The world of trading and business has seen a massive shift toward the blockchain from online banking. People prefer blockchain transactions and cryptocurrency over other forms of currency because they offer numerous benefits, such as security, anonymity, decentralization, transparency, and scalability. However, with multiple advantages, some concerns regarding blockchain networks also emerge.
One of the most critical problems in the blockchain world that must be solved as soon as possible is the blockchain trilemma in addressing decentralization, security, and scalability. Only then can this industry gain true mainstream adoption. Let us have a look at this major concern known as the Blockchain Trilemma.
What Is the Blockchain Trilemma?
Blockchain technology has three major aspects: security, decentralization, and scalability. The concept of blockchain trilemma revolves around the "opportunity cost" when working with blockchain technology. It is observed when building blockchains, creators are limited to achieving only two of three benefits of the blockchain network.
The concept was first introduced by Vitalik Buterin, one of the co-founders of the Ethereum network. Vitalik Buterin also proposed that Ethereum 2.0 will be the solution to this trade-off.
What Is Decentralization?
Decentralization refers to the dispersion of supervision and decision-making power from a central governing body to individual entities. Every new transaction that takes place requires verification before creating its block and adding it to the chain. The decentralized system makes sure that control over the blockchain is distributed across each individual, not in the hands of a specific group or individual.
The decentralized system removes any factor of misjudgment or bias. If any validator is found accomplice in foul play, punishment proportionate to the act is directed. The authenticity of a new block is verified through a number of scattered nodes before adding the block to the chain. Hacking or altering a block is next to impossible in blockchains. All blocks need to be tempered to change something in a single block.
What Is Scalability?
The ability of a blockchain network to manage a high number of transactions by increasing the number of nodes on the platform is known as scalability. Transparency and security are the two major benefits of blockchain scalability.
In many real-world scenarios, it is very hard to establish public blockchains due to the barriers to scalability. To understand the concept of scalability, let’s look at the example of bitcoin. Satoshi Nakamoto, the creator of bitcoin, set the initial size limit of bitcoin to 32 megabytes.
However, others suggested that it was a waste of memory and resources because the number of bitcoin users is very low. Additionally, it is very prone to DDOS attacks. Hence Nakamkoto reset the block size to 1 megabyte to ensure stability and security in the BTC network.
Up until 2013, the number of BTC transactors and the volume of transactions was very low, and due to that, there was no network congestion. However, after the dramatic rise in the popularity of cryptocurrency, the number of users has increased dramatically. This has led to many problems, such as raised transaction fees and network congestion. Scaling of the bitcoin blockchain has been the most sought-after solution. It increases the capacity to manage huge transactions. It is done by updating the code underlying the network.
What Is Blockchain Security?
Security in blockchain basically refers to integrating a complete risk management system. Trust in transactions is ensured through the core principles of a blockchain security framework, which are consensus, cryptography, and decentralization. New transactions are connected to the previous ones in a cryptographic chain, and validation of all transactions is done in a decentralized manner by a consensus mechanism. Security protocols in a blockchain can differ according to the type of blockchain. There are three main blockchains:
- Public blockchains
A blockchain with no center of control and an architectural central point-of-failure is called a public blockchain. The decentralization of a blockchain through crypto economics ensures cooperation in the public blockchain network. Usually, it uses POS and POW consensus mechanisms.
- Private blockchains
In a private blockchain, a starter/central administrator must verify and validate a user on grounds of the rules as stated by the network administrator. Businesses use private blockchains for authentication, record-keeping, and access. POA approach is commonly used for private blockchains.
- Consortium blockchains
The consortium blockchain is an amalgamation of private and public blockchains. Participants that are approved by a central entity constitute a consortium. Consensus is achieved via POS, POW, and POA.
There are three factors that are used to develop a fully dynamic system.
- Fraud prevention best practices.
- Cybersecurity frameworks.
- Assurance services.
Solving the Blockchain Trilemma
It is believed that the blockchain trilemma is a permanent problem with no solution, and developers must opt for two of three benefits to create a blockchain. However, a multitude of recent innovations across the decentralized ecosystem has introduced some solutions that have the ability to overcome these hurdles. These solutions include advanced concepts like random delegation, side chains, sharding, and Layer-1 and Layer-2.
Cryptocurrency project Algorand claims that their network equally uses all three advantages by adopting the concept of randomness and solves the Blockchain trilemma. Other blockchain developers are working non-stop to try and mitigate this issue. Let us see what other potential solutions are under development.
Layer 1 Blockchains
Layer-1 (Implementation layer) is responsible for maintaining blockchain security and comprises coding rules, language, and consensus mechanisms. This layer only handles two functions:
- Process of block creation.
- Addition of the created block to the main blockchain.
