Blockchain trilemma or scalability trilemma is often just stated as a rule, which is not the case. It is not necessary that blockchain may never achieve optimum levels of decentralization, security, and scalability. Before diving any further, we need to understand why or how this gets introduced in current public blockchains. We explain the tussle among the three qualities with the example of the Bitcoin blockchain.
Bitcoin’s breakthrough was that it solved the double-spending problem without a central entity. ‘Without central entity’ is a key here as double-spending is a trivial problem in centralized settings. The goal, always, was to facilitate the exchange of value between two parties with trust minimization. Trust minimization takes place when there are no centralized entities which meant that bitcoin relies on multiple miners (instead of one clearing house). Bitcoin introduces a delay in the form of blocks to ensure that the majority of the miners had sufficient time to verify transactions. It means that sacrificing speed was a conscious choice to ensure trust minimization or decentralization. The simplest way to increase speed or scalability is to reverse the decision of introducing time lag to ensure decentralization. All other blockchains are built with bitcoin in their DNA in some shape or form.
The network first needs to agree on the validity of the transaction to settle it. If the system has a large number of participants, the agreement may take time.
Therefore, given similar security parameters, we see that scalability is inversely proportional to decentralization.
Thus, a blockchain cannot optimize for its three desired qualities simultaneously, and it must make trade-offs.
The most recent observation of trilemma at play was Ethereum. In the wake of the rise of Decentralised Finance (Defi) applications this summer, the Ethereum platform usage surged. Ethereum cannot scale beyond a particular point. Therefore, increased demand pushed the transaction fees to the extent that it made it prohibitive for some to interact with the blockchain. Increased fees on Ethereum is an illustration of the trilemma, where we could observe that Etehreum did not scale without giving up security or decentralization. In the case of Ethereum, the emphasis was placed on decentralization and security, limiting the number of transactions per second (scalability). Users paid a higher fee to incentivize miners to prioritize their transactions.
Ethereum and Bitcoin have preferred decentralization and security over scalability. Ripple, a payment solution, prefers security and scalability over decentralization. And EOS favors scalability at the cost of decentralization and security.
