The Blockchain Trilemma Unveiled: Security, Scalability, and Decentralisation

The Blockchain Trilemma puts forward a widely accepted notion that decentralised networks can typically deliver only two out of decentralisation, security, and scalability. This article explores this trilemma and how continuous advancements within the decentralised ecosystem have spawned a multitude of solutions to his long-standing challenge.

What is a Blockchain?

A blockchain is a decentralised ledger system whose name reflects its method of processing and preserving data. When transaction data accumulates to a certain size, it merges into a "block." The "chain" aspect of a blockchain refers to a sequence of interconnected blocks, forming an everlasting and unalterable ledger that records all committed data.

To authenticate a data block, a network of nodes, typically comprising computers and servers, must collectively reach consensus nearly simultaneously through various "consensus mechanisms." These mechanisms assume diverse forms, depending on the blockchain's creators' and custodians' priorities, and they usually play a central role in shaping how a blockchain and its users address the challenges posed by the blockchain trilemma.

Blockchain Trilemma Unveiled

The blockchain trilemma, a concept introduced by Vitalik Buterin, outlines three primary challenges – decentralisation, security, and scalability – faced by developers in the process of constructing blockchains.

These three elements are intricately connected, such that bolstering one frequently leads to the weakening of another. This creates a substantial dilemma for developers who often have to compromise on one aspect to enhance the other two.

Despite some optimistic outlooks, the industry remains divided in its consensus, with some asserting that achieving all three aspects concurrently is an exceedingly formidable undertaking, especially in the future.

Blockchain Decentralization
One of the key promises of blockchain technology revolves around decentralisation, achieved when participants collectively validate transaction data and safeguard the network's integrity. The degree of decentralisation within a blockchain is predominantly determined by its consensus mechanism. Various consensus mechanisms exist; some blockchains inherently exhibit greater decentralisation than others. Decentralisation is also influenced by how a blockchain is upgraded and maintained and whether it operates as a public or private chain.

In certain cases, blockchain upgrades are community-driven, as exemplified by Bitcoin, and consequently, these networks tend to be highly decentralised. Conversely, platforms like Ethereum emphasise community input, resulting in a relatively high degree of decentralisation. Corporations predominantly control blockchains such as Solana and Mythos and consequently exhibit lower levels of decentralisation.

Blockchain decentralisation also hinges on whether the chain is public or private. Public blockchains like Bitcoin and Ethereum provide open access to their data, fostering a broad ecosystem of applications and products. Besides, public blockchains are typically entirely open source, permitting anyone to replicate and engage with the source code. This open nature facilitates rapid innovations, as seen with Polygon's launch based on Ethereum's code.

In contrast, some blockchains like Hyperledger Fabric and Aleo are designed as private networks, where access to information is controlled by a specific entity, often a company or community. This privacy, however, makes it challenging to comprehend on-chain activities and assess the ecosystem's overall health, resulting in lower decentralisation than public networks’.

Decentralisation plays a pivotal role in the blockchain trilemma, impacting the security and scalability of the blockchain. Blockchains requiring unanimous consensus, such as Bitcoin, face limitations on transaction throughput, driving up participation costs. Conversely, blockchains employing less decentralised consensus mechanisms, like proof-of-authority, run the risk of compromising security, as fewer targets need to be compromised to undermine network integrity.

To prevent a "51% attack," where malicious actors can seize control of a network by obtaining a majority of validation nodes, decentralised blockchains need a multitude of validators. Such attacks are theoretically possible but exceedingly rare and challenging to execute. Networks typically implement safeguards or validators that respond during the attackers' buildup to the required majority threshold to protect data integrity.

Blockchain Scalability
The ability of a blockchain to accurately, affordably, and promptly process transactions is referred to as scalability, which assesses the blockchain's capacity to handle and process demand efficiently.

Many blockchains use gas fees both to incentivize validators and to manage demand during periods of high network usage. Similar to how people cut back on driving when gasoline prices surge, blockchain users reduce their transaction activities when confronted with elevated gas fees. These fees are typically determined by an algorithm that considers the influx of transaction data and presents it to prospective users. Blockchains that frequently necessitate high gas fees encounter scalability challenges when expecting widespread adoption.

As demand on the network increases, transaction processing can slow down, with the consensus algorithm prioritising participants offering higher gas fees. During periods of intense demand, this can cause transaction times to stretch from a few seconds to several minutes, potentially even temporarily halting the blockchain's operational capacity.

When users have trouble waiting for their transactions to go through, they might abandon the blockchain entirely, turning to alternative networks or different methods to complete their desired transactions. For blockchain communities aspiring to attract and retain users, ensuring ample scalability to meet regular demand on the network is imperative.

To achieve scalability, blockchains opt to relax validation requirements, which could involve adopting simpler or less computationally intensive consensus mechanisms. However, this comes with the trade-off of potentially diminishing network security. They might also seek to reduce the number of validators needed to process blocks, potentially compromising decentralisation in the pursuit of improved scalability.

Blockchain Security
Blockchains leverage advanced cryptographic techniques to process and securely store transaction data, rendering them a reliable choice for a wide array of applications. However, maintaining an impeccable security reputation often clashes with the goals of decentralisation and overall security.

The paramount security objective for blockchains is to thwart malicious entities from validating inaccurate transaction data that could harm other users on the network. To achieve this, they use a combination of technological measures and incentive structures to mitigate these risks. Proof-of-work blockchains, for instance, require computers to solve extremely complex mathematical problems, a task demanding expensive hardware. On the other hand, proof-of-stake blockchains use penalties, such as confiscating staked tokens, to discourage bad actors from validating erroneous data.

