What Is the Blockchain Trilemma?

Jun 4, 2021

What is the Blockchain Trilemma, and why is solving this issue such an important problem for developers? Moreover, what part does Vitalik Buterin’s Ethereum 2.0 network upgrade have in solving this problem?

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The technology behind decentralized blockchain networks is way ahead of our times. We theoretically know how such networks should function and what purpose they should serve. But when it comes to turning theory into practice, developers have a hard time creating blockchains that possess all three of the proposed fundamental features.

Scalability, decentralization, and security represent the core features of blockchain technology, or at least they should. However, retaining all aspects is extremely difficult with the concepts that we currently know of.

Although networks like Bitcoin and Ethereum dominate in terms of decentralization and security, they come nowhere close to reaching scalability. This issue makes it incredibly hard for them to achieve widespread adoption at a level where centralized systems would have no place in the world.

Blockchain’s brightest minds attempt to solve the blockchain trilemma once and for all, and at the forefront of this great revolution stands the community’s dearest developer: Vitalik Buterin. In this article, we will explain what the blockchain trilemma is and how Ethereum 2.0 may potentially solve this puzzle.

What is the blockchain trilemma?

Plain and simple, the blockchain trilemma is a concept coined by Vitalik Buterin that proposes a set of three main issues that developers encounter when building blockchains. More often than not, creators are forced to sacrifice one ‘aspect’ for the sake of the other two.

  • Decentralization. Rather than being managed by a single entity, blockchains distribute control over the network equally to all participants.
  • Security. Blockchain networks should have ironclad defenses that prevent malicious entities from taking over.
  • Scalability. Blockchains should support an enormous number of transactions and users without faltering by increasing fees and transaction times.

For some in the industry, achieving all three aspects is an impossible feat that will never be done, at least in the near future. However, there are still ambitious developers who believe that blockchain networks can have all three and then some.

The Blockchain Trilemma: Scalability, decentralization, and security

The best way to process the trilemma’s difficulty is by analyzing each aspect independently. So, let’s slowly examine scalability, decentralization, and security and see what their weak points are.

Scalability

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Scalability is most likely the most problematic feature to incorporate into modern blockchain networks. Although many projects claim to have reached such a stage, the truth is that none of them can support a large user base. A transaction throughput (TPS) of 6,000 perhaps works when a few hundred nodes confirm transactions for only 50,000 active users, but what happens when the same network has to support millions of users all at once?

We do note that scalability is not a specific measurement that targets an X TPS for a Y number of users. There is really no end goal since we do not know what kind of workload blockchains would have to reach at a stage of global adoption. Instead, it would be easier to consider it as a degree or level of effectiveness that should ideally be present at all times.

For the sake of clarity, let’s see what number of users blockchains like Bitcoin should be capable of supporting in the age of the internet. We believe that the easiest way to find a tangible number is by taking a look at major social media platforms and seeing how many active users they support.

Data from Statista reveals that Facebook hosts 2.8 billion active users per month as of Q4 2020. On the other hand, Twitter only has 330 million active users based on data from Q1 2019.

According to Glassnode, the Bitcoin blockchain had 20 million monthly active users as of December 2020.

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With fees standing at $25 per transaction, we conclude that Bitcoin is at its limit with even such a low number of users in comparison to Facebook and Twitter. As a reminder, Bitcoin experienced its highest level of network congestion in 2017 during the last bull run, charging users up to $60 per transaction.

Therefore, scalability is an urgent problem that should be resolved soon. If Bitcoin attempts to reach dreams of global adoption just like it did in 2017, we will again see a harsh rejection that will leave many thinking if blockchain technology is indeed the future.

Advantages:

  • Enables the network to support a higher workload and function normally *(without charging high fees) under extreme conditions
  • Helps specific protocols that inherently require support for a high number of transactions. This includes niches such as gaming, social platforms, messaging apps, video streaming platforms, etc.

Disadvantages:

  • With the technology currently available, developers must sacrifice security in order to scale the network. Enterprise blockchain solutions go as far as to switch to permissioned networks that lack decentralization but enable extremely high TPS. To feature scalability without ruining security, projects would have to switch from Proof of Work to Proof of Stake.

Decentralization

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Decentralization is the first and easiest feature implemented in blockchain networks. After all, all you have to do is make sure that there is no central entity managing the system. But without a central entity, how do blockchains even work?

You probably already know the story but let’s remind ourselves for the sake of context. On decentralized blockchains, alternatively called permissionless networks, miners contribute by confirming transactions. Their incentive is to earn fees from the transactions that other users have to pay.

Each miner is a unique node in the blockchain that has the same powers and privileges just as any other node. Control is distributed equally, and there is not even one person that can direct the network in a certain direction without receiving approval from other nodes.

