Blockchain is becoming increasingly popular among developers and more services are being built on it. For example, cryptocurrencies run on the blockchain and smart contracts with which Decentralized Applications (Dapps) can be built. This may lead to problems in the future. These are problems of scalability, decentralization or security. If a blockchain can meet 2 of the 3 criteria well, then the blockchain has a problem with the third criterion. This is also known as the blockchain trilemma.
The blockchain trilemma
The blockchain trilemma refers to the problem that every blockchain in some form run into. The blockchain can (technically) only meet 2 of the 3 criteria. The 3 criteria are scalability, decentralization and security.
Is the blockchain decentralized and scalable? Then the blockchain often has a problem with security. Is the blockchain scalable and secure? Then the blockchain often has a problem with decentralization. Is the blockchain secure and decentralized? Then the blockchain often has a problem with scalability. What criteria a blockchain meets is up to the blockchain itself and what the developers place more value on.
Why is the blockchain trilemma actually a problem?
The main reason why the blockchain trilemma is a big problem is because it can get in the way of blockchain adoption. If a blockchain is not secure, then many companies, individuals and investors would not want to use the blockchain. They would then prefer a centralized ICT system. A blockchain that is not scalable can cause the system to become congested and difficult to use Dappas. In addition, a blockchain that is not scalable causes high transaction costs and slow processing time.
The three criteria
Scalability
Scalability is the ability of the blockchain to scale up as the number of transactions increases. Like centralized ICT systems, the blockchain can also become congested if too many transactions flow through the blockchain. If the blockchain is clogged, then the blockchain is not scalable. This is also known as the scalability problem.
The blockchain can only handle a certain number of transactions. If more transactions need to be processed, then the blockchain cannot handle it. This leads to network congestion. With network congestion, the number of transactions far exceeds the number of transactions the blockchain can process. As a result, users have to wait a long time for their transactions to be processed and transaction costs skyrocket.
The Bitcoin and Ethereum blockchain are textbook examples of scalability problems. Bitcoin's blockchain can only process about 7 to 8 transactions per second. Ethereum can handle about 14 per second. Since the Bitcoin blockchain and Ethereum blockchain sometimes need to process thousands of transactions, scalability is a major problem.
Why can't a decentralized and secure blockchain be scalable?
This is a question I have often wondered. Conceptually, the answer is easy to follow. The decentralized blockchain consists of an incredibly large network with thousands of nodes. Securing a large network requires advanced techniques. I think you can imagine that it is not easy to secure a network with millions of nodes and monitor them for security. This takes a lot of time and comes at the expense of scalability.
Bitcoin and Ethereum have decentralization and security as priorities. But this does lead to lower scalability.
Decentralization
A decentralized blockchain has a network with many nodes (these are computers that are linked together and together make up the blockchain network). This is because it must be easy to participate in the network. Anyone can set up a node and participate in the blockchain network. No one needs to give permission to do so.
There are also blockchains that are not public and decentralized. The developers have decided to shield the blockchain. If new nodes want to join, a central party has to allow it. These are often the developers of the blockchain itself. As a result, the blockchain consists of a small number of nodes. This can work well for organizations that do not want outsiders to join.
Why can't a scalable and secure blockchain be decentralized?
If developers choose scalability and security, then the network cannot be too large. A small network ensures that all nodes can guarantee security and scalability.
Bitcoin for example - was developed to give more power to the user. A blockchain that is not decentralized therefore deviates from the core principle that the blockchain should be decentralized. Some also argue that a blockchain that is not decentralized is not a blockchain, but a centralized system that we already know.
Safety
In terms of security, blockchain is one of the most secure technologies in the world. Yet, I see on a daily basis that the blockchain network is vulnerable to outside attacks or hacks. The network of a blockchain, if decentralized, consists of a large number of nodes. These nodes must take care of processing transactions.
Since no one is in control of the network, it can be very difficult to control and direct a large network. Therefore, blockchains use consensus mechanisms. Such a mechanism ensures that the nodes in the blockchain network work according to the rules.
Why can't a decentralized and scalable blockchain be secure?
A blockchain that is decentralized and scalable often has security issues. Because the network is so large and anyone can join, security is harder to maintain. A consensus mechanism that works quickly can still be less secure. It can then happen that fraudulent transactions are approved. Everything happens so fast that the large network simply cannot detect these types of fraudulent transactions. In a smaller network, however, security can be better ensured.
How to solve the trilemma?
The trilemma can certainly be solved. Blockchain technology is still in its infancy. It is not yet as developed as, say, the Internet. The Internet also started with many problems and not everyone saw anything in it either. Blockchain has to go through the same phase.
In addition, there needs to be more research to solve the problems. There are more and more people who are looking into blockchain and doing research for it. This knowledge can lead to innovative solutions being developed.
There are projects that are working to solve this trilemma. We see that not all blockchains have this under control. Blockchains are constantly evolving so the trilemma can certainly be remedied in the future. These solutions can take place directly on the blockchain or via layer 2 scaling solutions where scalability is improved by adding an 'extra layer' to the blockchain.
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