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Blockchain

The blockchain trilemma explained

The blockchain trilemma refers to the generally accepted idea that it is not possible to scale a public blockchain network without compromising either security, decentralisation, or both

The blockchain trilemma refers to the generally accepted idea that it is not possible to scale a public blockchain network without compromising either security, decentralisation, or both.

The same problem is common in Computer Science (CS) and has been widely discussed since the 1980s.

What networking, infrastructure, and other CS experts have found is that in a decentralised, peer-to-peer network, due to the constraints of liveliness, routing, and fault-tolerance, one cannot simply scale a network by adding more nodes or speeding up communication between nodes.

The problem at hand is that in a public network, since it must be asynchronous and fault-tolerant, there is a top-bound limitation on communication speed in order to maintain the decentralisation and security of the network.

Decentralisation

Decentralisation reflects the degree to which actions of and transactions between agents are possible and effective without the control or authorisation of a reduced group of individuals. Therefore, in a decentralised governance system, control, decision-making, and delegation are distributed across the members of the organisation and away from a central authority or groups of individuals/nodes.

To achieve a high degree of decentralisation, different roles need to work together within a crypto protocol. The three roles are users, who want to conduct a transaction; validators, who record and verify transactions obeying to a specific consensus mechanism; and the programmers, who vote and suggest amends to the code, defining the future directions of the project.

Decentralisation should always be the first dimension looked at by any project, as at its core it represents the distributed nature of the network. The more decentralised the network, the harder it is for a single party to control it or take it down.

Plus, higher decentralisation means more participants.

Security

To be secure, a crypto protocol needs to be resilient in the short term and immutable in the long term.

In other words, the protocol needs to be able to prevent and/or recover from short-term attacks (resilience) without making changes to previous states of the distributed ledger (immutability).

The protocol throughput―the speed of transactions, which dictates the number of transactions per second (TPS) that a protocol can execute―plays a major role in dictating how resilient a protocol is against spam and TPS-based attacks. Such attacks are possible because decentralised network nodes tend to be asynchronous, and the higher the TPS, the longer it takes the information to arrive from one node to another.

This time lapse, or propagation delay (network latency), is enough to increase the probability that blocks get orphaned and attacks take place, destroying the value of timestamped transactions. Therefore, the higher the protocol throughput, the higher the propagation delay, the higher the probability of attacks. This then lowers the resilience and, therefore, the security of the protocol.

For example, Bitcoin – the most secure and decentralised cryptocurrency at the time of writing – has an incredibly low throughput, being capable of processing only 7 TPS (transactions per second) on average. In comparison, PayPal handles 500 TPS and Visa around 4,000 TPS.

Scalability

Scalability represents the capability of a network to handle a growing amount of work, or its potential to be enlarged to accommodate said growth.

For example, a system is considered scalable if it is capable of increasing its total output under an increased load when resources (typically hardware) are added.

An analogous meaning is implied when the word is used in an economic context, where a company’s scalability implies that the underlying business model offers the potential for economic growth within the company―for example, when an organisation needs to hire extra employees or to increase investment burdens.

TPS, block size (the number of transactions per block), and transaction size are determinant dimensions for scalability, as well as governance decentralisation and security.

These dimensions are important because the higher the TPS and/or the bigger the blocks, the higher the potential of the protocol to accommodate a larger amount of transactions quickly.

On the other hand, faster block times mean nodes are less fault-tolerant due to the fact messages are sent faster, so nodes need to process information faster. Higher throughput always means a higher probability of failure between nodes – hence the need to usually make faster networks more centralised.

Conclusion

 

The example above was created by the author and is open to interpretation.

My goal is to show what projects tend to focus on and what is left behind. For instance, Bitcoin and Ethereum forego scalability to make the network as secure and decentralised as possible. However, both networks are not as scalable as Ripple, Stellar, or Neo for instance. That’s because these projects forego decentralisation to add scaling capabilities.

On the other side we have Ardor, Dash, and Nem, which are projects that focus mainly on a decentralised solution that is scalable. Of course, they are less secure (long term) than Bitcoin, even though that could be argued given the short-term and long-term attack vectors.

My point is simple: we cannot have a project that fulfills all needs – not at the moment anyway. That does not mean cryptocurrencies are not invaluable (hint: they are), as they’ve opened the door to completely new distributed consensus algorithms that one day might crack the blockchain trilemma.

For the time being, we should probably focus on using second-layer solutions to scale while keeping the main layer as secure and decentralised as possible.

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