Decentralization distinguishes blockchain from other digital technologies. This intermediary-free design gives cryptocurrencies their unique value proposition but also introduces novel challenges for Web3 developers. Without a centralized decision-making process, there’s no easy way for blockchains to coordinate efforts, implement upgrades, and adapt promptly to their users’ demands.
Maintaining security and decentralization typically take precedence over a network’s speed, usability, and scalability, making it challenging for cryptocurrencies to reach a global audience. A blockchain trilemma highlights these inherent tradeoffs in building and maintaining crypto networks.
In this guide, we’ll explain blockchain trilemma, including why it’s essential to consider it when analyzing the strengths and weaknesses of a cryptocurrency’s infrastructure, why it’s so tricky to solve, and how Web3 programmers are trying to overcome it.
What is the blockchain trilemma in crypto?
Popularized by Ethereum’s cofounder Vitalik Buterin, the blockchain trilemma is a concept that indicates cryptocurrency projects always have to sacrifice one of the following three features in their software designs:
- Security: Any algorithmic protocols or cryptographic techniques used to safeguard the integrity of a blockchain’s data—and protect against malicious attacks—fit into the security category.
- Decentralization: The nodes processing transactions on a blockchain are in a distributed network rather than a top-down hierarchical structure with a central authority. This decentralization aims to eliminate single points of failure on the network and reduce the risk of censorship, counterparty risks, and data manipulation.
- Scalability: In cryptocurrency, scalability measures how well a blockchain handles increasing transaction volumes without buckling under pressure. A scalable blockchain grows and adapts to accommodate fluctuations in activity without dampening each user’s experience with high network fees (aka gas fees) or processing delays.
Generally, when blockchains focus on maintaining the security and decentralization of their protocols, they have issues scaling operations as more people use their network. Conversely, if developers concentrate too much on growing their operations, they often cut corners either by adding too much centralization or introducing more efficient—but less secure—design elements to their infrastructure.
For example, the Bitcoin (BTC) trilemma highlights an overemphasis on security and decentralization to the detriment of scalability. Since Bitcoin uses a fixed proof-of-work (PoW) consensus algorithm to reliably process transactions every 10 minutes—and each block of BTC transaction data contains no more than 4 MB following the SegWit upgrade—it has built-in speed limitations. These strict algorithmic parameters help protect and preserve the integrity of the Bitcoin blockchain, but they make it impossible for BTC miners to process more than seven transactions per second (TPS). For reference, card processors like Visa have a max TPS of 65,000.
Why is the blockchain trilemma important for crypto?
The blockchain trilemma reveals the fundamental design flaws holding cryptocurrencies back from mainstream adoption and real-world applications. Decentralization on blockchains makes trustless peer-to-peer (P2P) transfers a reality, but the lack of a central authority makes it more challenging to react to changes, enact policies, and scale protocols with ease.
Many blockchains prioritize their decentralization and security, but if processing transactions remains sluggish and expensive, it’s difficult for cryptocurrencies to compete with the conveniences of other centralized payment methods.
Conversely, if blockchains compromise on their security or decentralization standards to increase scalability efforts, they risk putting their users in jeopardy of hacks and tarnishing their network’s integrity.
With the blockchain trilemma in mind, developers better understand the tradeoffs in blockchain architecture as they write their white papers and choose the design elements for their cryptocurrency projects. The blockchain scalability trilemma gives the crypto community a clear vision of the delicate balancing act Web3 must achieve to keep cryptocurrencies secure while making them more adaptable and accessible.
Blockchain trilemma solved: Ways Web3 developers tackle the crypto trilemma
The blockchain trilemma seems insurmountable, but Web3 programmers are hard at work on actionable solutions for this problem. Not every proposed fix is perfect, but crypto enthusiasts hope combining these technologies can scale blockchains without hampering security or decentralization.
Here are a few ways developers aim to tackle the blockchain trilemma:
Sharding
Instead of processing every block of crypto transfers on one blockchain, sharding technologies break up transaction batches into bite-size pieces. On a sharded blockchain, nodes only verify partial transaction info within their specific group through a parallel processing paradigm and then broadcast this data to the primary payment ledger for final confirmation. Arranging the transaction verification process into smaller chunks lowers the computational load on each node, helping accelerate transfer speeds and keeping gas fees manageable even during times of heightened congestion.
ZK and optimistic rollups
Zero-knowledge (ZK) rollups and optimistic rollups are techniques used to process crypto transactions off-chain before submitting them to another blockchain for final review.
In the case of ZK rollups, off-chain validators solve advanced cryptographic equations to prove the validity of a batch of crypto transactions, while optimistic rollups assume transactions are valid and use an internal voting system to resolve disputes.
Whether blockchains opt for ZK or optimistic rollups, both solutions offer a way to take the computational burden of processing transactions from a main blockchain, which helps relieve network congestion and improve overall efficiency.
Layer 2s
Layer 2s are decentralized protocols built on top of layer-1 blockchains such as Bitcoin or Ethereum (ETH). Since layer 2s are interconnected with layer 1s, they provide a way to offload transaction data and communicate with the main blockchain without sacrificing network security or decentralization. Crypto traders who use layer 2s typically notice benefits such as faster speeds and lower fees while still enjoying the robust security of the base layer blockchain.
Although layer 2s like Polygon (MATIC) on Ethereum or the Lightning Network on Bitcoin have internal mechanisms for processing transactions, this data isn’t official until it’s approved on the associated layer 1. As long as layer 2s are sufficiently decentralized and secure, they offer layer 1s a safe way to disperse network activity and improve their scalability efforts.
Decentralized governance protocols
Blockchains don’t have a central “chain” of command to implement updates, but decentralized programs promote online community governance.
For example, decentralized autonomous organizations (DAOs) run on blockchains, allowing community members to propose and vote on upgrades. Often, traders with governance tokens for a crypto project have the right to voice their opinion on the latest DAO proposals, and self-executing smart contracts automatically tally the votes and enforce the winning verdict.
These decentralized governance procedures help blockchains continue to move forward with scalability efforts without introducing a top-down governance structure.
Block size adjustments
Increasing the maximum data capacity per block is a possible—but controversial—strategy to boost a blockchain’s scalability efforts. Since larger blocks have more room for transaction information, they naturally help increase a chain’s average throughput and keep network fees low. On the downside, this increased data requirement burdens node operators, potentially limiting the number of participating nodes and increasing the risk of centralization.
In the Bitcoin community, the debate over the benefits and risks of block size increases led to the contentious hard fork blockchain Bitcoin Cash (BCH) in 2017. At its launch, Bitcoin Cash had a block size of 8 MB versus Bitcoin’s 1 MB limit. Those in favor of this block size increasingly argue that scalability’s benefits outweigh its potential drawbacks in terms of network decentralization and security, but this proposed solution remains one of the more controversial strategies to address the blockchain trilemma.
Explore more blockchain solutions on dYdX
For more details on how developers deal with the blockchain trilemma, visit dYdX Academy for guides on the many exciting innovations in Web3 technology. From layer 2s and ZK rollups to the Bitcoin Lightning Network and the Cosmos IBC, our in-house resource library has dozens of in-depth articles on cryptocurrency developments.
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