What is the Blockchain Scalability Trilemma?

Since Bitcoin’s birth in 2009, Blockchain technology has demonstrated its potential to transform the world, with new applications being developed on a daily basis. However, Blockchain technology is still in its infancy and must overcome numerous obstacles before it can be widely adopted. This prompted Vitalik Buterin to coin the phrase “Blockchain Trilemma” to better comprehend how these issues are interconnected by grouping them under one umbrella word.

With the introduction of Bitcoin, distributed data storage acquired a new use case and evolved into public decentralized ledgers, and the CAP theorem evolved into what is now known as the blockchain trilemma. The trilemma in the context of current blockchains contends that while the ideal blockchain should be decentralized, safe, and scalable, they can only be two of the three. This is most likely the most significant obstacle that Blockchains must solve before the technology can be widely used.

Following are the Blockchain Trilemma Elements:

• Decentralization refers to the number of nodes (computers) that run the Blockchain.
• Security is related to code and, more crucially, consensus processes (proof of work vs. proof of stake).
• Finally, scalability refers to a blockchain’s capacity to maintain an acceptable transaction speed in the face of a rising network and an increasing number of transactions per second.

Although the blockchain trilemma poses a hurdle to the technology’s general adoption, there is no legal rule that precludes all three characteristics from being attained at the same time. Instead, the blockchain trilemma was developed as a means to visualize and better comprehend the problems associated with the development and adoption of Blockchain technology, as well as how they interact with one another.

What is Decentralization?

The core idea of blockchain technology is decentralisation, which pushes initiatives throughout the ecosystem. Decentralized procedures and technology reduce the role of middlemen across sectors and appear in a variety of ways. Decentralized finance (DeFi) systems, for example, are able to share revenues and governance to users and the larger community rather than a middleman by eliminating banking institutions from financial products. On a more fundamental level, decentralized networks crowdsource consensus, which means that no single organization can control or censor the material that flows through them.

Obtaining optimum decentralisation, on the other hand, tends to reduce network throughput. Transaction speeds slow as more miners secure the network through consensus, which is seen as a barrier to wider adoption.

What is Blockchain Security?

To enhance network performance on a blockchain network, there is an incentive to minimize the geographical, numerical, or both distribution of blockchain nodes. This shift toward increased centralization, however, weakens security on Proof-of-Work (PoW) networks. When agreement is reached on an open network with restricted nodal distribution, a 51 percent assault is more likely to occur because hackers may easily collect hashing power. Hackers can hijack a network and influence transactions for financial advantage by overloading it.

In August 2020, the Ethereum Classic (ETC) Blockchain, which is unrelated to Ethereum, was subjected to three 51 percent attacks that reorganized over 4,000 blocks, allowing the perpetrators to manipulate data and double spend its ETC currency, resulting in a loss of millions of dollars in network value. Blockchain security is a vital network component that must not be overlooked.

What is Scalability?

A Blockchain protocol’s scalability refers to its capacity to sustain high transactional throughput and future expansion. This implies that as use cases increase and blockchain technology adoption rises, the performance of a scalable blockchain will not suffer. Blockchains that function badly as adoption grows are considered to be unable to scale. According to the Blockchain Trilemma, more scalability is feasible, but security, decentralization, or both would suffer as a result. Scalability is the only option for blockchain networks to compete with older, centralized systems that have significantly greater network settlement speeds and usability at this moment. While many blockchain systems have achieved decentralization and security, scalability remains a key problem for today’s leading decentralized networks.

Solving the Blockchain Trilemma: Layer 1

• Improving consensus mechanisms
  Since its inception, Bitcoin, one of the most prominent blockchains, has employed Proof-of-Work as its consensus protocol. And, while it is safe and decentralised, it is sluggish; Bitcoin, for example, has a transaction throughput of just 7 TPS. To overcome this barrier, several blockchains, notably Ethereum 2.0, are using a Proof-of-Stake consensus mechanism. Instead than forcing nodes to employ computer power to solve cryptographic methods, PoS decides a node’s status based on their stake in the blockchain.
• Sharding
  This approach involves dividing transactions into smaller “shards.” The blockchain then processes these transactions in parallel, allowing it to operate on several transactions at the same time. Furthermore, nodes do not need to keep a copy of every block from its inception; instead, this information is divided and kept by various nodes.

