Although blockchain is a highly disruptive technology, some challenges still 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 achieve two of the three simultaneously.
The three elements desirable in a blockchain, security, decentralization, and scalability, are connected, so improving one element 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, while the blockchain attains the elements of security and decentralization, scalability is affected. 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 the restricted number of transactions it can handle 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 very low 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 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 in the form of a distributed ledger. If someone tries to manipulate the network, the other participants can reject the faulty data.
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.
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 a high number of 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.
Most blockchain networks have inherent security features based on cryptography, consensus, and decentralization that make them secure.
A public network should be resistant to 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 network, 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 of them categorized under Layer 1 and Layer 2 solutions.
Layer 1 Solutions
Layer 1 is the core protocol that serves as the network’s foundation on which secondary blockchains and decentralized applications are built. 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 is a method of splitting large transactions into smaller, 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 are the secondary protocols that are built on top of a Layer 1 network. Layer 2 solutions aim to solve the blockchain trilemma by building secondary frameworks on the underlying blockchain without making any changes to the main layer. These secondary protocols handle transactions off-chain to ease the burden on the main chain 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 main 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 securely transact outside the blockchain. 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.
Has the Blockchain Trilemma Been Solved?
While several solutions for the blockchain trilemma are cropping up, none have completely solved 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 with the goal of finding the right balance between scalability, decentralization, and security of blockchain.