Generally, a higher degree of decentralisation contributes to enhanced security since there would theoretically be many targets, making it challenging for malicious actors to manipulate the network. However, this also opens the door to collusion among participants, potentially allowing them to manipulate the network if there isn't a failsafe mechanism implemented by the blockchain's creators or a community segment to rectify false transaction data. Unfortunately, this approach is less decentralised.

Conversely, stricter security requirements tend to hamper scalability. In proof-of-work blockchains, the resource-intensive computations required for block processing significantly increase costs and reduce network throughput, making participation more cumbersome and costly overall.

How the Trilemma Impacts Blockchain Technology

The influence of the trilemma on blockchain technology is evident through several examples:

• Bitcoin: Bitcoin stands as a prime example of a highly decentralised blockchain network using proof-of-work consensus, which ensures robust security but at the cost of limited scalability.
• Ethereum: Ethereum, known for its smart contract capabilities, found its scalability constrained by its initial consensus mechanism, proof-of-work. This limit ushered in the introduction of Ethereum 2.0, executing the more scalable proof-of-stake consensus mechanism to address this issue.
• Ripple: Ripple, tailored for financial institutions, facilitates quick cross-border payments. Nevertheless, its network leans more toward centralisation than other blockchain networks, rendering it more susceptible to attacks and sparking concerns regarding its long-term viability.

The trilemma exerts a multifaceted impact on blockchain technology, necessitating a delicate balance between decentralisation, security, and scalability—an ongoing challenge for blockchain developers and engineers.

Solving the Blockchain Trilemma

While there isn't a one-size-fits-all solution to the blockchain trilemma, the community has been actively exploring various approaches to tackle this challenge. Here's an overview of some prominent developments in the field, shedding light on the ongoing innovations:

Blockchain Trilemma Layer 1 Solutions In the realm of decentralisation, Layer 1 encompasses blockchain protocols like Bitcoin, Litecoin, and Ethereum. Several methods are under development or in practice to directly enhance the scalability of these networks.

• Consensus Protocol Improvements: Currently, popular blockchains like Bitcoin rely on the Proof of Work (PoW) consensus protocol, known for its security but often criticised for its slowness (e.g., Bitcoin's limited seven transactions per second). Ethereum's transition to Ethereum 2.0 is a notable example, where they are moving towards the Proof of Stake (PoS) consensus mechanism. PoS selects validators based on their stake in the network, substantially increasing Ethereum's capacity while reinforcing decentralisation and security.
• Sharding: Borrowed from distributed databases, sharding has emerged as a favoured Layer-1 scaling solution, though it remains somewhat experimental in the blockchain sphere. Sharding divides transactions into smaller units called "shards," which are processed concurrently by the network. Instead of each node storing a complete blockchain history, sharding allows different nodes to hold and manage specific shards. These shards interact with one another and the mainchain, providing scalability enhancements. Ethereum 2.0, Zilliqa, Tezos, and Qtum are prominent blockchain protocols exploring shard-based architectures.

Blockchain Trilemma Layer 2 Solutions
Layer 2 in blockchain denotes technologies or networks built atop the underlying blockchain protocol to enhance scalability and efficiency. For example, Bitcoin operates as a Layer-1 protocol, while the Lightning Network serves as a Layer-2 solution to improve transaction speeds on the Bitcoin network. Layer-2 protocols have grown significantly and may offer practical solutions for scalability challenges, especially in PoW networks.

• Nested Blockchains: Nested blockchains create a decentralised network structure using a primary blockchain to set network parameters while task execution occurs on interconnected secondary chains. These secondary chains are connected to the primary chain through parent-child relationships. Work is delegated from the parent chain to child chains, processing and returning results. The primary chain remains inactive unless dispute resolution is required. An example of this Layer-2 nested blockchain approach is the OMG Plasma project, enhancing scalability on the Ethereum Layer-1.
• State Channels: State channels enable bidirectional communication between a blockchain and off-chain transaction channels, improving transaction throughput and speed. These channels do not require immediate miner involvement for validation, as they operate as off-chain resources secured through multi-signature or smart contract mechanisms. Once a transaction or a batch is completed within a state channel, the final state and all associated transitions are recorded on the underlying blockchain. The Liquid Network, Celer, Bitcoin Lightning, and Ethereum's Raiden Network are instances of state channel implementations, although they involve some decentralisation trade-offs for greater scalability.
• Sidechains: Sidechains are blockchain-adjacent chains primarily used for bulk transactions. They employ independent consensus mechanisms optimised for speed and scalability. Utility tokens often facilitate data transfer between side and main chains. The mainchain's role remains focused on overall security and dispute resolution. Unlike state channels, sidechain transactions are publicly recorded on the ledger and do not compromise the mainchain's security in case of a breach. Establishing side chains requires substantial infrastructure development from the ground up.

Closing Thoughts

The scalability trilemma poses a significant hurdle to blockchain realising its full potential as a transformative technology. When blockchain networks are constrained to a limited number of transactions per second to uphold decentralisation and security, achieving mass adoption becomes a formidable challenge. Nonetheless, the proposed solutions from developers indicate that the technological progress within the blockchain realm is ongoing, offering promise that these networks will likely become more adept at handling larger volumes of data in the near future.