This is a great thing because all participants have way more freedom with decentralized systems in comparison to centralized ones. This is especially important in today’s era where corporations and institutions have the power to freeze accounts for biased reasons. If we reach an Orwellian age, who says that banks will not start freezing your assets because of your political opinions?

Decentralization is in fact the main reason why many push blockchain networks at the forefront of technological revolution. As life becomes more and more complex each year it is essential to ensure the freedom of every living individual not just in real life, but in the digital plane as well.

As we already noted at the start, decentralization is easy to implement. However, if a project wishes to scale its blockchain, developers are forced to sacrifice this unique aspect. This is commonly done in permissioned blockchain networks where only a few special users have the privilege to access and actively participate.

Advantages:

  • In a decentralized network all participants have equal power and cannot command over others. By cooperating, crypto enthusiasts can discuss issues in a governance model and change the protocol through governance proposals.
  • Blockchain technology thrives in terms of security when it is more decentralized. More nodes mean that larger entities control less power and require more resources to reach a state in which they can perform a 51% attack.

Disadvantages:

  • Things can go wrong even in a democratic-like governance model where one node equals one vote. The community can still make ‘wrong’ decisions and the proposals are not exactly moderated, which means that members can bring forward controversial features.
  • Most protocols achieve decentralization through a Proof of Work consensus mechanism. This is troublesome as mining requires a lot of energy which creates ecological problems. Moreover, such networks are incapable of reaching a high TPS count resulting in the blockchain’s failure to scale.

Security

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Last but not least, we have security. Without it, blockchains would be completely useless as everyone would have the ability to disrupt ledgers and even manipulate them. This is not the case in a majority of blockchain networks, as almost every developer features concepts that make exploits like 51% attacks impossible.

The number one reason why blockchains are less secure than centralized databases is that decentralized technology is also open-source. Since every hacker can read the code, he can spend countless hours figuring out what kind of exploit he can pull off.

Again, exploits are quite rare, especially in the Bitcoin network. Other blockchains are more prone because they tend to utilize smart contracts. In 2021, the easiest way to hack a project is by exploiting flash loans, a special type of collateral-less loan utilized in the DeFi sector.

In some sense, security and scalability work towards opposite goals. While scalability attempts to grow the system further, security attempts to keep the network stable and functional at its freshest state.

Security is not really an aspect that can be traded off in the same sense as decentralization and scalability. But in recent times, it is definitely common to see developers leave security behind while focusing on the other two.

Advantages:

  • Security is the only fundamental part required for the blockchain network to actually work. Without security, malicious actors can disrupt the network by controlling a major portion of the nodes or by manipulating the ledger’s data. It is safe to say that without security, blockchain networks are completely unreliable and useless.

Disadvantages:

  • The only real disadvantage that security has is that it requires a lot of resources. Blockchains must utilize PoW consensus mechanisms that need a huge number of miners in order to support the network’s security. But as more miners join the network and make it securer, aspects like scalability suffer due to PoW’s failure to support a high transaction throughput.

How does Ethereum 2.0 solve the blockchain trilemma?

Is the blockchain trilemma really such a big of a deal? Well, it will not be for long. With advanced solutions like Proof of Stake (PoS), sharding, and side chains coming to our stores soon, crypto enthusiasts will have the chance to see how a perfect blockchain network looks like.

Precisely, these solutions will arrive with the launch of Ethereum 2.0. The upgraded network incorporates all of the aforementioned features for the sake of creating a Proof-of-Stake blockchain that is decentralized, scalable, and secure.

Ethereum 2.0 is already here, but sadly, we still have to wait at least a year for Vitalik Buterin and the team to integrate sharding and side chains. They will come in schedule roll-ups throughout the year that will slowly scale Ethereum. Until then, the new PoS network will work side-by-side with the old PoW blockchain.

Once all updates have been implemented, the old network that we have known for years will disappear. To put it more accurately, Ethereum (PoW) will become one of Ethereum 2.0’s 64 sidechains, which enables the project’s continuity.

But again, Ethereum’s envisioned future is still a concept. We still have to see whether Proof of Stake and sharding work in theory and have the ability to support a large workload. For now, we can all hope and wait while paying $50 in fees on decentralized exchanges.

Conclusion

The blockchain trilemma is an important topic for all of the industry’s hardworking developers. Projects like Bitcoin and Ethereum have already done so much for the world. But in order to reach a level where blockchain can revolutionize everyone’s world, and not just the one of our small community, the trilemma must be solved.

While we have projects that use PoS and sharding, none of them had the chance to prove to the world that they are capable of supporting a large user base. Ethereum is the market’s second-largest project by market cap, so if Vitalik Buterin can do it, we will finally know that the blockchain trilemma is no longer an issue.

After finding out the answer to the question “What is the blockchain trilemma,” we wholeheartedly recommend that you read our guide to Ethereum 2.0. By doing so, you will better understand how the network upgrade helps developers with the challenges that they, at the moment, face.

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