The aim and ambition of blockchain initiatives are well-known, but what they prioritize and what they’re renowned for can differ. Decentralization, scalability, and security are the three main concepts that most projects revolve around.
The Blockchain Trilemma, coined by Vitalik Buterin, discusses the difficulties developers confront in establishing a scalable, decentralized, and safe blockchain without compromising any aspect.
To achieve all three qualities, blockchains are frequently required to make trade-offs:
- Decentralized: This aims at constructing a blockchain system that a single party does not control.
- Scalability: It refers to a blockchain system’s ability to manage an increasing number of transactions.
- Secure: The blockchain system’s capacity to perform as planned and defend itself against assaults, errors, and other unforeseen concerns is important.
While some developers believe that the blockchain data format has intrinsic restrictions that prohibit it from expanding, many architects believe that a blockchain project can be built that meets all three above mentioned goals.
Fundamental Elements of the Blockchain Trilemma
Blockchain is built on the principle of decentralization. The system in traditional finance is completely centralized. Customers entrust up complete ownership of their assets to banks, including personal documents.
Bitcoin and other early cryptocurrencies provided a decentralized network and transparent alternative to centralized banking, allowing for the issuance and storage of money without the need for a central authority.
Decentralized network systems are important because they allow everyone to utilize and build on the platform without needing permission. Decisions are made via consensus, implying that a group of nodes approves transactions rather than a single node.
These transactions can’t be changed after a consensus mechanism has verified them. As a result, the risk is not concentrated in a single business.
On the other hand, Pure decentralization comes at a cost and speed. If several confirmations are required before reaching a consensus, the transaction will take longer than if a single party can confirm the transaction. Bitcoin is recognized for being both fiercely decentralized and not dependent on a central entity.
The most difficult characteristic to include in modern blockchain networks is scalability. Although numerous projects claim to have achieved this point, none can support a substantial user base. When a few hundred nodes confirm transactions for only 50,000 active users, a transaction throughput (TPS) of 6,000 may be sufficient, but what happens when the same network must accommodate millions of users at once?
It’s important to realize that scalability isn’t a metric that aims for an X TPS for a Y amount of users. We don’t know what kind of workload blockchains would have to handle at a worldwide adoption level. Thus there isn’t an ultimate goal. It would be more practical to think of it as a degree or level of effectiveness that should be present at all times.
Let’s just look at how many users blockchains like Bitcoin should support in this internet age! These numbers fluctuate, and the systems need to be robust for accepting the demand. According to sources, as of December 2020, the Bitcoin blockchain has 20 million monthly active users.
With transaction costs of $25, we believe that Bitcoin has reached its limit, especially with such a small user base compared to Facebook and Twitter. As a reminder, Bitcoin’s network congestion peaked in 2017 during the previous bull run, costing customers up to $60 per transaction.
As of Q4 2020, Statista estimates that Facebook has 2.8 billion monthly active users. According to figures from the first quarter of this year, Twitter has just 330 million active users.
As a result, scalability is a pressing issue that must be addressed as soon as possible. If Bitcoin tries to achieve worldwide adoption goals as it did in 2017, it will face a hard rejection, leading many to question whether blockchain technology is the way of the future.
Now let’s look at the most important factor, security. Without it, blockchains would be rendered utterly useless, as anyone would be able to disrupt and change ledgers. This is not the case in the majority of blockchain networks, as practically every developer includes principles that prevent 51% of assaults.
The fact that decentralized technology is open-source is the number one reason why blockchains are less safe than centralized databases. Because of this, any hacker can read the code; he can spend countless hours trying to figure out what kind of vulnerability he can use and much more.
Exploits are extremely rare, particularly in the Bitcoin network. Other blockchains are more vulnerable due to their use of smart contracts. Flash loans, a specific sort of collateral-less loan used in the DeFi industry, could have been the quickest way to hack any project in 2021.
In some ways, security and scalability work in opposition to each other. While scalability aims to expand the system even further, security aims to keep the network stable and functional at all times.
Can’t the Blockchain Trilemma be solved?
First and foremost, the Blockchain Trilemma is merely a model for conceptualizing the numerous issues blockchain technology faces. No rule says the three aspects can’t be combined. However, teams have experimented with many ways to maximize decentralization, scalability, and security.
The basic layer is the foundation upon which all other layers are built: security. Decentralization could be corrupted without it, and scalability could be short-lived. The foundation for both decentralization and scalability will be laid by security. Decentralization is a long process, and scalability is something that should be constantly improved.
The blockchain community has long awaited the full adoption of blockchain technology by established businesses, with scalability generally cited as the key impediment. While scalability may be a factor, a lack of trustworthy security would undoubtedly be a major contributor to this apprehension.
Regardless of how the Trilemma is shaped, it is widely acknowledged that achieving decentralization, scalability, and security in a blockchain system is challenging. Blockchain technology is still in its early stages, and the technology approaches are expected to develop.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.