Blockchain Trilemma

A blockchain is essentially a distributed digital database. The order of the data blocks is chronological. Cryptographic proofs are used to link and safeguard the blocks. Our way of working and living is already changing as a result of the adoption of this technology across several industries.

The notion is that networks and marketplaces may operate without the need for third parties in a future enabled by decentralized and secure blockchains. But most experts concur that a fundamental issue needs to be resolved if this technology is to be used more broadly. The "blockchain trilemma" refers to the issue in question.

Security. Decentralization. Scalability. Three pillars of cryptocurrencies that all appear to be striving to coexist but finding it difficult to live in harmony.

Decentralization

Decentralization is the process of spreading control over a larger area away from a single central organization, business, or government. Decentralization in blockchain allows users to operate the network using their computers (called "nodes") rather than having the network's control reside with a single company or individual.

Security

Although blockchain is naturally safe, it is not completely impervious to hackers. A hacker can change a blockchain and manipulate transactions to steal from the network if they can gain control of more than half (51%) of the network. In blockchain, security increases with the number of nodes. Those with bad intent have successfully carried out several hacks and frauds over the years by manipulating known vulnerabilities in the blockchain technology. Here are a few examples:

• Code Exploitation: Less then three months after its launch, DAO was hacked and $60 million of ether was stolen. This happened in 2016, after raising $150 million UDS worth of ether (ETH) through a token sale. The DAO was hacked due to vulnerabilities in its code base. The Ethereum blockchain was eventually hard forked to restore the stolen funds.
• Stolen Keys: Nearly 120,000 units of digital currency bitcoin worth about US$72 million was stolen from the exchange platform Bitfinex in Hong Kong in 2016, rattling the global bitcoin community in the second-biggest security breach ever of such an exchange. The likely cause was stolen private keys, which are personal digital signatures.
• Employee Computer Hacked: South Korean crypto exchange Bithumb has had around $13 million in the EOS cryptocurrency stolen in a hack it suspects was an insider job.

Scalability

Like in business, scalability in blockchain refers to how big a network can go while still keeping the same level of output and transaction speed.

When decentralization and scalability operate together, security often suffers, while scalability-enabling innovations are constrained by security. Why? Basically because scaling decentralized networks is challenging and requires some additional work.

According to the trilemma, a blockchain network cannot simultaneously satisfy all three requirements. For instance, the scalability and security of a blockchain network with a high degree of decentralization are likely to be lower. Highly scalable blockchain networks are likely to be less secure and decentralized.

A major issue currently facing the blockchain community is this trade-off. To enable blockchain networks to strike a balance between scalability, security, and decentralization, researchers and developers are searching for solutions. Off-chain scaling, sharding, and proof of stake are some suggested fixes.

The trade-off between scalability, security, and decentralization that occurs in every blockchain-based system is known as the "Blockchain Trilemma," to sum up. The industry and community are still trying to come up with a solution, but finding the right balance between these three qualities is essential for the adoption of blockchain technology.