The Important Bits
Blockchains must maintain the elements of decentralization, security, and scalability. Improving one of these areas often results in sacrificing another. Creating this balance has been a challenge for developers for as long as blockchain technology has existed, and is often referred to as the blockchain trilemma.
What is the blockchain trilemma?
The blockchain trilemma, a term whose coinage has been credited to Ethereum co-founder Vitalik Buterin, describes the difficulties that developers face when creating a blockchain architecture that is secure and scalable while remaining decentralized.
Look at the Bitcoin blockchain, for example. Bitcoin’s network is the most secure in the world, with a hash rate over 460 Exahash per second. No known computer in the world could crack Bitcoin’s proof-of-work encryption. And with thousands of independent node operators all over the world, the network remains decentralized and therefore harder to attack.
But when it comes to transactions, the base layer of Bitcoin is hardly scalable. The network can only handle about 7 transactions per second (TPS). Any method of increasing the TPS rate would lead to decreases in either security or decentralization, or both. To one extent or another, all blockchains face a similar scenario: they excel in some areas while falling short in others.
Understanding the three pillars of blockchain
To understand the blockchain trilemma, we must first become familiar with the fundamental pillars of blockchain technology, which include 1) security, 2) scalability, and 3) decentralization.
Security
Security is of the utmost importance when it comes to blockchain. Decentralization makes blockchains secure by making them harder to attack. One of the most common ways to attack a blockchain network is through what’s known as a 51% attack. As important as security is, it remains entangled with the other two aspects of the trilemma of blockchain: scalability and decentralization.
Scalability
Scalability refers to a blockchain’s ability to handle a high volume of transactions at scale without impacting speed, efficiency, or fees. Just as increasing a blockchain’s security can reduce its scalability, increasing scalability can reduce security and decentralization.
Decentralization
Being decentralized is what makes a blockchain different than other methods of storing data or facilitating transactions. Decentralization can make a network more secure by eliminating any single attack vector or point of failure. However, it also brings new challenges, such as achieving consensus on the record of data.
Current solutions and innovations
There have been many proposed solutions for dealing with the crypto trilemma posed by balancing security, scalability, and decentralization. Most of these attempt to fix the problem by implementing changes at either the layer-1 level (aka base layer) or by utilizing tools on top of the base layer, known as layer-2.
Layer-1 solutions
– Consensus protocol improvements
– Sharding
Layer-2 solutions
– Nested blockchains
