Blockchain Trilemma - Crypto Academy / S5W2 - Homework post for @nane15
Hello to everyone out there, I would love to join Prof. @nane15 to welcome each and everyone to the first week of this season. The topic for this week is Blockchain Trilemma and I'll try my best to give detailed answers to the test questions listed. If you reach the requirements, you could join me to do same my reading up the lesson on this link.
1.)
Introduction
The blockchain technology is a growing advancement of our father, the creator of bitcoin, Satoshi Nakamato. It is a mechanism or an automatic system of a ledger which confirms and records transactions of millions of users on the network. The blockchain is corruptible and that's why all blocks are impossible to be altered by hackers. Each block is duplicated across to all nodes in the network.
This system has been largely accepted in recent times due its decentralized nature. The fact that users can never be restricted or controlled by a central authority. Its other features are its high security and scalability but as much as the blockchain technology sounds so good, it isn't that perfect and this brings us to the blockchain trilemma.
What is the Blockchain Trilemma?
The terminology "the Blockchain Trilemma" was first used by Ethereum's founder, Vitalik Buterin in his white paper about Ethereum 2.0 where he explained his solutions to creating a well balanced blockchain.
The blockchain trilemma can be defined as the imperfect nature of the blockchain network, the fact that it can not simultaneously balance all three of its main features.
For instance, let's use the work of a tailor to further explain the concept.
A tailor can be of service to a customer in three basic standards. He can try to produce the attire:
- Efficiently
- Quickly or
- Cost effectively (cheap)
These three principles cannot all be selected when producing this attire. Of course, one has to be compromised because you can't make a pretty dress (efficient) at a very fast rate (quick) without charging the customer a very high amount of pay. The tailor can give the customer an option to pay cheaper for a very pretty attire but the time frame will have to be increase and this would take a lot of time. Also, the tailor can make an attire quickly without so much design and aesthetics for a cheap rate.
All of these functions are the same type of issues that constitute the blockchain trilemma. There are three features that would make a blockchain perfect but only two can be obtainable. Don't get me wrong here, blockchains still constitute all three main features which are decentralization, scalability and security but one of the features will have to be compromised or reduced so that the other features will function properly. A blockchain with a high level of decentralization will increase the security but will reduce its scalablity. This is the difficult decision developers have to make before creating a blockchain network.
2.)
Before we figure out if the blockchain trilemma is really a trilemma we have to understand what a trilemma is. A trilemma is a situation where a person or a system is faced with a decision between three options. In this case, each of the options are all favourable and essential but some factors make it only possible to select two. This is the same case in a blockchain.
Well, from my research of the blockchain trilemma, I feel it is actually a trilemma because among the three options, which are decentralization, security and scalability, it is only possible to select two while reducing the level of one of them. This has been a problem for a while and even with the advancements of new consensus mechanisms like the POS which solves scalability there is still a lacking side for decentralization. Like I said, there hasn’t been a perfect working solution without setbacks to make the three features possible yet and any problem without a solution is still a problem. Which means it’s still a trilemma.
There are some ongoing research by Vitalik Buterin and his team to produce the Etherium 2.0 which will be a perfect system equally containing all features but for now the blockchain trilemma is definitely a trilemma.
3.)
1.) Decentralization:
To make this short and simple, Decentralization is a nature of all blockchain networks. It is the ability of a system of payment to operate without the control of a central authority. All power is vested in the hands of its users to make decisions on the future of the blockchain according to their amounts of holdings of the blockchains native token. For example, A client with 1000 bitcoins has higher and stronger rights to make decisions than a client with 50 bitcoins.
The key reason why Satoshi Nakamato created the Bitcoin was because the banks which act as intermediaries to our fiat transactions could not be trusted anymore, they could be closed down one day due to some challenges or hacks and what happens to its customers cash? Users are then given the ability to conduct transactions between just themselves with the use of the P2P feature (made possible through smart contracts)
Relating decentralization to the topic blockchain trilemma, we should know that a blockchain with a high level of decentralization will produce a lesser rate of transactions per second(scalability) while security remains at an increased level.
This is a bar chart representation of how decentralization affects security and scalability in developing a blockchain. We can see that decentralization is inversely proportional to scalability. Also, an example of this type of blockchain is the Bitcoin or Etherium blockchain.
2.) Security:
Security is the ability of a system to defend its users against hacks or malicious operations to steal data or assets. The blockchain security uses cryptography to ensure safe transactions between a sender and a receiver, transaction operations in a blockchain is characterized by two keys, the public key and the private key. The public key can also be called the wallet address and is a key used to lock digital assets in a wallet while the private key is a key used to access or transact with the tokens in a wallet.
