The financial market is a dynamic environment that goes through ups and downs in cycles. The…
Blockchain trilemma came from Vitalik Buterin, co-founder of Ethereum. Another name for blockchain trilemma is scalability trilemma.
There are 3 elements that form the pillars of cryptocurrency. These are decentralization, security, and scalability. However, even if these three are the pedestals of crypto, they have a difficult time achieving synergy.
Recently, many people are trying to integrate the blockchain technology into processes that once relied on traditional finance entities. Once the mass adoption grows exponentially, either one of the pillars becomes compromised. This affects the number of transactions that the blockchain can process.
Defining the Blockchain Trilemma’s Key Features
Image from fasset.com
This is the distribution of power among several groups or participants instead of allowing just a sole central figure to govern a system. There is no single entity holding all the power. In a decentralized financial structure, it is the people’s consensus that makes the decisions on a certain platform.
But, this decentralized nature weakens transaction speeds because just a single transaction needs to go through several validations before it gets the final approval. This set-up is what slows down the blockchain.
Security is absolutely important in a blockchain ecosystem. On account of prioritizing decentralization and scalability, security is left behind. The crypto companies sometimes forget it because they are preoccupied dealing with the multitude of hacks that threaten their source codes.
As a result, the incorrect use of source code security leads to cyber attacks that harm their growth.
For mass adoption to happen, the blockchain must have scalability. Scalability refers to how a blockchain system can sustain smooth operations despite the increased demand.
Scalability also deals with the future direction and growth of the ecosystem. Investors and experts look at scalability to determine whether or not the platform can still perform a high number of transactions at an ideal speed.
These three core features – scalability, decentralization, and security are essential for decentralized networks to operate well and provide outstanding financial services to many people.
Blockchain Trilemma’s Basic Concept
Blockchain trilemma is the idea that helps developers understand the primary problems that the many crypto projects face. When you focus on one or two features only, it pulls down the other. According to the Certik Foundation, this trilemma can take the form of a pyramid. Security is the base level upon which the two other features stand on. If there is no security, then decentralization will be distorted while scalability will be severely limited. This makes a platform severely vulnerable to 51% attacks.
Read about 51% attacks.
Solutions to the Blockchain Trilemma
Until now, there is no single solution for the scalability trilemma. Developers established several approaches that can help solve the trilemma.
Consensus Mechanism Pivots
First on the list is shifting the consensus protocol used in the blockchain. The most popular consensus protocol is Proof of Work. Bitcoin’s blockchain used the Proof of Work method from the beginning of its launch. POW is secure but is slow with only 7-10 transactions per second (tps). Ethereum’s upgrade to Proof of Stake increased its capacity, decentralization and scalability.
Sharding has become prominent as a Layer-1 solution. It breaks down data into manageable pieces of information. Due to its small size, the shards can be simultaneously processed in a sequential manner. These shards are kept in multiple nodes and the data remains unchanged.
Aside from Ethereum 2.0, Qtum, Zilliqa and Tezos are other companies examining if sharding will be effective for them.
CCB Blog Post about sharding.
These solutions build on top of an already existing network. From the word layer-2 solutions, it means adding a second layer to the structure.
These layer-2 solutions are:
It connects an autonomous blockchain to the cardinal chain. Side chains are autonomous because it functions on a special set of rules. Digital assets move freely between the 2 side chains.
This solution helps improve transaction capacity and speed because it promotes two-way communication between a blockchain and an off-chain channel. Transaction validations don’t need a miner in the state channels. Rather, it uses a smart contract mechanism to finalize processes.
Examples of state channels are Bitcoin’s Lightning Network and Ethereum’s Raiden Network.
Balancing the Pillars
Ethereum has been successful in its adoption of proof-of-stake (PoS) as of June 8, 2022. Ethereum’s side chains greatly help in decongesting their network and improving scalability.
On the other hand, Algorand uses a pure proof-of-stake (PPos) mechanism. Users earn by holding on to their coins. The Byzantine Agreement is its blockchain’s guiding principle. A group’s agreement decides whether a transaction is trustworthy or not.
This structure relies on the supposition that they will be incentivized to act properly on the platform because their ALGO earning will depend on it. This is Algorand’s approach to solving the blockchain trilemma.
A struggle among these 3 elements is a deciding factor for investors. If cryptocurrency companies show that it is very challenging to achieve harmony between the three, it will negatively impact their sentiments towards these crypto coins.
In conclusion, it is impossible to achieve a PERFECT balance among all three. Layer-2 solutions might just be able to provide a way in increasing the symbiosis between the three core elements. The developers who are continuously improving the scaling solutions aim to enhance a blockchain’s efficacy. This means cheaper transaction fees and at a lesser computing power.