Blockchains were initially created to provide a space where the market could function without a regulator — a central authority determining the fate of the network. Bitcoin, Ethereum, and other cryptocurrencies have made finance more free, but with certain limitations.
To make the real system resemble the ideal model, developers must solve the blockchain trilemma.
This concept asserts that it is impossible to create a blockchain that simultaneously possesses three key properties: decentralization, scalability, and security.
Decentralization is the ability of a blockchain to function without central control, where each participant has equal rights and opportunities to participate in the network. This property ensures the system’s transparency and reliability.
Scalability is the ability of a blockchain to process a large number of transactions in a short period of time. It is crucial for maintaining the blockchain’s efficient operation as the number of users and transaction volume increases.
Security is the ability of a blockchain to protect participants’ data and assets from hacking, fraud, and other types of cyberattacks. Security is essential to build trust in the system and protect against the loss of funds and information.
The trilemma suggests that a blockchain can only possess two out of these three properties at any given time, but not all three simultaneously:
- If a blockchain achieves a high degree of scalability and security, it may lose decentralization, as the system centralized control might be required to support a large transaction volume.
- If a blockchain achieves a high degree of decentralization and security, it may lose scalability, as its might not handle a high transaction volume.
- If a blockchain achieves a high degree of scalability and decentralization, it may become insecure, as ensuring the security of a large, fragmented network would be extremely challenging.
The blockchain trilemma is not a strict law but a conceptual framework that helps understand the limitations of blockchain technology and make more informed decisions in its development and use of blockchain systems.
Solving this trilemma remains one of the main challenges in the blockchain industry. Developers continue to work on new technologies and solutions to achieve a balance between these three key properties of blockchain.
Why are blockchains so difficult to scale?
Blockchains face several challenges that make them difficult to scale:¶
Firstly, a blockchain operates on a decentralized network where all participants must have access to a full copy of the transaction ledger. Each new block is added to the chain of blocks, which are stored on all network nodes. As the number of transactions increases, the size of the blockchain will grow, making it difficult to store and transmit on all nodes.
Secondly, blockchains use complex consensus algorithms that ensure the security and reliability of the system. These algorithms can be complex and resource-intensive, especially as the number of network participants grows. This can lead to performance degradation and delays in transaction processing.
Thirdly, blockchain technology also faces the challenge of functional compatibility between different blockchains. This is because each blockchain may use its own consensus protocol, programming language, and data format, making it difficult to exchange information and assets between different blockchains.
Finally, blockchain technology is still in the stage of active development and has not stood up to mass adoption in real-world conditions, which is also a reason for its scalability challenges.
All these factors make blockchains difficult to scale and require constant work on improving consensus algorithms, enhance performance, increase functional compatibility, and refining blockchain protocols overall.
Simultaneously achieving success in all directions is problematic. For example:
- Proof-of-Work is secure but difficult to scale and slow due to the volume of cryptographic computations;
- Proof-of-Stake works quickly, but the risk of a 51% attack is much higher — it is enough to collect a large number of coins to compromise the network.
Both algorithms tend to centralize over time. Initially, bitcoins were mined on ordinary computers, but as the coin value increased, so did the hash rate and computational difficulty. Now users must connect warehouses of ASICs to mine effectively. To earn even a fraction of the block reward, miners combine their power into one node. Pool owners then have an advantage over other users and can influence the blockchain. It’s easier to take down a single pool with a hacker attack than to disable thousands of farms.
Currently, developers must choose a maximum of two out of the three directions for development. They create new consensus algorithms, optimize transaction verification, and incentivize solo mining to address these challenges.
Who is the Author of the Blockchain Trilemma?
The term “blockchain trilemma” was coined by Vitalik Buterin, the co-founder of the Ethereum blockchain platform, during his presentation at the Devcon One conference in November 2017.
The trilemma has become an important concept in the blockchain industry and serves as the basis for many discussions and developments in this area.
What Approaches are Used to Solve the Blockchain Trilemma?
There are several approaches to solving the blockchain trilemma, which can be divided into two categories.
Developing new protocols and algorithms that achieve a balance between decentralization, scalability, and security. Some examples of such protocols include sharding in Ethereum 2.0, the Lightning Network for Bitcoin, and Proof-of-Stake protocols in various blockchains.
Using hybrid models that combine elements of different approaches. Some blockchains use a combination of public and private networks to balance decentralization and scalability. Other systems use a combination of different consensus algorithms (such as Proof-of-Work and Proof-of-Stake) to balance scalability and security.
