abstract

The number of transactions processed by blockchain per second is limited. For example, the Bitcoin network can process about seven transactions per second. After the widespread adoption of blockchain technology, data processing capabilities and speeds will be greatly improved, and an increase in the number of users will not slow down the network or increase costs. However, the basic design principles of many decentralized networks focus on improving scalability, often weakening decentralization or security. This is exactly the so-called “blockchain triad paradox”. Developers are trying different consensus mechanisms, as well as scalability solutions such as sharding, sidechains, and state channels, hoping to solve this problem.

introduction

In short, blockchain is a distributed digital database. The data blocks are organized in chronological order. Each block is connected through encrypted proof and secured. This technology has been implemented in various industries and is changing our work and lifestyle. This concept refers to the idea that after the emergence of secure decentralized blockchain, people can maintain the operation of the world without relying on third-party networks or markets. However, experts generally believe that in order for this technology to be widely popularized, the first core issue to be addressed is the widely discussed “blockchain triad paradox”. Ethereum co-founder Vitalik Buterin made this term widely known. To understand this concept, it is necessary to first understand the three major elements of blockchain: decentralization, security, and scalability. The concept of “blockchain triad paradox” refers to the difficulty of blockchain in achieving optimal levels of these three attributes simultaneously. Enhancement of one attribute often leads to weakening of another attribute. This article will study the three major elements of the trilemma and provide detailed explanations one by one. A thorough discussion of each element and its interrelationships will help deepen our understanding of the ways and reasons for the existence of the blockchain triad paradox. This article will also focus on several solutions suggested by developers.

What is decentralization?

According to the design, Bitcoin and other similar blockchain networks have decentralized properties. The overall architecture of such networks is not managed by individuals or a single organization, but is decentralized. The network layer is open to all participants. Therefore, control is completely decentralized, rather than in the hands of a single entity. Everyone can access the same data. If someone tampers with the records according to their own wishes and attempts to cheat in the system, other participants can reject the incorrect data. This operation is highly technical, let’s take the Bitcoin network as an example, which does not involve third-party control. We will compare this with the dependence on banks in the financial system. Banks enhance trust between both parties in transactions and ensure proper retention of all records. However, the Bitcoin blockchain shares data with everyone in the network to ensure that the data is verified and confirmed before being added to the digital database. This gave birth to a system that does not require third-party intervention. Decentralization provides the possibility for what is known as Web3. Our current internet is in the Web2 stage. Websites and applications in Web2 are all controlled by major companies, but user generated content. Web3 is the next development trend. In the Web3 internet, people rely on decentralized blockchain technology to control their own data and online lives. However, it should be noted that the operation of these distributed systems requires a large number of participants to reach a consensus on the validity of all data, which requires information sharing and processing, resulting in slower transaction times. So, blockchain needs to be extended to process more data at a faster speed. We will continue to explain when discussing scalability. In addition, to achieve decentralization, it is necessary to first ensure the security of the underlying blockchain. If blockchain lacks security, criminals will have an opportunity to manipulate data recklessly. This extends to the second part of the triadic paradox: security.

What is blockchain security?

If there is a lack of security, no matter how high the degree of decentralization of blockchain is, it will be of no use. A robust blockchain network must be able to resist attacks from malicious entities. A centralized system is closed, thus ensuring security. The controller can ensure that the data is not disturbed. But how can security be achieved in a decentralized system where everyone can participate? This is a complex topic. Let’s talk about Bitcoin, taking its decentralized blockchain security as an example. The Bitcoin blockchain combines cryptography with a network consensus mechanism called Proof of Work (PoW). From a cryptographic perspective, each block has a digital signature, also known as a hash value. Any modification will change the hash value of the block, so each data block is connected in an immutable manner. Any attempt to change data will be quickly recognized by the rest of the network. The workload proof consensus mechanism also plays a role in effectively ensuring the security of cryptocurrency ledgers. Understanding the proof of workload itself requires a lot of effort, but for the purpose of this article, it is important to remember that network members can only verify new transactions and add them to the ledger through mining activities. This involves using computing power to solve mathematical problems. During the calculation process, these computers need to perform a large number of hash operation functions. Although the proof of work mechanism is secure, it is relatively slow, which leads to scalability issues. Please also note that the more participants (nodes) there are in the network, the more secure the network becomes. The more participants there are, the harder it is for criminals to have the opportunity to control the system. This involves the so-called “51% attack”. The general meaning of this concept is that if a single entity (or a group of criminals) controls more than 50% of the hash rate of the blockchain network, they can arbitrarily overturn consensus and tamper with on chain data, such as the Double Flower problem token. In short, security is the foundation for the success of blockchain. Lack of security, attackers can easily control it, and blockchain becomes worthless.