Consensus Protocol Improvements
A consensus mechanism is used to maintain security and validate the transactions of a blockchain. Proof of History (POH), Proof of Stake (POS), Proof of Authority (POA), and Proof of Work (POW) are typically used as consensus mechanisms. Adopting a good consensus mechanism is necessary to solve the blockchain trilemma.
Here are the two widely used mechanisms with recent consensus protocol improvements.
Proof of Work (PoW)
New transactions are continuously happening in the blockchain, and it is equally important for the developers to verify each one of these transactions. One central entity responsible for the verification of the integrity of a transaction is absent on decentralized platforms.
To compensate for the absence of a central authority, the accuracy of a new transaction is verified using the Proof of Work technique in a decentralized network. POW networks are very energy exhaustive, meaning that the consumption of energy will only increase as more and more miners enter the network. Bitcoin and other blockchains use the POW to securely process peer-to-peer transactions without the involvement of a third party.
Proof of Stake (PoS)
The lucrative task of verifying a new transaction and creating a new block for each transaction, respectively, is delegated to a validator using the POS system. The validators stake their crypto assets in a set amount on the network and are required to validate incoming transactions on the blockchain and add new blocks. As a reward for their honest services, they are given additional crypto. On the other hand, if a validator is found trying to cheat the system or validate malicious or bad data, the network imposes penalties on them according to the severity of their actions.
The POS solution consumes less power making it an environment-friendly technique as compared to POW. Additionally, due to its low power requirements, proof-of-stake is accessible to a larger audience. The costs of expensive computing systems and electricity are cut off with POS.
Sharding is a popular scaling solution for Layer-1, the concept is taken from the distributed databases. The theme behind this method is basically "divide and conquer." The main blockchain is split into several parts, and the shards are assigned separately to individual validators. The reason for doing so is to avoid putting an excessive burden on a single central entity.
Sharding poses certain risks as well because there is a theoretical possibility of all validators going down. Resulting in the loss of an entire piece of the blockchain. This issue is tackled in many ways, such as horizontal splitting of the blockchain as done by the Ethereum network.
Layer 2 Blockchains
To scale Layer-1, it is necessary to first move the processes to Layer-2, which is built on top of Layer-1. Layer-2 authenticates the transactions in Layer-1 and caters to network congestion issues. Congestion issues come into play when the user increases the network's processing power by adding more nodes. Continuous communication between the two Layers is the key to managing the main blockchain.
Another popular technique to solve the blockchain trilemma is to use nested blockchains. The parent chain defines the parameters and rules of the nested blockchain operation. However, the execution of the transaction is performed solely by the nested chain.
Nested blockchains are secondary chains anchored to the main blockchain. Ethereum Plasma is the biggest example of the use of nested blockchains, this chain can arbitrate disputes by offering proof of fraud.
A transactional chain for large batch transactions that connects with the main blockchain through a two-way peg is known as a sidechain. The scalability and speed of the chain are regulated by a separate consensus protocol in a sidechain. The main chain manages blockchain security, and disputes in the sidechain.
Sidechain transactions are recorded on a public ledger, making them visible between participants. Setting up a sidechain requires extensive infrastructure and work. On the plus side, if a security breach is observed in a sidechain, the parent chain remains unharmed. An example of the implementation of sidechains can be seen in the Bitcoin blockchain, enhancing the performance of the blockchain and reducing transaction times.
A State channel allows the transacting parties to create new channels instead of using the main blockchain. Smart contracts run the state channels, making direct P2P transactions possible. Transaction privacy is ensured in a state channel.
The instant a channel is closed, the information within the channel is censored, and the main blockchain only receives the starting and ending information. Simply, a state channel enables private, off-the-chain transitions that enhance the network's security and transaction speeds. Some renowned examples of state channels are the Raiden network by Ethereum, Celer, Liquid network, and Bitcoin Lightning Network.
Is Blockchain Trilemma Solved?
There is no one-stop shop that can solve the blockchain trilemma completely. Achieving the Holy Grail is an impossible feat for developers, as of now. Optimizing a blockchain as much as possible is the best that one can do thus far. It is possible that faster network speeds and infinite virtual computing will be observed in the near future. Solving the blockchain trilemma could be very easy in such an environment.
Although one cannot deny the significant strides that are made in this industry to tackle the related issues. However, at the same time, the road ahead is very hard and long, and the blockchain world is still in its amateur stage. As of now, it is safe to say that there are no projects that claim to have completely solved the trilemma of blockchain.
The blockchain trilemma is currently a major problem for most developers. Knowing the nature of the trilemma problem, its consequences, and its causes can help find a suitable solution.
Developers are working day and night on the complexities of this trilemma and are very optimistic that it will be solved in the foreseeable future.
Right now, blockchains can handle huge piles of data without any problem. However, problems in the merits of POS and POW in decentralization and security are still challenging for developers.
In the near future, blockchain developers believe that the trilemma will stop being a problem for blockchain creators as the transaction speeds and security protocols will be unmatched.