Three Options; Two Choices — The Blockchain Trilemma

A blockchain is a decentralized ledger technology, meaning the distributed database structure makes it highly secure and tamper-proof. It also enables users to produce verifiable and unalterable records of events without needing a middleman or the centralized server in web2. With its wide range of applications, blockchain technology has the potential to revolutionize almost every industry. From banking and finance to healthcare and agriculture, blockchain’s potential benefits are endless. However, as with any emerging technology, several challenges must be addressed before widespread adoption can occur. Among these issues are scalability, security, and decentralization — the Blockchain Trilemma.

The blockchain trilemma refers to the technical tradeoffs that are often considered while creating a blockchain network; the overarching issue being that of the three points of concern, only two can be the most prioritized due to the current state of the technology. Scalability refers to the ability of a system to handle increased demand as more people use it. Decentralization is the absence of a central authority controlling or directing the system’s activities. A decentralized system allows users to manage their data and participate in network decision-making. The security of a blockchain is determined by

As the size of the blockchain network grows, so does the amount of data stored on it. This can lead to increased costs and slower speeds for participants on the network. Scalability is the ability to handle this volume or usage increase and process more transactions per second as new users join the network. This is critical for blockchain networks because it allows them to grow without being bogged down by high transaction fees and long wait times.

Several methods can be used to increase the scalability of a blockchain network. One way that can be used is through sharding. Sharding splits transactions into smaller pieces and processes them separately. This allows for faster processing, reduces the risk of mistakes or fraud, and reduces the number of transactions that need to be processed at any given time. Another approach that can be used is through sidechains. Sidechains are similar to blockchains, but they run on a separate network from the main one and can achieve higher levels of scalability than blockchains simply due to their larger size and faster processing speeds. Lastly, increasing the blocks’ size allows less data to be copied across the chain when transactions are made. This helps to improve scalability because it reduces the amount of data that needs to be stored on the system and improves overall performance.

One of the main challenges that blockchain technology is currently facing is scalability. With the Bitcoin network, for example, it can take hours or even days for a payment to be confirmed. For businesses that need to make large-scale payments, this can be problematic — and expensive, resulting in persisting reliance on traditional financial rails until blockchain speed can match in efficiency.

Decentralization is the ability of a system to function without a central controller, removing a single point of failure in the network. Any electronic device that maintains copies of the chain and keeps the network functioning may function as a blockchain node. Every node maintains a copy of the blockchain, and the chain must be updated via an algorithmic procedure anytime a new block is mined. Since blockchains are open, every transaction is publicly visible, making them inherently secure. A system that uses majority voting to determine which transactions should be allowed through the network. This type of consensus can be achieved through several different mechanisms, from Proof-of-Work (PoW) to Proof-of-Stake (PoS). While PoS is more energy efficient than PoW, it also requires more trust to function correctly. In cases where there aren’t enough participants in the network to reach a consensus, PoW will be used instead. However, decentralization comes at a price. It is much harder to create a completely decentralized system than a centralized one, as every part of it needs to be trusted by all parties. And if any one node fails, the whole system could be compromised.

Centralization has advantages, such as more efficient management, transparency, and control over how funds are spent. However, there are also disadvantages, such as increased costs and security risks. Decentralization allows users to take back ownership by enabling them to hold financial assets independently in a decentralized manner. This improves security because it reduces reliance on centralized third-party services for storing financial assets and increases privacy due to the removal of middlemen from transactions.

Any decentralized system allows for multiple participants to access and use resources independently of one another. These participants are called nodes, and each node holds its own copy of the data, meaning no single node can control the blockchain. This gives blockchain networks great security benefits, as they tend to be more resistant to tampering and attacks than centralized systems. All nodes have an equal amount of responsibility when it comes to maintaining the system’s integrity, so there is never any risk of collusion or corruption within the network. There are a few ways hackers attempt to exploit blockchains; routing attacks, Sybil attacks, and a 51% attack.

Blockchains are susceptible to routing attacks, in which large quantities of data are intercepted as they’re being sent to internet service providers. Blockchain participants are usually unaware of this threat until the hack has concluded, appearing fine on the surface. Behind the scenes, however, hackers have been able to steal sensitive information or money. A Sybil attack is a type of network attack that involves creating and using many false network identities to flood the network and crash the system. This is one of the most common distributed denial-of-service (DDoS) attacks. The main goal of a Sybil attack is to overload a target’s bandwidth, causing it to become unstable and unavailable to legitimate users. A 51% attack on a blockchain network is an attempt to control more than half of the mining power of a blockchain network. This type of attack can be carried out by a group of miners who have enough computing power, the mining power necessary to mine blocks with an even amount of hashing power, and it needs to be able to maintain this level of mining power over time.

The resolution to improving blockchain functionality is less so concerning achieving the ideal balance between the three factors of the trilemma and more so superseding the processing speed of web2 payment rails. Easier said than done; obviously, a network cannot simply scale to 20,000 tps and entirely disregard security but instead find the optimal balance between the three. The team at Polygon is throwing a lot of powerful technology at the wall to see which solution will solve the trilemma most effectively. As an L2, their robust PoS acts as one of the leading networks solving for transaction efficiency with high speeds and low fees, secured by the Plasma bridging framework and decentralized validators. They also recently announced their zkEVM, which allows companies to deploy their smart contracts without the developmental undertaking required in optimistic rollups, which require heavy modification of the code and long wait times for transaction validation. Lastly, Polygon released their Supernets platform that scales their Polygon Edge product, enabling developers to release a dedicated blockchain particular to their use case while benefiting from the transaction processing speed and scalability of the polygon network, and secured by MATIC validators if the Edge users choose to use the Matic Proof-of-Stake consensus mechanism. All in all, Polygon has dedicated tremendous resources to offer solutions to developers with the idea of maximizing scalability and security, and as more side chains emerge will also entrench a more decentralized ecosystem.

New to trading? Try crypto trading bots or copy trading