“The Blockchain Trilemma” is a theory put forward by Vitalik Buterin, one of the co-founders of Ethereum, in 2017. It highlights the challenge of balancing decentralization,security,and scalability within blockchain technology. These three characteristics are intertwined in blockchain systems, where enhancing one often leads to a trade-off with the others, forming what is known as the trilemma.

The Blockchain Trilemma

Decentralization

Decentralization is a fundamental feature of blockchain technology. By utilizing distributed storage and computational power, blockchain networks ensure that all network nodes have equal rights and responsibilities. This setup allows for transparency, where data and transactions are openly visible to all participants. Additionally, the distributed nature of blockchain ensures that data copies are spread across multiple nodes, enhancing security and stability.
As blockchain operates based on cryptographic algorithms rather than trust certificates, it eliminates the need for intermediaries and trusted institutions, simplifying traditional trust mechanisms. Through blockchain’s features, parties can establish trust and collaborate without the involvement of third parties.
However, the decentralized nature of blockchain networks requires consensus among all nodes, which can result in slower processing speeds and longer transaction confirmation times, significantly constraining the system’s performance and scalability.

Security

Security is a fundamental pillar of blockchain networks, essential for withstanding malicious attacks. A robust blockchain network must possess the capability to resist such attacks, as the lack of security can undermine the true value of a blockchain system.
Taking the security of the Bitcoin blockchain as an example, it combines cryptographic techniques with the Proof of Work (PoW) consensus mechanism. From a cryptographic perspective, each block has a unique digital signature, known as a “hash value.” Any alteration to the data results in a change in the hash value, ensuring that data is securely linked in a tamper-proof manner. The PoW mechanism requires nodes to solve complex mathematical problems to validate transactions and create new blocks. An attacker would need to control more than half of the computational power to launch a successful attack, safeguarding data integrity and network stability. Additionally, an increase in network participants contributes to enhanced security, making it more challenging for malicious actors to control the entire system and mitigating the risk of a “51% attack.”
While ensuring security is paramount, technologies such as PoW and cryptography can impact blockchain scalability due to computational complexities, affecting efficiency.

Scalability

Scalability refers to a blockchain system’s ability to process transaction information. The scalability of a blockchain system is heavily reliant on transaction processing performance, often measured by TPS (transactions per second). Existing blockchain systems encounter significant performance issues when handling large-scale transactions, making scalability a critical bottleneck in current blockchain development.
In decentralized blockchain systems, every transaction requires consensus across all nodes, ensuring system security and decentralization but limiting scalability. As the number of nodes increases, the time and bandwidth costs for transaction verification also rise, leading to decreased system performance. Currently, Bitcoin’s network TPS is approximately 7, Ethereum’s network TPS is around 14, in stark contrast to the average of 63,000 TPS processed by global payment platform Visa. The low TPS of mainstream blockchain systems poses a significant obstacle in practical applications.
While it is possible to enhance transaction efficiency through various technical mechanisms, such as Solana achieving an average TPS of 2000 or ICP reaching an average TPS of 3000, these advancements inevitably impact the decentralization of the blockchain to some extent.

The Current Status Of The Blockchain Impossible Triangle

According to a 2022 report by Bloomberg, as of September, Bitcoin struggles to process more than 7 transactions per second, while the second most popular Ethereum network handles around 15 transactions per second. Compared to traditional trading platforms, this is so slow that it calls one’s whole existence into question.
If blockchain technology is to serve a broader society in the future, facing the same number of users as traditional platforms, scalability is the inevitable path for blockchain upgrades. However, expanding the network would require reducing the number of participants, which in turn impacts the core decentralization of blockchain. Moreover, a decrease in participants raises the likelihood of attacks, thereby compromising security.
In situations where these three aspects cannot be reconciled, people still choose decentralization, the core goal of blockchain and security as the network’s cornerstone within this “impossible triangle”. In such a scenario, the processing of transaction numbers on a single chain is severely limited, making scalability a bottleneck for blockchain development.
In conclusion, in today’s blockchain landscape, when decentralization and security are closely intertwined, scalability often becomes challenging to achieve. The trade-offs among these three elements lead to the formation of the impossible triangle.

Solutions To The Blockchain Trilemma

In practical applications, while a perfect solution that balances all three aspects has yet to emerge, continuous efforts and experimentation have given rise to some widely adopted solutions.

Layer-1 Solutions

Layer-1 solutions refer to enhancements and optimizations made to the underlying protocols in blockchain technology to improve the overall network’s performance, security, and scalability. By adjusting and upgrading the foundational protocols of blockchain, higher transaction throughput, lower transaction costs, and improved decentralization can be achieved.
A prime example of a Layer-1 solution is Ethereum 2.0, which has transitioned from the Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS), enhancing transaction confirmation speeds and network scalability while reducing energy consumption. Another noteworthy example is the Solana blockchain, which utilizes a novel consensus algorithm called Proof of History to achieve transaction processing capabilities of thousands per second while maintaining low transaction fees.

Layer-2 Solutions

Layer-2 solutions are scalability solutions built on top of blockchain’s underlying protocols, aiming to boost transaction processing speeds, reduce costs, enhance user experience, and alleviate the burden on the underlying blockchain network. These solutions settle transactions and process data off-chain to achieve efficient scalability without directly impacting the main chain, thereby preserving the security and decentralization features of the underlying blockchain.
A typical Layer-2 solution is the Lightning Network for the Bitcoin network, enabling fast and low-cost microtransactions, easing the transaction load on the Bitcoin main chain. Another example is Rollups, a Layer2 solution for Ethereum, which compresses a large volume of transaction data into a single block, significantly improving Ethereum’s scalability and throughput while maintaining security and decentralization. These Layer2 solutions bring higher efficiency and scalability to blockchain networks, offering users a better trading experience.