Blockchain networks are known for their vision of working without any central authority and offering a variety of features which can be prioritized. A blockchain network is built around three core features: scalability, security, and decentralization. It is easy to grasp the theoretical concept of how blockchain networks operate and what purpose they serve but when it comes to transforming that theory into practice, developers face a tough time enduring these three fundamental features concurrently.
Blockchain Trilemma Explained
The blockchain trilemma states that a blockchain network cannot achieve scalability, security, decentralization at the same time. The trilemma concept was termed by Vitalik Buterin, referring to the fact that at least one attribute must be compromised for the sake of the other two, and all three features cannot be implemented or maximized simultaneously.
Following are the three fundamental facets of blockchain trilemma:
Scalability: This refers to the ability of blockchain networks to support an extensive number of transactions without increasing any gas fees and transaction time.
Security: A firm and unwavering defense system assists blockchain networks to protect themselves from bugs and malicious attacks.
Decentralization: It enables network control to be distributed equally among all users rather than being managed by a central owner.
The interplay among three trilemma attributes
It takes time to validate the transactions made on a blockchain network especially when the system has a large number of participants. Therefore, security parameters clarify that scalability is inversely proportional to decentralization.
Similarly, when we consider “security” as a hashrate for two proof-of-work blockchains, then scalability becomes directly proportional to security. For example, by keeping decentralization constant, if we increase the hashrate, the validation and confirmation time decreases, which in turn increases the scalability. Therefore, we can say that with constant decentralization, the scalability becomes directly proportional to security.
Ethereum is an example of such a trilemma at play; i.e. Ethereum cannot scale beyond a specific limit, which means it has preferred decentralization and security parameters over scalability (limiting number of transactions per second). Likewise, Bitcoin allows seven transactions per second (TPS), while maintaining decentralization and security concurrently.
Challenge for Developers
It is challenging for developers to implement a mixture of decentralization with high transactional throughput in a network while maintaining watertight security at the same time. Technologists around the world are striving to implement layer-1 and layer-2 solutions (to be explained later) to catalyst the growth and adoption of decentralized networks.
Significance of each Trilemma Element
Before moving on to the proposed solutions to address trilemma issues, it's good to understand the significance and role of each aspect of trilemma in detail.
Scalability refers to the capability of a blockchain network to sustain the enlarging growth of users, use cases, and transactions without compromising performance. If a network does not support increasing mass adoption, it is said to be non-scalable. The trilemma states that scalability cannot be expanded without affecting decentralization and security; on the other hand, scalability is the only way for blockchain platforms to compete with centralized financial platforms that are superior in terms of usability and growth.
Many leading blockchain platforms are facing the challenge to increase scalability in terms of TPS (transactions per second) and reducing the settlement time required for transactions. Let’s take the example of EOS, which is offering a throughput of 4000 TPS. However, according to the trilemma, there is a trade-off in the EOS network; i.e., although it is fulfilling the promise of maximum scalability, it has been criticized for being too centralized.
Security is not a factor that can be a trade-off like the other two because it keeps the network functional and stable against malicious attacks. Security is paramount for DeFi platforms because of their open-source and transparent nature, where anyone can access and manipulate source code for lucrative benefits.
When PoW platforms maintain an open network with less nodal distribution, hackers can easily gather hashing power, thereby increasing the chances of attacks to 51%. In August 2020, Ethereum Classic Blockchain suffered from an attack where hackers re-organized 4000 blocks and did a double spend of ETC worth approximately 2 million dollars. Therefore, it seems that blockchain will become useless without security because anyone will have access to the ledgers.
Decentralization is the core component of blockchain networks, which lets users enjoy permission-free ownership on the platform. However, not all blockchains are decentralized to the same extent. Decentralization emphasizes equal distribution of control among all nodes. A consensus is taken from a group of nodes to finalize the decision.
The effort of acquiring optimal decentralization in a network results in a decrease in throughput, which is a case of trilemma. The involvement of a large number of miners in the consensus process tends to decrease the transaction speed.
Solutions for Blockchain Trilemma
In a decentralized ecosystem, the solution to the blockchain trilemma lies in figuring out a risk-free way to achieve scalability, security, and decentralization simultaneously.
Blockchain protocols such as Bitcoin and Ethereum come under Layer-1. Blockchain networks built under Layer-1 focuses on speed, security, and growth. The following methods can be used to solve trilemma issues to the maximum extent.
Refinement of Consensus Protocol: Proof-of-work is a popular consensus protocol used in leading networks such as Bitcoin. Bitcoin’s permitting only seven TPS indicates that PoW is secure but slow at the same time. On the other hand, Ethereum 2.0 utilizes a PoS (Proof-of-Stake) mechanism. PoS finds out validator status through a stake in the network rather than expecting miners to use computing power for solving cryptographic algorithms. This mechanism can help to increase the capacity of the network while maintaining security simultaneously.
Sharding: One of the most popular solutions of layer-1 in the blockchain sector is sharding. In sharding, transactions are broken down into small datasets called “shards.” These shards are then treated in a parallel way in the network, thereby enabling the network to process multiple transactions simultaneously in a sequential manner. All shards use cross-shared communication protocol to give proof to the mainstream, and to interact with each other to share addresses and balances.
Protocols such as Ethereum 2.0, Zilliqa, and Tezos are on track by investigating the use of shards.
Layer-2 solves scalability challenges especially for PoW networks by using tech optimization/products that work in line with an underlying blockchain protocol.
Nested Blockchain System: In this mechanism, a nested infrastructure is built, containing a main blockchain with a set of interconnected secondary chains. The Main (Parent) blockchain is used to set parameters, and the Secondary (Child) chains are used for execution. The Parent chain assigns work to the child chain. The fundamental base blockchain does not involve network functions until necessary. For example, Layer-1 Ethereum utilized the Layer-2 nested infrastructure known as “OMG Plasma.” OMG Plasma works atop Ethereum to perform faster transactions and remove the processing burden from the Main chain (Ethereum) to improve scalability.
Use of Side Chains: A side chain is a transactional chain used adjacent to the original blockchain, for processing large transactions. Speed and scalability are optimized by side chains, which use their independent consensus mechanism. Whereas, security and dispute resolution is controlled by the main chain. Side chains do not support private transactions; instead, they are publicly recorded in the ledger. Moreover, security attacks on these chains do not affect the main chain or other sidechains. This somehow solves the trilemma issue to the maximum extent.
Layer-1 and Layer-2 protocols have gained immense attention in the past few years and are offering efficient ways to overcome the trilemma challenges for PoW networks.
It is problematic to address trilemma challenges all at once, but leading crypto networks such as Bitcoin and Ethereum have achieved a notable position in the crypto world in this regard. However, extensive research is still needed to solve the above-explained dilemma to revolutionize the whole blockchain community.
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