How is the Blockchain Trilemma Addressed?
Sharding is a technology that divides the blockchain into separate fragments (shards), each capable of processing its own transactions. This increases the blockchain’s throughput while maintaining decentralization and security.
Rollups are a technology that bundles numerous small transactions into a single large one and records only the total sum of all transactions and the hash of that sum on the main blockchain. This significantly boosts transaction processing speed and reduces the volume of stored data, all while preserving decentralization and security.
Proof-of-Stake — utilizing this consensus algorithm allows for processing of more transactions than Proof-of-Work.
Sidechains are auxiliary transactional chains that increase the number of transactions per second. They may use the same or a different consensus algorithm as the main network. Security breaches in a sidechain do not affect the operation of the main network.
Utilizing compromise protocols, such as the decentralization-performance tradeoff, allows for adjusting blockchain parameters based on specific needs and goals.
How do Rollups Address the Blockchain Trilemma?
Rollups consist of a network of smart contracts that combine numerous small transactions into one large transaction. Instead of recording each transaction on the blockchain, rollups record only the total sum of all transactions and the hash of that sum.
With rollups, transactions are processed off-chain, meaning outside the blockchain, which accelerates transaction processing speed. Additionally, since rollups only record the total sum of transactions and the hash of that sum on the main blockchain, it also significantly reduces the volume of stored data.
One of the most common types of rollups is Optimistic Rollup, which operates on the principle of “optimistic bride.” In this case, rollups record all transactions within their smart contract and only verify them when necessary (if a conflict arises). If all transactions are correct, they are confirmed and sent to the main blockchain. If a conflict arises, rollups use a special dispute resolution mechanism to find the correct solution.
Rollups can significantly increase the blockchain’s throughput and address the blockchain trilemma. However, they require additional development efforts and may be less decentralized than traditional blockchains.
How Does the Lightning Network Address the Blockchain Trilemma?
The Lightning Network (LN) is a second-layer solution for Bitcoin, designed to address scalability issues and improve network performance. LN uses multi-signature channels to conduct transactions off-chain, speeding up transaction processing time and reducing fees.
To understand how LN addresses the blockchain trilemma, each aspect of the trilemma needs to be examined separately.
Decentralization
LN maintains decentralization since all transactions still occur on the Bitcoin blockchain. Each channel between two participants in LN is decentralized, as it can be opened and closed at any time by the channel participants.
Scalability
LN allows Bitcoin to scale to thousands of transactions per second by executing transactions off-chain. This is achieved by creating multi-signature channels between participants, allowing multiple transactions within the channel without recording each on the blockchain. After the channel is closed, all transactions are recorded on the Bitcoin blockchain.
Security
LN uses multi-signature to ensure transaction security. Each channel has its own multi-signature address used for signing and executing transactions between participants. If a participant attempts a fraudulent transaction, the other participant can provide evidence of this and reclaim their funds.
The Lightning Network provides a faster, cheaper, and more scalable way to conduct transactions on the Bitcoin blockchain, making it more convenient to use.
Which Blockchain Solves the Blockchain Trilemma the Best?
There is no single blockchain that solves the blockchain trilemma the best because each blockchain adopts its own approach. Each approach has its own advantages and disadvantages. The best choice depends on the specific situation and requirements. For example, Binance Smart Chain might be a good choice for applications requiring fast transaction processing and low fees, while Ethereum might be suitable for applications needing higher security and decentralization.
How does Binance Smart Chain Solve the Blockchain Trilemma?
Binance Smart Chain (BSC) uses a hybrid consensus algorithm combining elements of Proof-of-Stake (PoS) and Proof-of-Authority (PoA).
PoS is used in BSC to select validators who confirm transactions and create new blocks in the chain. This approach helps reduce energy consumption and increases blockchain scalability.
PoA is used to manage conflicts between validators and ensure network security. In PoA, only pre-selected nodes, which are authoritative validators, participate. This approach achieves a high level of security and avoiding network conflict issues.
BSC also utilizes sharding, which increases network throughput and scalability.
How Does Solana Address the Blockchain Trilemma?
Solana’s core principle is the use of the Proof-of-History (PoH) consensus algorithm. PoH enables rapid and efficient event sequencing, simplifying network operations and enhancing performance.
