 2021
Help Us Become Better
Did you like the article?
Join our community
Discuss our articles
Join now!

/ in case you missed it

Feb 28, 20224 min read
Bitcoin Mining Electricity Consumption
Media