The Blockchain Trilemma- The Imperfection of Cryptocurrencies

Crypto experts, and analysts have specified The Blockchain Trilemma (also known as The Scalability Trilemma) as one of the most complex issues of this newly born asset class. According to many, the Blockchain Trilemma is impossible to solve and is one of the biggest drawbacks in cryptocurrencies, possibly being fatal for many projects as well as the whole ideology of decentralized financial systems. However, are there fears of the unresolved Blockchain Trilemma legitimate? Could this lead to the destruction of cryptocurrencies? More importantly, is it solvable and if so, when will that happen? These are the key questions that will be addressed in this article.

What is The Blockchain Trilemma?

First coined by Vitalik Buterin, the famous creator of Ethereum, Blockchain Trilemma represents a situation or a state, where three main features of cryptocurrencies – scalability, decentralization, and security – are impossible to balance. When looking only at the concept of trilemma (or impossible trinity) you are looking at a situation, where the perfect balance of three different states is impossible to achieve (Prasanna, 2019).

Vitalik Buterin used this concept to describe one of the everlasting problems of cryptocurrencies which is using a blockchain that would be secure, scalable, and decentralized. So far, creators and developers of different cryptocurrency projects have been pushed to choose two out of the three characteristics, therefore sacrificing one of the characteristics of the cryptocurrencies, since a solution to the Blockchain Trilemma is yet to be discovered.

Decentralization

Decentralization as such is one of the key concepts or ideologies connected to the cryptocurrency world. Decentralization is believed to be a cornerstone of Bitcoin, blockchain technology, and all cryptocurrencies. This type of finance was mainly appealing after the centralized banking system was crippled by the world’s Global Financial Crisis between  2008  and 2009.

Simply put, decentralization describes a state, in which no central authority controls or reigns over the network, with no node, individual, or subject being able to tamper with the blockchain or gaining control over the network. For most cryptocurrency projects, developers generally give up decentralization for the sake of development. However, if their project is on the pathway to becoming a cryptocurrency with all its characteristics, sooner or later they should give up control over the network to the community via different tools by using consensus mechanisms of voting or selling their stakes in the projects.

Scalability

Scalability is viewed by many as the key characteristic of blockchain. At its core, scalability measures how efficient blockchain networks are at processing transactions. Basically, it is the speed of the network at which it can process the transactions.

Scalability appears to be one of the most problematic features of the Blockchain Trilemma. Presently, there are no known scalable solutions to arm projects with proper security and sufficient decentralization.

For example, one of the fastest and most scalable blockchains in the industry has for long been EOS (EOS). With an all-time high of TPS (transactions per second) almost at 4 000, EOS is incomparable with the vast majority of the cryptocurrencies due to its enormous speed (with regards to crypto). Bitcoin for instance has 7 TPS and Ethereum around 30 TPS. So how is it possible that EOS is able to process so many transactions, than bigger cryptocurrencies (EOS Network Monitor.io, n.d.)?

The answer is simple. Compared to Bitcoin or Ethereum, EOS is extremely centralized, already portraying the problem with the Blockchain Trilemma. What is however more worrying is the fact that companies such as Visa can handle on average around 24 000 TPS, with potentially maximums of more than 60 000 TPS, which is far more than any other known and used solution in the cryptocurrency world.

Source: medium.com

Security

Security is quite possibly the most important characteristic of the blockchain trilemma. Without a properly secured blockchain, no matter how decentralized the cryptocurrency project is, or how many TPS it has, it will never work since it will be prone to malicious activities. 51 % attacks, bug exploitations, security breaches, or flash loan hacks are just a few forms of imperfections in the crypto environment, which are quite often being used by hackers on projects with lax security. Therefore, security as such is the key for the stability of any blockchain and can prevent manipulation of data stored on the ledger.

Bitcoin as a real-life example

We have already shown in the example of EOS,  that focusing only on one key characteristic leads to imperfection to the Blockchain Trilemma. However, where on this scale does Bitcoin stand?

It comes as no surprise that Bitcoin is not scalable as it should be. With around 7 TPS, Bitcoin is one of the slowest blockchains in the sector. There has been progress of the Lightning Network, which is regarded as one of the most promising solutions to the scalability problem of Bitcoin, yet, it still does not completely help with giving a proper solution to fix it. However, Bitcoin is also one of the most decentralized, with around 83 000 Bitcoin Core nodes. This not only helps with decentralization but also with security since Bitcoin blockchain is considered as one of the most secure blockchains in the space (Harper, 2021).

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Source: blog.fingo.pl

Can Ethereum 2.0 solve the problem?

The cryptocurrency world has without any doubt a vast number of great minds, experts from all different fields and sectors. How is it possible that the trilemma has no solution? Is it simply impossible to solve?

While it may look that way, Ethereum 2.0 is one of the most expected changes in the cryptocurrency world with regards to the solution of Blockchain Trilemma. With integration and implementation of sharding, proof of stake consensus, or side chains, Ethereum 2.0 has proven that Blockchain Trilemma is in fact solvable. We will have a much closer look at Ethereum 2.0 in later articles, where all these concepts will be introduced; showing how they can help with resolving the Blockchain Trilemma eternally.

Source: rosscarterbrown.com

Even if this does not happen, the team around Ethereum is not the only project trying to find a solution to the problem. There are many others trying to find just the right combination of factors to solve the Blockchain Trilemma. Algorand, EOS, Cosmos, Solana, and many other projects are also working on this issue. So far, none of them has successfully come to the conclusion as to whether the Blockchain Trilemma is solvable (What Is The Fastest Blockchain And Why? Analysis of 43 Blockchains, n.d.).

Reference

Prasanna. (2019, 7 17). Blockchain Trilemma: Explained. Retrieved from cryptoticker: https://cryptoticker.io/en/blockchain-trilemma-explained/

Harper, C. (2021, 1 30). Are You Running a Bitcoin Node? Retrieved from Coin Desk: https://www.coindesk.com/are-you-running-a-bitcoin-node

What Is The Fastest Blockchain And Why? Analysis of 43 Blockchains. (n.d.). Retrieved from Aleph Zero: https://alephzero.org/blog/what-is-the-fastest-blockchain-and-why-analysis-of-43-blockchains/#:~:text=Bitcoin%20handles%207%20TPS%20on,minutes%20of%20real%20transaction%20time.

(n.d.). Retrieved from EOS Network Monitor.io: https://eosnetworkmonitor.io