What is scalability?

Scalability refers to the goal of building a blockchain to improve transaction speed per second. If blockchain technology is to serve a wider society or billions of users, expansion is imperative. However, this is precisely the challenge that many blockchains are still struggling with. The reason is that decentralization and security are fundamental issues of blockchain, and therefore always receive priority attention. Decentralization is the core concept and goal of blockchain. Most well-known blockchains adhere to this core. As mentioned earlier, security is the core requirement for the success and value of blockchain. However, prioritizing decentralization and security makes scalability a challenge. The number of transactions processed by a single chain is severely limited. Centralized payment systems like Visa claim to be able to process 24000 transactions per second due to network closure and lack of influence from public nodes and consensus. Let’s compare various well-known blockchains. According to Bloomberg’s 2022 report, “As of September, Bitcoin has struggled to process more than 7 transactions per second, while the second most popular Ethereum network is limited to around 15 transactions per second. Compared to traditional trading platforms, this is simply too slow to make people doubt their lives.” As mentioned earlier, the transaction speed of these blockchains is limited due to the necessary way participants process information in decentralized networks, as well as the nature of the workload proof consensus mechanism itself. If more and more people start using blockchain technology in society, the limited transaction processing capacity of the network will lead to network congestion.

Why is there a blockchain triad paradox

The most obvious basic solution to the above problem is to reduce the number of participants who confirm and add network data, in order to expand the network and speed up. However, doing so will reduce decentralization and transfer control to a few participants. Fewer participants mean an increased chance of being attacked and can also lead to reduced security. The ternary paradox arises from this: in the basic design of blockchain operation principles, decentralization and security are closely linked as two essential attributes, making scalability difficult to achieve. The three are in a state of mutual growth and decline. How to promote scalability without compromising decentralization, security, or both?

Solving the Triple Paradox of Blockchain

There is no universal solution to the trilemma. Given the importance of addressing this issue, the community has proposed various effective solutions. Let’s provide an overview of the hot trends and keep everyone updated on the latest developments in this field.

1.Fragmentation

This is a way of breaking down blockchain or other types of databases into smaller partitioned blockchains to manage specific data segments. This setting reduces the pressure of single chain processing for all network transactions and interactions. The blockchain of each partition is called a “shard” and has its own specific ledger. After these shards, transactions can be processed on their own, but the interaction between shards is managed by the beacon chain or main chain. This has made changes to the blockchain main network, therefore sharding has become an upgrade to the scalability of Layer 1 networks.

2.Various consensus mechanisms

One major reason for the existence of the ternary paradox in Bitcoin networks is the way in which proof of work ensures security. To achieve system security, miners, cryptocurrency algorithms, and massive decentralized computing power are indispensable, but they also lead to slow systems. Seeking other methods to ensure consensus is also a way to solve the paradox of the triad. This is one of the main reasons why Ethereum has shifted from proof of work to proof of equity (PoS). In proof of equity blockchain, participants must pledge (lock) their own tokens to participate in transaction verification, but do not require highly specialized mining machines. Adding more validators to the network is simpler and more convenient. The proof of equity consensus mechanism is only one of the many methods aimed at addressing scalability.

3.Layer-2 solution

Sharding and various consensus mechanisms are the so-called Layer-1 solutions aimed at changing the basic design of the underlying network. However, other developers are studying building solutions on existing network structures in an attempt to solve the problem of the ternary paradox. In other words, they believe that the solution lies in a two-layer network, also known as “Layer 2”. Examples include side chains and state channels. Side chains are essentially independent blockchains connected to the main chain. Through this setup, assets can freely flow between two chains. Importantly, the side chain can operate under different rules, achieving speed improvement and expansion. Similarly, the state channel is another way to remove transactions from the main chain and alleviate Layer 1. The state channel does not use a separate chain, but instead adopts smart contracts, allowing users to interact with each other without publishing transactions on the blockchain. Blockchain only needs to record the beginning and end of the channel.

summarize

The trilemma of blockchain hinders the potential of blockchain technology to help change the world. If blockchain networks can only process a small number of transactions per second to maintain decentralization and security, it will be difficult to achieve large-scale adoption. However, based on the latest solutions proposed by developers to address this issue, blockchain networks can only achieve a leap in data processing capabilities in the future by continuously advancing current technological advancements.