Life is full of tradeoffs.
Oftentimes, we can only maximize one outcome by sacrificing another. Sometimes these tradeoffs are not exactly 1:1 tradeoffs but are part of a more complex relationship.
What are some examples of a trilemma?
Realtors might say: a big house, great location, affordable price – pick two
Chefs might say: big portions, healthy ingredients, fair price – pick two
And blockchain developers might say: decentralization, security, scalability – pick two
The blockchain trilemma is a concept that states that it is impossible for a blockchain to simultaneously achieve all three desirable properties: decentralization, security, and scalability.
If you are still learning about blockchain technology and the transformative power of cryptocurrencies, let’s take a moment to break down each of these concepts.
What are the parts of the blockchain trilemma?
Decentralization refers to the ability for a distributed network of computers to operate a blockchain, rather than a single entity. Decentralization is what allows multiple individuals to operate and maintain blockchain protocols all around the world without a single central authority.
Security refers to the ability of a blockchain to protect its data from malicious actors. Because blockchains store multiple copies of the same information across the network, we can relate security to decentralization regarding the blockchain trilemma. However, many experts we must make feel tradeoffs in the way the blockchain reaches consensus for it to achieve greater speed. In some respects, security is related to the difficulty of fraudulently committing or changing information stored on the blockchain.
Scalability refers to the ability of a blockchain to handle many transactions per second without slowing down. As more people start using a blockchain network, more computer power is needed to process these transactions quickly. Ultimately, scalability refers to how efficiently a blockchain network can verify transactions.
The blockchain trilemma is the belief that it is impossible for a blockchain to achieve all three of these properties at the same time. But is this accurate? And how can we optimize these properties using current and future technologies?
How do the tradeoffs of the blockchain trilemma work?
Let’s explore the permutations of the blockchain trilemma.
First, we can say that favoring decentralization and scalability over security means that while the blockchain is distributed across many users and can process many transactions per second, the information committed to the chain may be fake.
Then, we can say favoring scalability and security over decentralization means that while the blockchain can handle a large number of transactions per second and maintain accurate information while doing so, we must trust only a handful of potentially hostile entities.
Favoring decentralization and security over scalability means that while the blockchain is collectively maintained and can reliably verify accurate transactions, it is only able to handle a small number of these transactions per second. Doing this often leads to low network throughput and high transaction costs, known as gas fees.
Many perceive the most prominent blockchain networks, such as Bitcoin and Ethereum, to have favored decentralization and security at the expense of scalability. Ultimately, they feel that if the blockchain is not able to spread the responsibility of maintaining the network across several participants, to begin with, the number of transactions per second that can be processed is irrelevant.
How are devs solving the blockchain trilemma?
Different blockchain protocols are aiming to solve the blockchain trilemma in different ways. Developers are exploring a variety of techniques that aim to increase the scalability of protocols. Their goal is to avoid too large of a sacrifice to the underlying decentralization and security that the protocol has already established.
Sharding is a process of dividing a blockchain network into smaller parts, or shards, to increase scalability.
Sidechains are separate blockchains that are connected to the main blockchain, allowing for increased scalability and security.
Layer-2 solutions are protocols that exist on top of the main blockchain, allowing for faster transactions and increased scalability.
Other solutions include off-chain transactions, state channels, and zero-knowledge proofs. Developers are exploring all of these solutions to help solve the blockchain trilemma. Some ideas, such as the Bitcoin Lightning Network, are already popular and help to lower costs and increase transaction speed.
Why is the trilemma important?
Now that we’ve explored some of these concepts, we can ask why we should care. Quite simply, by paying attention to each leg of the blockchain tripod, we can understand the whole. Further, we can assess the value of individual blockchains by looking at how they manage this trilemma. Is a new blockchain more secure? Strongly decentralized? Scalable? And, before we bet on one blockchain versus another, have the devs explained exactly what they are doing to address the trilemma?
The trilemma is a hard problem. That said, technology is constantly evolving, and today’s big problems are tomorrow’s minor annoyances. Patience and understanding are obviously key to any crypto journey.
Keep learning about crypto
While you don’t need to understand all of the technical intricacies of the blockchain to buy your first bit of bitcoin, we understand that you may have a lot more questions. The Kraken Learn Center is here to provide you with the information you need to make more informed decisions while entering the crypto economy.
Find the answers to all the questions you have about crypto in the Kraken Learn Center.
These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, or hold any digital asset or to engage in any specific trading strategy. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptoasset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your crypto assets and you should seek independent advice on your taxation position.
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