Solving the Blockchain Trilemma: Layer 2

• Nested blockchains
  In this type of system, the main blockchain, or mainchain, establishes the rules for the whole network, but it is not intended to participate in any operations unless a disagreement occurs. There are multiple tiers of blockchains that are constructed on top of one another and are linked via a parent-child chain relationship. The parent chain delegated work to its offspring, who then carried out the activities and returned the results to the mainchain, decreasing its effort and boosting scalability.
• State channels
  State channels allow a blockchain to communicate with off-chain transactional channels in both directions. State channels do not need node verification to confirm transactions; instead, this off-chain resource uses smart contracts to seal off transactions. When a transaction on a state channel is completed, the “channel’s” final state and all of its transactions are added to the underlying blockchain. A state channel is exemplified by Bitcoin’s Lightning Network.
• Sidechains
  A sidechain refers to a transactional chain that runs alongside the blockchain and is useful for massive bulk transactions. Sidechains have their consensus method, adjustable for performance and flexibility, and a utility token is frequently utilised as a part of the data transfer mechanism between side and main chains. The main chain’s principal function is to provide general security and conflict resolution.
  In several important ways, sidechains differ from state channels. Sidechain transactions are not private between participants; instead, they are published openly on the ledger. Furthermore, security breaches on sidechains do not affect the mainchain or other sidechains. Also, building a sidechain from the ground up necessitates a significant amount of time and work.
• Rollups
  Rollups refer to the solutions executing transactions outside Ethereum’s main chain (layer 1) but post transaction data to layer 1. Layer 1 secures rollups because transaction data is on layer 1. A distinguishing feature of rollups is that they inherit the security features of layer 1 while executing operations outside of it. Rollups have three simple properties:
  
  - Execution of transactions outside of layer 1.
  - Layer 1 contains data or verification of transactions.
  - A layer 1 rollup smart contract that can use layer 1 transaction data to compel correct transaction execution on layer 2.
  
  Rollups necessitate “operators” securing a bond as part of the rollup contract. It encourages operators to validate and execute transactions properly.
  
  It helps lower user costs, encourage open participation, and speeds up transaction processing. There are two sorts of rollups, each with its own set of security features:
  
  - Optimistic rollups: presume transactions are valid by baseline and only performs computations in case of any challenge, using fraud-proof.
  - Zero-knowledge rollups: computes off-chain and presents a proof of validity to the chain.

• Plasma
  A plasma chain refers to a separate blockchain linked to Ethereum’s main chain and using the fraud proofs (such as Optimistic rollups) to settle disputes. Because they are effectively more miniature replicas of the Ethereum Mainnet, these chains are referred to as “child” chains. Merkle trees allow you to build an infinite stack of these chains to offload bandwidth from the parent chains (including Mainnet). These rely on fraud proofs for security, and each child chain has its block validation process.
  It has a high transaction throughput and a low transaction cost. It’s also suitable for arbitrary user transactions (no overhead per user pair if both stays on the plasma chain). However, it doesn’t handle generic computation. Predicate logic only supports simple token transfers, swaps, and a few additional transaction types. It also relies on some operators to store and serve data as it is requested.

Solving the Blockchain Trilemma

Several of the difficulties existing in distributed data storage, from which blockchains originated, were passed down to blockchains. In order to better comprehend these problems and how they are connected, the phrase “blockchain trilemma” was coined to refer to them all.

Although the word “trilemma” has persisted, the blockchain trilemma is only a hypothesis; a hypothesis thought to be true owing to early supporting data, but for which no proof or disproof has yet been produced. This indicates that there is still a lot more study to be done, despite the fact that layer-1 and layer-2 solutions have had some success.

Resources

https://ethereum.org/en/developers/docs/scaling/
https://vitalik.ca/general/2021/01/05/rollup.html
https://vitalik.ca/general/2021/04/07/sharding.html
https://www.gemini.com/cryptopedia/blockchain-trilemma-decentralization-scalability-definition#section-solving-the-blockchain-trilemma