Here’s why the triad of security, scalability and decentralization is so hard to achieve.
One of the problems that the blockchain industry has been facing for a long time is the blockchain trilemma. The blockchain trilemma (also called the scalability trilemma) is the belief that decentralized platforms can only accomplish two out of the following three goals—security, scalability and decentralization—at a time.
The term was first coined by Ethereum founder Vitalik Buterin. He said that when developers are creating blockchains, they end up sacrificing one of the three goals to achieve the other two. This trilemma is so deeply entrenched into blockchain technology that even the top two cryptocurrencies by market capitalization, Bitcoin and Ethereum, have not been able to achieve all three goals. Let’s make sense of the blockchain trilemma by breaking down each of the three goals, the challenges they present and how the blockchain community is tackling them.
The three goals blockchains need to achieve
The main idea behind cryptocurrency was to facilitate transactions without a central authority, that is, to have a decentralized network. In the interest of decentralization, that information on public blockchains is stored on a wide network of nodes (computers of those using the blockchain) across different locations. This means that anyone can read and write on the blockchain. The presence of a large number of nodes makes it nearly impossible to attack a public blockchain since transactions can be traced back to individual nodes.
However, the presence of a lot of nodes (and consequently, a high number of users) also slows down the number of transactions per second processed on the blockchain.
The slow speed of the public blockchain leads us to the second goal, scalability. To become more useful and practical on a large scale, blockchains need to be capable of processing a myriad of transactions quickly without charging a steep fee for them. Yet, public blockchains are not very scalable as of yet due to low transaction speed.
Blockchains need to be highly secure to ensure that those putting their savings into crypto investments don’t lose them to hacks or malicious attacks. While public blockchains, like Bitcoin and Ethereum (which will be switching to proof-of-stake mechanism soon), are “near impossible” to hack, their strength only lies in the number of miners on the blockchain. This is because these blockchains use the proof-of-work (PoW) consensus mechanism. Using a PoW system puts blockchains at the risk of a 51% attack, which is a situation where fraudulent attacks can be initiated by a group of miners who control more than 50% of the mining power. This situation occurred thrice on the Ethereum Classic Network in August 2020. Another issue with the PoW mechanism is that it consumes a lot of energy and has been shunned for its environmental impact.
To put it simply, it is toilsome to attain these three goals simultaneously because achieving one puts you in a position where you miss out on the other. If you are decentralized, then it becomes harder to be scalable. If you are private and scalable, you are not transparent. If you are transparent and have a lot of miners, you are secure, but this security comes at the cost of consuming a lot of energy in the mining process and slow transaction speeds. However, if you don’t have a lot of miners, then you aren’t secure anymore and run the risk of being attacked.
So, can these goals be achieved?
Ethereum’s proof-of-stake model
A lot of effort is being put into figuring out how these various goals can be balanced out. One of the biggest steps being taken in this direction is by Ethereum. As of June 8, 2022, the Ethereum network has successfully tested the proof-of-stake (PoS) consensus mechanism. Under the PoS system, miners (or validators) cannot mine more than a certain amount of coins, with their mining capacity being directly affected by how many coins they have staked (staked coins are blocked from withdrawal for a period of time).
PoS is less resource-intensive than PoW and is also safe from 51% attacks. This system also provides for side chains, which are Ethereum-powered blockchains that carry some of the load of the main Ethereum blockchain. This reduces network congestion and thereby improves the scalability of the blockchain.
Algorand’s pure proof-of-stake (PPos) model
Another project hoping to achieve all three of these goals is Algorand (ALGO). Algorand is a decentralized blockchain that uses the PPoS consensus mechanism. Here, no one is rewarded for mining, and instead, users earn simply for holding on to their ALGO coins. The Algorand blockchain uses the Byzantine agreement system, where a group of people agree on a decision even if some of them might be untrustworthy. Their assumption is that most people using the blockchain are honest. The assumption works because everyone earns by holding ALGOs and if they choose to make a wrong move, the value of their own holdings would also come crashing down. Algorand can process 1,000 transactions per second (to put this into perspective, Bitcoin
can only handle five transactions per second).
Both of these do come with the promise of solving the blockchain trilemma. Of these, Ethereum’s PoS is yet to be fully launched. Hence, it is impossible to tell whether it would actually live up to its goals. Coming to Algorand, the cryptocurrency has a price of US$0.4129 as of June 9, 2022. While it has indeed provided a unique solution to the blockchain trilemma and climbed up to the 29th rank, it is yet to tell whether it will be able to garner the support needed to become a mainstream cryptocurrency.
- Institutional Adoption of Crypto: The ultimate problem
- Blockchain’s Public Access: Boon or Bane?
- The Proof Systems of Cryptos
- Understanding 51% Attacks On Blockchains
Header image courtesy of the writer and pngtree