Breaking Down The Blockchain Trilemma to Maximize Fundamentals
The Trilemma is a condition which concerns the three fundamental principals of blockchain technology: security, scalability, and decentralization.
The Trilemma hypothetically states that all blockchains can be represented to exist at one exact point within a triangle, which is determined by the measure of each of three core blockchain principles.
The ideal blockchain would be able to maximize all three elements, thus solving the Trilemma.
Before we address the Trilemma, let’s take a minute to review what a blockchain is, and go over the basics of its core values: security, scalability, and decentralization.
What is a Blockchain?
A blockchain is a digital ledger that is both decentralized and public, which maintains a list of chronological cryptocurrency transactions recorded on many different computers (referred to as nodes).
It is appropriately defined as blockchain due to the process in which the transactions are A series of transactions are recorded to a block and the blocks are linked together programmatically in a chronological chain.
Since the introduction of Bitcoin in 2008, blockchain technologies have greatly advanced the concepts of trustless environments and distributed ledgers, becoming a major consideration for all areas of business processes, particularly regarding financial ventures.
For many years, blockchain’s only use case was as cryptocurrency. However, the implications and benefits of blockchain technology extend far beyond usage as merely a digital asset and are becoming widely adopted.
Several of the largest tech companies are now offering blockchain services, including IBM and Amazon’s Web Services (AWS). And many governments are exploring the concept of blockchain’s utility as a national cryptocurrency.
Venezuela launched an oil-based national cryptocurrency, the Petro, early this year, and recently increased its importance by pegging the country’s fiat currency to the Petro.
Whether Venezuela’s Petro is the best example of a government-backed cryptocurrency remains to be determined. You can be assured other governments are closely following its development.
Blockchain’s Three Fundamental Elements
There are three fundamental qualities which compromise the core of blockchain technology: scalability, decentralization, and security.
Pertains to the amount of transactions a blockchain can process in a certain amount of time.
Realistically, for a blockchain to be a feasible solution for business use, it must be capable of handling and processing sufficient transactions. Currently Bitcoin and Ethereum transaction processing speed is in the range of 3-15 transactions per second.
To put that into perspective, PayPal processes around 200 transactions per second (TPS), and Visa can process 24,000 TPS. Scalability is arguably the primary factor currently preventing mainstream adoption of blockchain payment processing.
Relates to the fundamental principles upon which Bitcoin and the concept of blockchain was established; providing a trustless environment which any individual can indiscriminately participate.
A trustless environment sounds like a bad thing, it is actually very good. Due to the nature of blockchain technology, if an individual (maliciously or accidentally) modifies the data on one computer, it will not be processed to the blockchain during synchronization because it does not match the consensus of all nodes.
All transactions are redundantly verified and cannot be altered. Therefore, you are not placing your trust in any singular third-party, like a bank, and don’t have to rely on the trust of an individual when conducting a transaction.
There are many aspects of blockchain security, including its ability to resist attacks from malicious actors and other factors while ensuring that the data stored on the blockchain is immutable, that it can never be altered.
We continue to see a multitude of security breaches, such as exchanges being hacked, which are largely due to the infancy of blockchain development. As it matures, we will see enhanced security to prevent such threats
So far it has proven to be technologically impossible to maximize all three of these characteristics of a blockchain simultaneously.
The inherent problem is that by increasing the of quality any one element, you must forgo some of the benefits of the other two aspects.
- Green: A balanced state of the three conditions.
- Red: Strong Security, but limited Decentralization and Scalability.
- Blue: Highly efficient, but limitations of Security and Decentralization.
- Black: Highly Decentralized, giving up some aspects of Scalability and Security.
- Gray: Purely Decentralized, with minimal or no qualities of Security or Scalability.
- Purple: Sharing an equal balance of Security and Scalability, forgoing Decentralization.
The ‘holy grail’ of a developing a blockchain is to surpass this triangular boundary and maximize all three qualities.
However, in many cases there are situations in which maximizing all three qualities is not optimal.
The proper blend of decentralization, scalability, and security should be determined based on the requirements of a project.
There are many different concepts which are being developed, as well as those that are already in production, which address the Trilemma principles.
We see new projects emerge consistently, enhancing current technologies, providing improved versions of previous blockchains, and introducing new ideas to address security, decentralization, and scalability.
Some of the more promising concepts that are currently under development include:
- Proof of Stake (PoS) – Provides potential scalability improvements, as well as addresses environmental concerns. POS replaces mining of cryptocurrency, which is based on Proof of Work (PoW) system.
- Side Chains – On the Ethereum Virtual Network (EVM), there exists the possibility of creating a side network upon which a project can process its specific transactions, then record only the beginning and ending outcomes to the Ethereum network. This reduces the strain on the EVM, but places trust in the management of the side chain, thus placing trust in a third party, reducing decentralization.
- Sharding – Breaks down transactions into smaller ‘chunks’ of data. Instead of every single node in the network processing whole transactions, nodes are separated into groups, and specific chunks of data are processed by these groups of nodes. Later in the process, these chunks of data are re-assimilated to be stored permanently on the blockchain.
- Increased block size – Both Litecoin and Bitcoin Cash (BCH) are ‘forks’ of the Bitcoin blockchain. Forking is basically copying one blockchain. After forking, development modifications can be made. Both LTC and BCH increased the size of each block, allowing more transactions to be stored per block, thus increasing the transaction processing speed.
- Multiple blockchains working in conjunction – This is a theory that might address scalability, but there are many concerns regarding security and decentralization. Who owns/governs the multiple blockchains? How do they work together? Etcetera questions abound in this situation.
These are just a few examples of possible blockchain improvement solutions addressing the Trilemma, currently in development.
There are many other projects with names such as Casper, Raiden, Plasma under development to improve blockchain development and address the Trilemma.
Blockchain technology has proven be a great solution for many use cases. It is a new solution to specific use cases. There are benefits regarding decreased transaction costs, trustless environments, etc. However, it is not beneficial in every situation; it is not a cure-all.
Nor is it flawless; the technology is still in its infancy, and as with any new technology, it is still going through a learning curve, as businesses and users test how the technology can best be employed.
With increasing interest, utilization, and application of blockchain technologies, we will see dramatic improvements.
As previously mentioned, it may not be in a project’s best interest to maximize all three fundamental aspects of a blockchain; the conditions of any project must dictate its development.
However, the development of a perfect blockchain would be able to break the triangular plane, and maximize all three blockchain fundamentals: scalability, decentralization, and security; thereby solving the Trilemma.
Feature image: Shutterstock.com
In-Post Image: Image given by author
DisclaimerThe writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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