Blockchains have a significant problem: They can’t scale much beyond the transaction rate of MasterCard. For instance, the Bitcoin network can process, on average, around seven transactions per second. If blockchain technology is to enable global adoption, it needs to be able to manage much larger data volumes quickly and efficiently. Yet the very design of decentralized networks introduces a tradeoff; optimizing for scalability necessarily sacrifices decentralization or security. This problem is called the Blockchain Trilemma. Developers are working on alternative consensus mechanisms and new scaling solutions to combat it, like sharding, sidechains, and state channels. So, here we consider what is the blockchain trilemma in detail.
Known as the Blockchain Impossible Trinity, the Blockchain Trilemma exposes the tradeoffs blockchain networks must make when trying to exhibit all three of the following vital characteristics at the same time: Security, Decentralization, and Scalability. The best blockchain can do all three to perfection to take advantage of the full decentralization benefits. But immaculate balance is incredibly difficult to achieve: if one aspect is improved, another is undermined. It is this tension that is the heart of the crypto trilemma. We can illustrate the idea by showing this “blockchain triangle”:
The phrase ‘Blockchain Trilemma’ was created by Ethereum co-founder Vitalik Buterin. He called it a condition, but developers have to pick two out of three technical conditions in which they operate — decentralization, security, and scalability — with the latter of which is in clear conflict with the former two. Here’s how Buterin puts it:
"The scalability trilemma says that there are three properties that a blockchain tries to have, and that, if you stick to 'simple' techniques, you can only get two of those three."
— Vitalik Buterin
This is a common understanding in the blockchain community and highlights the challenging tradeoffs developers have to consider when making decisions in the design of blockchain systems.
Decentralization. The centralized concept of the majority is replaced by a “wisdom of the crowd,” where ideas and control are fragmented into little pieces distributed among a large pool of participants. Bitcoin, for instance, relies on a decentralized network of nodes, ensuring the system is highly censorship-resistant. But more crypto decentralization can cause transactions to become slower and the network less efficient.
Security is how safe a blockchain is to protect data and counterattacks. When it comes to money, millions, even billions of dollars, security does matter. In general, networks were more robust at higher levels, but adding nodes added computational complexity, which can reduce performance.
Scalability is the ability of a blockchain to process a large number of transactions in a short time. This is key to achieving mainstream usage. However, increasing crypto scalability can usually only be accomplished at the expense of either security or decentralization.
The allure of Bitcoin and comparable blockchain networks is that they’re decentralized: No single person or company has control over them. Instead, powers are shared globally in a network that everyone can join. Because all members of the ecosystem have the same data, any tampering with data to gain an advantage will be rejected by all other interconnected parties.
Take Bitcoin as an example. Unlike conventional monetary networks, such as the banking industry, Bitcoin doesn't rely on a central authority, so the need to trust third parties is eliminated. Every transaction is collectively confirmed before it gets recorded in the blockchain, leaving a reliable network of trust in its wake.
That decentralization paves the way to Web3 — the future iteration of the Internet. In the era of Web2, where centralized platforms own the data that the user generates and can take it back at any time, Web3 is a term used to describe a web that will eventually be decentralized, where the user owns their identity and data.
Decentralized systems, however, are slower. Transactions need to be validated by several participants, leading to long processing times. This is where the concept of “scalability” comes in — the faster and more transactions you can accommodate. We’ll return to this in the section that follows.
Scalability is the ability of a blockchain system to expand in terms of the number of transactions processed per second. It is a crucial factor if blockchain is to achieve mainstream adoption and serve billions of users. But it turns out to be the problem many networks are struggling with.
This is because decentralization and security are typically first on the list of priorities. These two ingredients are essential to the blockchain ethos — decentralization enables free attendance and security retains the standard of data. But trying to focus on both is likely to hold you back.
Centralized systems like Visa can handle about 24,000 transactions a second, since their activities occur in a closed system and don’t require thousands of nodes to reach consensus. In comparison, Bitcoin can handle only about 7 transactions per second, and Ethereum about 15 (as of 2022, according to Bloomberg). It comes from the need to validate data by all the nodes and consensus mechanisms, such as Proof of Work (PoW), which have extremely high computational expenses.
Blockchains will need to scale if they are to serve a mass population. Without upgrades, the increased usage will create congestion and slow transactions.
In the world of centralized systems, security comes from preventing access. A decentralized network is an open structure; therefore, security mechanisms must be implemented in its protocol.
Once again, let us take a look at Bitcoin. It relies on cryptography and a consensus algorithm, Proof of Work (PoW), to maintain its ledger. Every block of data is connected to the one before it and after it with the use of cryptography, forming a “chain.” And since records are stored across a network of computers, it’s extremely difficult to alter the information contained in the chain. If any block is tampered with, its hash will change, and everyone will know there’s a problem.
PoW further enhances security by tasking miners with solving difficult mathematical puzzles to confirm transactions. This process is computationally very expensive, so it’s expensive and hard for anyone to attack the system.
Security is also better on a larger scale. The larger (more nodes or people) a blockchain is, the more difficult it becomes for any one user to take control. This is what makes a “51% attack” possible — if one entity controls more than half the network’s computational power, it can overpower the rest of the network, so to speak, and could rewrite the blockchain, for example, by re-spending coins.
In short, what makes or breaks the fate of a blockchain is security. Without that, it doesn’t decentralize, and the system can be subject to attack and abuse.
The apparent solution to the difficulties described above is to reduce the number of nodes that verify and update network information to provide better scalability and faster performance. But it also defeats the purpose of decentralization by empowering increasingly fewer players. It is also a security issue as fewer validators expose the network to attack.