To achieve high scalability, Solana employs the Tower BFT consensus algorithm, which combines the benefit of Proof-of-Stake and Practical Byzantine Fault Tolerance (PBFT) algorithms. Tower BFT accelerates transaction processing and enhances network reliability.
For security, Solana uses an embedded system (Seccomp), secure hardware storage devices (Hardware Security Modules), and mechanisms for transaction code verification and signing.
How Does Cardano Address the Blockchain Trilemma?
To achieve high scalability and performance, Cardano utilizes the Ouroboros consensus protocol. This protocol employs a Proof-of-Stake algorithm, enabling high transaction processing speeds and energy efficiency.
Simultaneously, Cardano employs a mechanism called “time slots,” which ensures the accuracy of transaction processing order and prevents potential attacks.
To tackle decentralization issues, Cardano utilizes mechanisms that enable network governance and decision-making (DAO). The Cardano community makes decisions regarding future protocol changes and platform development.
To ensure security and protection against attacks, Cardano employs a multi-layered security architecture mechanisms. This includes encryption mechanisms, transaction signing, data segmentation, and protection against DDoS attacks.
How Does Cosmos Address the Blockchain Trilemma?
Cosmos utilizes the Inter-Blockchain Communication (IBC) protocol, the Tendermint protocol, and the State Machine Replication (SMR) model.
IBC enables the creation of cross-chain applications that can interact with each other, exchange data, and share resources across different blockchains. This solves the scalability issue by distributing the workload across multiple blockchains.
Cosmos employs the Tendermint protocol, which incorporates Proof-of-Stake but without the long transaction confirmation wait times seen in Bitcoin and Ethereum. Tendermint allows for real-time transaction processing, addressing the performance problem.
To tackle the decentralization issue, Cosmos uses the SMR model, which enables network participants to make decisions regarding platform development and protocol changes.
How Does Polkadot Address the Blockchain Trilemma?
Polkadot employs multichain technology and the GRANDPA protocol.
Multichain enables the creation of applications that can interact with each other and exchange data between different blockchains. This solves the scalability problem by distributing the workload across multiple blockchains. Multichain achieves a high level of decentralization due to the presence of multiple independent blockchains operates within a unified network.
The GRANDPA protocol enables faster consensus compared to the Proof-of-Work (PoW) protocol, addressing the performance issue. Additionally, GRANDPA is a secure and efficient mechanism for achieving consensus through Proof-of-Stake.
To address the decentralization problem, Polkadot utilizes the Nominated Proof-of-Stake (NPoS) mechanism, allowing network participants to nominate other participants who will be involved in the decision-making process regarding platform development and protocol changes.
How Does Algorand Address the Blockchain Trilemma?
Algorand utilizes the Pure Proof-of-Stake (PPoS) protocol and the Block Compression Algorithm (Vault).
The PPoS protocol addresses the decentralization problem by allowing each network participant to participate in the decision-making process. This is achieved by using a random participant selection algorithm to generate blocks and make decisions. At each stage: block proposal, block selection, and checking the first two, validators are randomly chosen.
Vault reduces block size and increases transaction processing speed. Completed operation data is not stored in nodes, and transactions are valid for a limited time.
How Does NEAR Address the Blockchain Trilemma?
NEAR employs Nightshade sharding, the Thresholded Proof-of-Stake (TPoS) consensus algorithm, the second-layer solution Aurora, and the Rainbow Bridge bridge.
Nightshade allows breaking the blockchain into several independent parts called shards. Each shard processes a portion of transactions independently of other shards, thus increasing the network’s throughput and scalability.
Thresholded Proof-of-Stake operates as an auction for validators, where there is a minimum threshold for entry. The more coins a candidate is willing to stake, the higher the chance of becoming a validator. Validators are selected on average every 12 hours, after which the selection process repeats.
Rainbow Bridge enables asset transfers between the NEAR blockchain and Ethereum, solving the cross-chain interaction problem. Aurora allows asset transfers between blockchains and building decentralized applications on a platform compatible with Ethereum. This simplifies developers’ work, as they do not need to use new tools and solutions.
NEAR also utilizes a precomputation mechanism, reducing the time required to execute smart contracts and increasing network performance.
How Does Aptos Address the Blockchain Trilemma?
Aptos applies the Proof-of-Randomness (PoR) architecture and sharding.
The PoR architecture is based on the use of randomly generated numbers within the blockchain. These numbers are used for selecting validators and determining the transaction order in a block. Aptos platform utilizes a combination of randomly generated numbers within the blockchain and external random numbers, ensuring high network security and reliability.