In a normal chain device, all pieces or loops are entangled or connected together to make a strong protective device. This is the same principle of a blockchain, all data leading to transactions are stored in certain blocks. New blocks created are replicas of the previous blocks. Which means they are all connected to each other. This makes recorded transactions incorruptible and impossible to be altered. Blocks are validated through a process depending on the consensus mechanism. This ensures that all transactions are real and correct hereby eliminating double spending.
Relating security to the topic, blockchain trilemma, we should know that a blockchain with a high level of security can either have just a strong level of decentralization or a strong level of scalability.
There are two instances I will show with the bar chart.
The above is for a blockchain project like BTC and ETH which uses the POW consensus mechanism.
This is for a blockchain project like SOL which uses the POS consensus mechanism.
From this two bar chart representations we can see that security in a blockchain can never be compromised because no user wants a payment system where there is risk of losing all your digital assets due to a hack. This makes security a constant when developers are deciding the main features of a blockchain.
3.) Scalability:
In a blockchain, scalability is a measure of how efficient a blockchain can adapt to an increasing amount of users all performing transactions. It is simply the measure of how fast a blockchain is at processing transactions. This can also be view as the throughput of the blockchain.
In the beginning of cryptocurrencies, there was a small amount of people performing transactions but as time went on users increased. A blockchain with a low scalability like the Ethereum blockchain cannot easily adapt quickly to such load and this makes transaction speeds become slower.
Decentralization affects scalability in this manner, it (decentralization) requires a large amount of nodes to act as miners. With decentralization, anyone can be a node as far as he or she has the resources to provide the computing power. Transaction data will have to be sent to each and every one of them and in a case were there are thousands of these nodes, this will take a long time. The solution to the problem of low scalability is by reducing or limiting the number of nodes and this adversely reduces decentralization.
As scalability increases, decentralization decreases.
4.)
Like I said, there hasn’t really been a breakthrough to sort out the issues with the blockchain trilemma but there are two layers of solutions to the blockchain trilemma which are currently being scrutinized by several developers to see which is going to be efficient to balance all features of the blockchain. I’ll try to explain these below.
1.) First layer Solution
Sharding: Shards are fragments or groups. The blockchain is constituted of series of nodes which all work together to validate transactions. In this method, these nodes are split into various group or parties. These parties are called shards. Each of these shards will work on seperate transactions in the blockchain, transactions will be allocated equally to them. Nodes will have to work on validating the transactions allocated to their shard and not other transactions in the network. This helps increase efficiency. The blockchain will then scale with the confined number of shards and not a numerous number of nodes. These hereby increases the blockchains throughput which increases the level of its scalability.
By using this system, surely the blockchain security may risk being compromised but there is also a mechanism which helps to overcome that. In each of these shards there is a possibility of malicious nodes to be found and that’s fine but it all depends on how much they are. Because of that, there is a limit set to the number of malicious nodes which can be found in a shard and it is termed as the byzartine validator limit. This limit marks that if the number of malicious nodes in a shard surpasses 33% of the number of malicious nodes in the blockchain, there will be an attack and security is put at risk.
Research is still going on by developers of blockchains like Ethereum to sort the slight issues in the sharding method.
2.) Second layer Solution:
Micro transactions can be validated outside the blockchains while important transactions (like making final balances) can be recorded inside the blockchain.
Introduction of sidechains: In the second layer solution, the blockchain network is split into two chains. A first which is called the Mainchain and a second which is called the Sidechain. Transactions are also split between these two chains making each of them able to transfer and receive assets freely.
An example of the side chain solution is the bitcoin rootstock which allows merge mining and is the first of bitcoin’s sidechain to permit smart contracts. This side chain is highly scalable, highly secure with reduced transaction cost. With the combination of the main chain of the Bitcoin which is highly decentralized it becomes a perfect blockchain. Although there are setbacks of high energy consumption and a demand for initial deposit of BTC tokens before performing transactions.
This method is still being scrutinized by developers today. Hopefully, it would be put to use and the trilemma will be over.
The blockchain trilemma is one of the setbacks of the cryptocurrency blockchains today, the fact that it cannot contain an equal sum of all three of its main features. Although series of new consensus mechanisms have been designed, the issues hasn’t yet been solved.
Solutions drafted by top developers of the blockchain technology aren’t really perfect. They all have their different setbacks. Although it is a trilemma, I believe the difficult puzzle will be cracked one day and blockchain technology will be perfect and so much better than other traditional financial systems featuring high security, high decentralization and high scalability.
Thank you so much Prof @nane15 for the wonderful lesson. I learnt a lot.