What is the blockchain trilemma?

The number of transactions processed per second on a blockchain is limited. For example, the Bitcoin network can handle about seven transactions per second. After blockchain technology becomes widely adopted, data processing capacity and speed will be greatly improved, and increasing the number of users will not slow down the network or cause high fees. However, the fundamental design principles of many decentralized networks tend to focus on enhancing scalability, often at the expense of decentralization or security. This is known as the “Blockchain Trilemma.” Developers are experimenting with different consensus mechanisms, as well as scalability solutions like sharding, sidechains, and state channels, in hopes of solving this problem.

Introduction

In short, blockchain is a distributed digital database. Data blocks are organized in chronological order. Each block is linked through cryptographic proofs and secured. This technology is being implemented across various industries and is changing the way we work and live.

The concept is that, once a secure decentralized blockchain is established, people can maintain the operation of the world without relying on third-party networks or markets. However, experts generally agree that for this technology to be widely adopted, a core issue must be addressed first—the much-discussed “Blockchain Trilemma.”

Vitalik Buterin, co-founder of Ethereum, made this term widely known. To understand this concept, one must first know the three key elements of blockchain: decentralization, security, and scalability. The “Blockchain Trilemma” refers to the difficulty of achieving optimal levels of all three simultaneously. Enhancing one attribute often results in weakening another.

This article will explore the three key elements of the trilemma in detail. Analyzing each element and their interrelationships will deepen our understanding of how and why the blockchain trilemma exists. The article will also highlight several solutions proposed by developers.

What is decentralization?

By design, Bitcoin and other similar blockchain networks are decentralized. The overall architecture of such networks is not managed by individuals or a single organization but is decentralized. The network layer is open to all participants. Therefore, control is fully distributed, not held by a single entity. Everyone has access to the same data. If someone attempts to tamper with records or cheat the system, other participants can reject the false data.

This operation is technically complex. Taking Bitcoin as an example, it involves no third-party control. Comparing this to reliance on banks in the financial system: banks enhance trust between transaction parties and ensure proper record-keeping. In contrast, Bitcoin’s blockchain shares data openly among all network participants to verify and confirm data before it is added to the digital database. This results in a system that operates without third-party intervention.

Decentralization makes Web3 possible. Currently, the internet is in the Web2 stage. Web2 websites and applications are controlled by large companies, but content is created by users. Web3 is the next development trend. In the Web3 internet, people use decentralized blockchain technology to control their data and online lives independently.

However, it is important to note that these distributed systems require many participants to agree on the validity of all data, which involves sharing and processing information. This can slow down transaction times. Therefore, blockchain needs to be scalable—that is, capable of processing more data at faster speeds. We will discuss scalability further in the section on scalability.

Additionally, to achieve decentralization, the security of the underlying blockchain must be ensured first. Without security, malicious actors could exploit vulnerabilities and tamper with data freely. This leads to the second part of the trilemma: security.

What is blockchain security?

Without security, even a highly decentralized blockchain is meaningless. A robust blockchain network must resist attacks from malicious entities. Centralized systems are closed and can guarantee security. Control is maintained by a central authority that ensures data integrity. But in a decentralized system where everyone can participate, how is security achieved?

This is a complex topic. Let’s revisit Bitcoin as an example of decentralized blockchain security. Bitcoin’s blockchain combines cryptography with a network consensus mechanism called “Proof of Work” (PoW). From a cryptographic perspective, each block has a digital signature, or “hash value.” Any modification changes the hash value, so each data block is linked in an immutable way. Any attempt to alter data is quickly detected by the rest of the network.

The Proof of Work consensus mechanism also plays a role in ensuring the security of the cryptocurrency ledger. Understanding PoW in detail can be complex, but for this article, it suffices to remember that network members can verify new transactions and add them to the ledger through “mining” activities. This involves using computational power to solve mathematical problems, requiring computers to perform numerous hash calculations. While PoW is secure, it is relatively slow, which introduces scalability issues.

Note that the more participants (nodes) in the network, the more secure it is. A higher number of participants makes it harder for malicious actors to control the system. This relates to the so-called “51% attack,” where if a single entity (or a group of malicious actors) controls over 50% of the network’s hash rate, they can override consensus and tamper with data, such as double-spending tokens.