That is the essence of the blockchain trilemma: decentralization and security are almost always two sides of the same coin in the way blockchain is designed, and optimizing for scalability often means compromising one or both. It raises the question of how a blockchain can scale yet maintain its decentralization and security.
Scalability is a common issue for Layer 1 blockchains — the original “layer” of a blockchain network.
More Users = More Demand for Fast + Cheap Transactions
As the number of individuals who use it grows, so does the demand for fast and low-fee transactions. Yet, scaling primarily requires more of one or even both in the form of a tension: so-called blockchain trioma or, as it can also be known, the trade-off dilemma of the blockchain.
Here we will show how various blockchain platforms deal with the blockchain trilemma problem by coming up with different solutions to balance the three.
Let’s start with a Bitcoin trilemma case. Bitcoin is commonly viewed as the "gold standard" of decentralized and secure blockchain systems. It runs on a decentralized network of miners and utilizes PoW to prevent censorship and attacks on the network. But Bitcoin is a poorly scalable crypto — it processes only six to seven transactions per second, therefore, it’s not built for high throughput or real-time applications. Although Layer 2 solutions, such as the Lightning Network, have focused on addressing this issue, the trade-off between decentralization versus scalability is still apparent.
Ethereum also values decentralization and security, but it is more aggressive when it comes to scalability. The move to Proof of Stake (PoS) with Ethereum 2.0 was a huge step forward, offering a vastly more energy-efficient and more transaction-scaleable scene. Further, Ethereum is adding solutions like sharding and Layer 2s (e.g., Optimism and Arbitrum) to scale. Even so, some detractors fear that PoS could concentrate power in the hands of large validators, which raises fresh worries about decentralization.
Solano trilemma differs – they made a focus on scalability. Thanks to its revolutionary Proof of History (PoH) consensus design and optimized network infrastructure, it's capable of supporting 65,000 transactions per second. But this performance hasn't been without some tradeoffs: somewhere in the network’s not-so-many validators lie worries about centralization and security, weaknesses that someday just might bring it down. But despite these risks, Solana is a popular choice for its low fees and for being fast, especially among developers and users who prioritize efficiency.
The blockchain scalability trilemma remains a fundamental problem for the development of decentralized technology. It makes teams choose between scalability, decentralization, and security. There is no free lunch, as is the case in the worst of both worlds, but there are strategies to mitigate the trade-offs. Let’s look at how they work.
Layer 1 solutions are focused on improving scalability at the protocol level. One major direction is to utilize new consensus mechanisms like Proof of Stake (PoS) and Proof of History (PoH). These actions enhance efficiency, conserve power, and ensure security. For example, Ethereum’s transition to PoS has enhanced the scalability of the network without sacrificing decentralization.
One way is a process called sharding, which involves splitting the blockchain into smaller parallel-running chains that could expand the capacity to process transactions exponentially. This is something for which both Ethereum and Near Protocol are exploring or already implementing. What's more, the size of blocks can be raised (or adjusted) to accommodate more transactions per block, which in turn increases throughput; an example of this is found in projects like Solana and Bitcoin Cash.
Layer 2 solutions remove transaction processing from the main chain to scale the protocol without changing the core system. Such constructions scale network capacity while preserving the security of the base layer.
For instance, Bitcoin's lightning network allows near-instantaneous microtransactions, which are only finalized on the blockchain when the channel is closed. Rollups like Optimism and Arbitrum on Ethereum package a lot of transactions into one entry on the main chain, which helps scale the system while also providing security at Layer 1. These sidechains, like Polygon, run parallel to the main blockchain, processing transactions in isolation but interacting with the main network.
Bitcoin uses PoW to secure its network, and its security comes at the cost of scalability, as PoW mining is an energy-intensive operation, and additionally, one must own some computational resources to participate in mining. One approach to overcome it could be the use of other consensus models.
PoS, for instance, involves validators locking up tokens, rather than expending energy solving cryptographic problems. Make the process easier and scalable-based, and remain safe & secure. These factors were what motivated Ethereum to transition to PoS.
PoS is only one of several emerging consensus models that aim at achieving higher levels of scalability with fewer damaging impacts on decentralization and security. Hybridizing of PoS and PoW and other mechanisms is also being investigated to have a healthier compromise.
The short answer is yes, but… not fully with the technologies and trade-offs available today. The blockchain trilemma is being primarily addressed by the current wave of blockchain projects with layered approaches:
It forms the triangle of crypto layers:
One notable example is the Ethereum roadmap, which includes solutions such as Arbitrum, Optimism, and sharding. These strategies don’t solve the trilemma for blockchain at one level of abstraction but rather seek to thread the three pillars of the trilemma through multiple layers.
Novel Consensus Protocols
New consensus algorithms like PoS, N-PoS, and DAG are currently under development to ensure that scalability is preserved without any compromise on decentralization or security.
Networks such as Avalanche, Algorand, and Radix brag about being close to solving the scalability trilemma by adopting novel architectural innovations.
On some blockchains, modular architecture allows developers to tailor trade-offs to their cases. This doesn’t solve the trilemma everywhere, but it can optimize locally.
The Blockchain Trilemma isn't so much a rule as it is a design constraint. Although trade-offs are still a reality in the systems of today, the development of modularized blockchain design, zero-knowledge proofs, and cross-chain communication will expand the achievable horizon.
Now that we have the blockchain trilemma explained, we can see that it cannot be addressed through a single-faceted solution. The thing is that there's no one-size-fits-all for all these requirements, decentralization, security, and scalability. Rather, the key is to develop adaptable, novel kinds of systems and tactics to directly address these elements. Like all developing tech, we might get past what we currently know as the limits of blockchain design.
