SAP WebTradingWhy do brokers need to solve the triple paradox of blockchain?
Why Does The Blockchain Trilemma Happen?
Most of the efforts today to develop the blockchain focus on scalability, which makes such networks usable for many users across multiple chains and networks while maintaining consistency.
However, the blockchain networks cannot handle a massive increase in transactions per second and may lead to huge congestion, destabilising the blockchain and weakening its security.
Additionally, a more scalable blockchain means more validating nodes to respond to the increasing transaction requests. However, this must ensure that all nodes are secure because one malicious node can disturb the whole network and trigger wrong orders.
Security is so fundamental for the blockchain that it cannot be compromised, and an increase in scalability or decentralisation can lead to security breaches.
Therefore, the challenge is reaching an optimum point among three elements because increasing one element will most likely come at the expense of decreasing another.
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Ways To Solve The Blockchain Trilemma
There is no clear-cut solution to this problem. Otherwise, it would not be an issue now. However, there have been several attempts and updates to get the blockchain trilemma solved. We will go through some of these attempts and discuss their role in solving the trilemma.
Sharding
Sharding means breaking the blockchain into smaller chunks and letting each sub-blockchain manage the transactions and information separately. Eventually, each will be able to process transactions according to their ledger. These smaller blockchains, or Shards, are then connected through the mainnet.
This implementation takes the pressure off a single blockchain by breaking the information into smaller pieces assigned to each Shard, which works separately.
This solution helps scale the blockchain without risking its security because each Shard works independently. It can also make blockchain transactions faster because several mini-transactions are held simultaneously rather than having everything queued on the main blockchain.
Layer 2
Developers argue that adding a second layer to the main blockchain layer can ease the transaction process. Introducing a second layer built over the mainnet can help process information faster and more efficiently.
A layer-2 or a side chain is connected with the mainnet and allows information to move between two chains. The side chain operates with its own rules and is empowered to finalise transactions without showing them to the mainnet.
Then, smart contracts are used to allow interaction between users. This solution might look similar to sharding. However, Layer 2 focuses on adding a second network layer on the main blockchain, while sharding entails breaking the main blockchain into smaller pieces and changing the structure of the mainnet.
Consensus Protocol
Many blockchains are changing their traditional proof of work (PoW) validation protocol to proof of staking (PoS). PoS implies that validating nodes must stake their tokens before participating in the consensus mechanism.
Classically, PoW required powerful machines – or miners – to conduct complex algorithms and validate transactions. However, this process was time-consuming and required considerable energy.
Therefore, adding more nodes in the validation process is the better option, which guarantees the nodes to act in good faith since they are locking up and staking their tokens.
Ongoing Efforts in Solving The Blockchain Trilemma
Some attempts have tackled this issue by introducing new updates to existing blockchains. The leading blockchain network, Ethereum, started taking serious steps to overcome the trilemma with the latest update to Serenity, or Ethereum 2.0.
Also, the new update includes shifting from the PoW mechanism to PoS, which promises to process 100,000 transactions per second. However, solving the trilemma this way will take time because it is a staged process.
Sharding was the main purpose of the new update: to split the blockchain into smaller pieces and improve scalability. However, later on, Ethereum announced that they dropped sharding from their timeline and would adopt a Layer 2 chain instead.
Why Do We Need To Solve The Blockchain Trilemma?
Blockchain technology has vast potential, and despite the developments found today, it is still in its preliminary stages. There is a whole array of functionalities that we theoretically know of but are yet to figure out how to get there.
Therefore, to reach there, we need to find solutions for the speed problems, making transactions faster, with minimum congestion times, and with low fees.
Yet, further developing the blockchain can expose it to unforeseeable security risks that we are unaware of. Therefore, developers are aware that strengthening the blockchain now is crucial to continue exploring the blockchain future.
Ultimately, the blockchain has been around for less than 20 years, and a huge potential needs to be explored. Once we solve this problem, we may find new levels of blockchain functionality that we have heard of.
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The blockchain trilemma, including challenges in developing scalability, security, and decentralisation, makes developing blockchain challenging. These three elements are vital for the blockchain, but it seems that increasing one element could lead to compromising another. Efforts are ongoing to tackle this blockchain challenge and promote a faster and more secure blockchain. Ethereum 2.0 is one example of these approaches, which introduced sharding and layer-2 to make transactions seamless and secure, promising to process 100,000 TPS.
Finally, solving the trilemma will open new ways to benefit from this innovative technology, and we might only scratch the surface of the new level we might explore in future developments.
SAP WebTrading invites you to join us in this endeavor, as we embark on a journey that transcends mere investment, aiming instead for the pinnacle of financial empowerment and national growth.
What are the 3 points of the blockchain trilemma?
Decentralisation, security, and scalability are the main three pillars of the trilemma, which challenges developers to optimise all three elements at the same level without weakening any of them. Maintaining all of these elements is essential because they are fundamental concepts of the blockchain and the whole Web 3.0 space.
What does ETH 2.0 solve?
Ethereum 2.0 solves the transaction speed issues and the gas fees. While the ETH blockchain can process up to 30 transactions per second right now, it promises to reach 100,000 TPS with low congestion and low costs.
How do you solve the blockchain trilemma?
Developers have yet to find a golden strategy to solve the blockchain trilemma. However, there are ongoing efforts by developers to introduce new blockchain updates, such as sharding or adding a layer-2 network that increases the scalability without weakening security and decentralisation.