In summary, security is the foundation of blockchain success. Without security, attackers could take control at will, rendering the blockchain worthless.

What is scalability?

Scalability refers to the goal of building blockchain systems capable of increasing transactions per second. To serve a broader society or billions of users, scalability is essential. However, this is a major challenge many blockchains still struggle with.

The reason lies in the fact that decentralization and security are fundamental issues of blockchain, and thus always receive priority. Decentralization is at the core of blockchain philosophy and goals. Most well-known blockchains adhere to this principle. As mentioned earlier, security is a core requirement for blockchain success and value.

However, prioritizing decentralization and security makes scalability difficult. A single chain’s transaction capacity is severely limited. For example, centralized payment systems like Visa claim to process 24,000 transactions per second because their networks are closed and not affected by public nodes or consensus mechanisms. Let’s compare various well-known blockchains.

According to Bloomberg’s 2022 report: “As of September, Bitcoin struggles to process more than 7 transactions per second, while the second most popular Ethereum network is limited to about 15 transactions per second. Compared to traditional payment platforms, this is painfully slow.”

As previously mentioned, the limited transaction speed of these blockchains is due to the way participants process information in decentralized networks and the nature of the PoW consensus mechanism. As more people start using blockchain technology, the network’s transaction capacity will be strained, leading to congestion.

Why does the blockchain trilemma exist?

The most obvious solution to the above problem is to reduce the number of participants involved in confirming and adding data to the network, thereby expanding the network and increasing speed. However, this reduces decentralization, concentrating control in the hands of fewer participants. Fewer participants mean higher risk of attacks and weaker security.

Thus, the trilemma is formed: in the basic design of blockchain operation, decentralization and security are closely linked, making scalability difficult to achieve. The three are in a state of mutual trade-off. How can we advance scalability without sacrificing decentralization or security—or both?

Solutions to the blockchain trilemma

There is no universal solution to the trilemma. Given the importance of resolving this issue, the community has proposed various approaches, some of which have shown promising results. Let’s overview some of the popular developments to understand the latest progress in this field.

1. Sharding

Sharding involves splitting a blockchain or other types of databases into smaller partitions, called “shards,” each managing a specific segment of data. This setup reduces the load on a single chain that handles all network transactions and interactions. Each shard has its own ledger and can process transactions independently. The interaction between shards is managed by a beacon chain or main chain. This approach modifies the main blockchain network and is considered an upgrade to Layer 1 scalability.

2. Various consensus mechanisms

One major reason for the trilemma in Bitcoin is the PoW mechanism that ensures security. Achieving system security requires miners, cryptographic algorithms, and vast decentralized computing power, which results in slow processing. Exploring alternative methods to achieve consensus is another way to address the trilemma. This is why Ethereum shifted from PoW to Proof of Stake (PoS).

In PoS blockchains, participants must stake (lock) their tokens to validate transactions, without needing specialized mining hardware. Adding more validators is easier and more convenient. PoS is just one of many approaches to improve scalability.

3. Layer-2 solutions

Sharding and various consensus mechanisms are considered Layer-1 solutions, aiming to change the fundamental design of the underlying network. However, other developers are exploring solutions built on existing network structures to address the trilemma. In other words, they believe the solution lies in Layer 2 networks, such as sidechains and state channels.

Sidechains are independent blockchains connected to the main chain, allowing assets to move freely between the two. They can operate under different rules, enabling speed and scalability improvements. Similarly, state channels move transactions off the main chain, alleviating Layer 1. State channels do not use separate chains but employ smart contracts to enable users to interact without publishing transactions on the blockchain. The blockchain only records the start and end of the channel.

Summary

The blockchain trilemma hampers the potential of blockchain technology to drive transformative change. If blockchain networks can only process a limited number of transactions per second to maintain decentralization and security, large-scale adoption will be difficult. However, based on the latest solutions proposed by developers, continuous technological advancements are essential. Only through persistent progress can blockchain networks achieve breakthroughs in data processing capacity in the future. ()(