The blockchain trilemma
A quick explainer on the infamous triangle ▵
This article is a quick rundown of the fundamental problem known as the blockchain trilemma. It is intended for laypersons who want to get a quick, understandable grasp without the jargon and noisy technicals.
Intro
First, a handy illustration.
The term “blockchain trilemma” was originally termed by Ethereum founder Vitalik Buterin. It refers to the fundamental quandary blockchains who seek mass user adoption face.
The three qualities developers seek to infuse in their blockchain are decentralization, scalability, and security. Let’s run through each of these quickly:
Decentralized – the blockchain does not rely on a central point of control (failure). The opposite would be one central database that Facebook stores user data in, or one ledger that Wells Fargo references as the ultimate source of truth on transactions.
Scalable – the blockchain can accommodate orders of growth, i.e. process high volume of transactions per second, applications run rapidly in high network congestion.
Secure – the blockchain can defend itself from external attacks, bugs, and operational lapses.
Buterin keenly observed that when a blockchain prioritizes any two points of this triangle, the third becomes more difficult to integrate. Let’s dive deeper into what each of these aspects mean…
Meanings
Decentralization
Decentralization is a core component of blockchain technology. In the current traditional finance paradigm, customers give control of their assets to banks, who custody their customers’ assets, borrow against them, and do all sorts of shady shit.
Bitcoin and other cryptos offer a decentralized, transparent alternative without the need for a centralized entity. How? The nitty gritty is out of scope (read more here), but a quick rundown:
Jared wants to pay Alyssa 1 BTC, so he requests a transaction
His request is broadcast to network of independent nodes (computers) owned by other individual, random humans
The network of nodes checks the transaction’s veracity and confirms it (consensus is reached).
The transaction is placed inside of a block
The block is added to the blockchain (chain o’ blocks, eh?), chained to the previous block, and is now unalterable
Jared’s transaction is complete
The tradeoff of pure decentralization is speed. Because the transaction requires multiple confirmations before reaching consensus, it takes more time than a transaction that is confirmed by a single entity (centralized technology like a bank).
So it’s clear now: the more confirmations a transaction goes through, the more decentralized it is (because more independent nodes are checking). The more nodes that are checking, the slower the entire process is by nature.
Scalability
Scalability is a question of how much processing pressure a blockchain can withstand, and whether it can operate smoothly with heightened demand.
Currently, Visa handles 63,000 thousand transactions per second (TPS). Pretty fast. Bitcoin does ~7 transactions per second (ouch), and Ethereum ~15.
A highly scalable blockchain trades centralization (lower security) for speed. Because Solana has fewer nodes checking transactions on its blockchain, it can process ~2,000 TPS. It pays the price in the form of frequent network outages and attacks, events that don’t happen on more pure decentralized blockchains like Ethereum.
Because it chose speed, Solana is more centralized and susceptible to the pitfalls of centralization. On the opposite hand, Ethereum chose decentralization. Well, transacting on Ethereum is highly desirable but also considerably expensive and slow. Not ideal either (see my article on sharding to learn about Ethereum’s plans to crack the trilemma).
The takeaway here is the more transactions per second a blockchain can process, the more it gravitates toward centralization. The more it gravitates to centralization, the more susceptible the blockchain is to outage and attack.
Security
The security of a blockchain primarily pertains to:
Centralization
Quality of source code
First, centralization.
To increase the scalability of a blockchain via higher transaction throughput, we realized there is an incentive to reduce the distribution of nodes in geography, quantity, or both. This means the blockchain is more centralized to a fewer number of nodes, and so it is less secure, because compromising a small set of nodes is easier. An example is a 51% attack on Bitcoin, where 51% of the hash power (computing power) that secures the network gets in the hand of a bad actor. Because Bitcoin is so decentralized, this is very difficult to do.
Second, quality of source code.
Source code is the software that undergirds the entire network. Because the culture of crypto is open-source, and the incentives of a hack are financially lucrative, blockchains are prime targets for hackers who are able to access, analyze, and exploit flaws in source code. This is more rare, and happens less as the space evolves.
The takeaway here is the fewer nodes a network uses to process transactions, the less secure it is. Additionally, the quality of the source code is paramount to the security of the blockchain sitting on top.
Implications
So now that we understand the importance of each trait, and the tradeoffs occurring between them, what is the larger macro implications of the trilemma, and how can we evaluate the landscape of blockchains more accurately with this knowledge?
We know that blockchains need to scale to gain mass adoption. Why? Well sure, lil Jimbo in his mom’s spare room is fucking round on some shit DeFi protocol making 69,000% APY on CumRocket. But the average person does not have the desire to pay $80 in gas fees to move $30 of shitcoin C. The only way for blockchain networks to compete with centralized legacy institutions is settlement times, usability, and trust. Right now, legacy is far superior in all three (perception is more important than reality, Bitcoin definitely more trustworthy than Wells Fargo). Of course, I believe that gap will be closed and eclipsed in the next decade. But this is the bigger picture we are grappling with. We see that when blockchains scale while retaining decentralization and security successfully, the trilemma is unlocked and mass adoption is mere eventuality.
We can also make speculative predictions on the direction of the Layer 1 future. For example, we may postulate that the blockchains that prioritize decentralization are doing the harder thing, and getting more flak now for being slow, expensive, or both. But in due time, they will bridge the gap of the trilemma (like Ethereum’s sharding plans). Or maybe we don’t see decentralization as a core need for users, and Solana is on the right track.
I hope this is helpful.