Decentralisation, Scalability, Security and the Blockchain Trilemma

The blockchain “trilemma” is a concept that highlights the relationship between the three key areas of blockchain technology. These are decentralization, scalability, and security. It is very important to be aware of the trilemma because every blockchain project is affected by it.

Vitalik Buterin, Father of the Blockchain Trilemma

A trilemma is a play on the word dilemma. While the word dilemma refers to a conflict between two parties, trilemma refers to an issue spread between three distinct areas. 

The creator of Ethereum, Vitalik Buterin, has often stated the impossibility of having perfect equality between blockchain’s three primary characteristics – decentralization, scalability, and security. The proportion between these three dimensions can show a blockchain project’s limitations. For example, a well-decentralized and scalable project isn’t necessarily secure, and a very secure project with high scalability is potentially not decentralized.

These examples illustrate how the three areas of blockchain interact and affect one another. It would be impossible for a crypto project to reach its full potential without trying to keep a balance between the three areas.

Now, let’s explore each of the dimensions of the blockchain trilemma.

Security

A blockchain is considered secure when the transactions on it are permanent and immutable.

In other words, when a blockchain transaction is made, it is supposed to be recorded on that particular blockchain forever and no one should be able to make changes to it. This ensures that no one is allowed to cheat and commit fraudulent acts. 

Blockchain is designed to be inherently secure. However, it suffers from one major drawback – it is still a relatively new technology with its own set of vulnerabilities. This is something that many hackers around the world have attempted to exploit.

The security of a project should be its top priority. Without security, a project won’t hold up in the long term. A blockchain must not only be resilient to attacks from the outside but also stay immutable in the long term.

Currently, there are several known types of attacks used against blockchains:

• 51% attacks  – Owning 51% of the computational power in a Proof of Work blockchain, thereby giving the owner the ability to alter the blockchain.
• Sybil attacks  – Creating fake nodes to manipulate the blockchain.  
• DDoS attacks – Distributed Denial-of-Service aims to overwhelm a network and cause a catastrophic failure. In a blockchain, this can be done by flooding the network with an overwhelming amount of transactions. 

Both Proof of Work and Proof of Stake are effective at countering the threat of Sybil and 51% attacks due to the sheer amount of computational power or ownership of tokens required to carry them out. Moreover, while DDoS attacks are effective mainly against blockchains with low decentralization, the likelihood of one occurring can never be ruled out.

All of this must be taken into account when evaluating a blockchain project’s viability. 

Fortunately, a big number of blockchain projects already have a proven track record. Bitcoin is the perfect example, with no operational problems since its launch, for 14 consecutive years.

The advantages of blockchain technology are many and security is one of them.

Decentralization

In most cases, decentralisation is the most important and talked about aspect of a blockchain project.  

But what does that mean and why is it so relevant? Without getting into too much detail, a blockchain relies on certain things called nodes. Nodes are computer-like devices that represent a person or group of people. They are the ones that validate the transactions made on a blockchain.

Before delving further into the subject, let’s revisit the basics.

A blockchain is a chain of data “blocks” that contain transactions. Before a new block is added to the blockchain, every node on the network needs to validate the change. 

The value of decentralization lies in the fact that any person owning a computer, or an internet connection can become a node and validate transactions. This prevents a single point of failure, and it also prevents any group of participants from having too much power.

Scalability

The third and final part of the blockchain trilemma is scalability. Scalability refers to the “performance” of the network. You can have a secure and decentralized network but if you don’t have scalability then the network will not be usable by the general public or businesses.

When talking about transactions on a network, this transaction represents a significant volume of data processing. Due to this, all of your transactions have to be validated by the entire network, which requires an enormous amount of processing power.

Because of this, the scalability of a blockchain is measured by its ability to process a certain amount of transactions over a certain period of time. 

For example:

• Bitcoin processes about 7 transactions per second
• Ethereum processes about 27 transactions per second
• Solana processes 50,000 transactions per second

These figures are rough estimates and depend on many variables.

Most projects tend to overestimate the speed of their transactions and exaggerate their capabilities. The scalability of blockchains can be compared to centralized systems like VISA which processes between 1000 and 3000 transactions per second. This figure is not negligible and exceeds the speed of the majority of current blockchain projects.

Several solutions exist for projects to increase their scalability while maintaining their decentralization and security.

Solutions That Attempt to Solve the Blockchain Trilemma

This trilemma is not new and many solutions have already been created to address the problems it poses.

Sharding

This technique consists of packaging transactions together in “shards”.

These “shards” are used to validate transactions off-chain (outside of the blockchain) to reduce the network’s need for processing power. It is a solution that aims to spread a blockchain’s workload over a group of servers rather than having a single server do all the work. This results in an increase in transaction speed and therefore scalability.

The NEAR blockchain network is a good example of sharding as it uses the method to allow even low-end devices to act as network nodes, thereby significantly enhancing transaction speed across the network.

Another blockchain that implements sharding is the Ethereum Beacon Chain, which plays a crucial role in Ethereum’s move from Proof of Work to Proof of Stake. This topic will be discussed further in the following paragraph.

Changing the Consensus Mechanism

This solution relates to the scalability problem. Most of the blockchains that have been developed so far used Proof of Work. This consensus mechanism requires a significant amount of costly computing power and is therefore not very scalable. 

Proof of Stake was created to address these disadvantages. Validation on PoS blockchains is done by one randomly chosen computer with a large number of native tokens(stake). This doesn’t require nearly as much energy or computational power and allows for a greater number of transactions to occur at the same time. The ability of Proof of Stake blockchains to maintain high transaction speeds or throughput is what ultimately makes them more scalable. 

An increasing number of projects have therefore decided to switch to the Proof of Stake consensus mechanism which is more energy efficient and scalable. As mentioned earlier, Ethereum is an example of this trend since it made its transition to Proof of Stake in 2022. This reduced its annual energy consumption to around 2.601 MWh (megawatt-hours) or 0.0026 TWh (terawatt-hours). This is a decrease of 99.988% compared to its previous electrical consumption of 78 TWh per year. 

For comparison, after transitioning to Proof of Stake, Ethereum’s annual energy consumption is roughly equal to that of a typical household in Eastern Europe. This is a substantial difference from its previous consumption of 78 TWh per year, which was equivalent to the entire power consumption of Uzbekistan.

Sidechain and off-chain

Another solution is to use side chains and off-chain solutions. These allow for some transactions to be processed outside of the main blockchain or in parallel. This can improve the transaction speed significantly and thus increase the scalability of the network.

Arbitrum is an example of one such solution, having an estimated speed of 40,000 transactions per second (compared to Ethereum’s 27). The project promotes itself as an ideal scaling solution for Ethereum-based decentralized finance (DeFi) apps, due to having significantly lower costs and the same level of security as Ethereum.

Balancing decentralization, scalability, and security is every blockchain project’s greatest challenge. Despite this, advances in consensus mechanisms attempt to address some of the unavoidable limitations imposed by the blockchain trilemma. Regardless, blockchain technology is still in its infancy and its vast potential remains largely untapped. Considering the rate at which blockchain technology is evolving, it is not difficult to imagine how much more capable it will be a few years from now.