Aptos also employs a unique approach to sharding, allowing for dynamic shards creation depending on the network load. This increases the network’s throughput and scalability without compromising security.
How Does Avalanche Address the Blockchain Trilemma?
Avalanche utilizes the Avalanche Consensus Protocol (AVAX), Multi-Asset Functionality systems, and decentralized applications to manage the network.
AVAX employs the “Optimistic Responsiveness” scheme to achieve consensus, enabling it to be highly performant and scalable.
Optimistic Responsiveness is a mechanism allowing network participants to swiftly decide on changes to the network’s state. It achieves this by employing numerous validator nodes that regularly vote on the correctness of blocks processed in each fragment. If the majority of validator nodes vote in favor of a block, it is deemed correct and added to the blockchain. This ensures rapid decision-making and network state updates.
Another crucial mechanism Avalanche uses to address the blockchain trilemma is the Multi-Asset Functionality system. With this system, network participants can exchange various assets, including cryptocurrencies, tokens, and other digital assets. This enhances scalability and improves network performance.
Furthermore, Avalanche employs decentralized applications to manage the network. This enables users to create their own dApps and utilize them on the Avalanche platform.
How Does Sui Address the Blockchain Trilemma?
Sui employs the Proof-of-Stake consensus algorithm with two types of transaction processing procedures.
The transaction processing procedure depends on the type of assets involved. Transactions involving coin transfers, voting, and NFT issuance are processed using the simplified Fast Pay procedure, based on the Byzantine Consistent Broadcast mechanism. Validators do not need to reach consensus; signatures from only 2/3 validators are required. This speeds up the processing process.
For transactions involving smart contracts, consensus among validators is required. The Sui Consensus Engine mechanism is used for this purpose. It consists of the Narwhal mempool, which is responsible for synchronizing and providing data availability to validators, and the Bullshark consensus protocol, which enables consensus to be reached without exchanging information among validators.
Transactions are executed in parallel, allowing Sui to achieve high throughput. It can process up to 120,000 transactions per second, whereas Ethereum processes 7-15 transactions per second.
How Does Mina Address the Blockchain Trilemma?
Mina utilizes the cryptographic solution zk-SNARKs and the Proof-of-Stake consensus algorithm.
Smart contracts called zkApps (Snapps) are based on zero-knowledge proofs (zk-SNARKs). They provide unlimited autonomous execution, privacy for inputting personal data that is never visible to the blockchain, and the ability to write smart contracts in TypeScript.
Mina employs the Proof-of-Stake consensus algorithm called Ouroboros Samisika, based on Cardano’s Ouroboros. Ouroboros Samisika requires significantly less computational power than the Proof-of-Work protocol.
How Does Harmony Address the Blockchain Trilemma?
Harmony utilizes the Effective Proof-of-Stake (EPoS) consensus algorithm and sharding.
EPoS is based on the Delegated Proof-of-Stake (DPoS) algorithm, where coin holders can participate in network operation by delegating their assets to validators.
Harmony employs the Fast Byzantine Fault Tolerance (FBFT) protocol. Thanks to FBFT, transactions are processed within shards, increasing transaction processing speed.
Harmony’s shards operate in parallel and have their own validator groups. They are randomly selected from the total number of validators once per consensus cycle (epoch). Shards synchronize at the end of each epoch, and the main Beacon Chain network records the number of blocks created and transmits data about changes to the shards.
How Does Fantom Address the Blockchain Trilemma?
Fantom employs Proof-of-Stake and the Lachesis aBFT consensus mechanism.
Under Lachesis, transaction processing occurs across different independent nodes, involving leader nodes, ensuring network operability even when one-third of nodes are faulty or malicious, with transaction confirmation taking place within 1-2 seconds. Validators do not broadcast blocks to each other but synchronize within the same epoch, exchanging transactions and events. Lachesis is fully compatible with the Ethereum Virtual Machine (EVM) and can be integrated with the Cosmos SDK, addressing the cross-chain interoperability issue.
Fantom uses Proof-of-Stake, and to mitigate the risk of Sybil attacks, it requires validator nodes to stake no less than 500,000 FTM.
Conclusion
The blockchain trilemma is the primary challenge facing cryptocurrencies, hindering the transition to Web 3.0. Until developers strike a balance between scalability, security, and decentralization, widespread token adoption remains unfeasible.