Blockchain Trilemma - Crypto Academy / S5W2 - Homework post for @nane15.
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1)Explain in your own words what the Blockchain Trilemma is.
Blockchain Trilemma
Before we dive into what blockchain trilemma is let’s first get to know what blockchain and trilemma are in separate terms:
Blockchain.
We all know that blockchain is a technology that enables the movement of one digital currency or say blockchain is a chain of blocks that contains information.
Now that we know what blockchain is let’s talk about the trilemma.
Trilemma: In trilemma, users are mostly given the chance to choose 2 items out of 3 or the trilemma is the difficulty in deciding between 3 solutions. In this situation, users have to choose 2 possible solutions to solve a problem.
Now that we know what blockchain and trilemma are, let’s combine the two and see how we can go about it.
Blockchain trilemma: Blockchain Trilemma is a concept coined by the creator of Etherum who is in person of Vitalik Buterin who proposed that there are three features in the blockchain that are difficult to maintain at the same time.
These features include scalability, decentralization, and security.
This is why the creators of crypto are mostly forced to abundant one for the sake of the other two which mostly leads to problems for users and developers.
Blockchain is all about its decentralized nature for which crypto traders can’t do without because the crypto their developing isn’t decentralized then it does not obey the rules of cryptocurrency.
Scalability defines the rate at which transactions are made, most cryptocurrency takes a long time to process due to their low scalability.
Security: this is the main important aspect of every cryptocurrency because, without tight security, hackers have the chance of breaking into the system and manipulating data.
2)Is the Blockchain Trilemma Really a Trilemma?
Blockchain trilemma tells us that there is three feature and that it’s impossible to fulfill all these features and that crypto traders are forced to choose 2 out of the three.
Let’s take a look at Bitcoin for example,
It runs on a decentralized network and the security of Bitcoin is prone to attack which means hackers find it difficult to penetrate through. But one thing it fails is the scalability, which is why it takes a long time for Bitcoin transactions to complete because it has a low scalability rate. This is why blockchain is a trilemma.
Hence, blockchain is a trilemma.
3)Define the following concepts in your own words:
A. Decentralization
B. Scalability
C. Blockchain Security
Among all the major features, decentralization is the easiest to implement in the blockchain network. The only things crypto developers have to do is to make sure that there is no central authority reign and also make sure that there is a sufficient number of nodes powering the network.
The important thing about decentralization is that everyone shares equal power with other users and no individual has special rights or power in the decentralized system.
Unlike the banks, there are no entities that can restrict your freedom or freeze your accounts.
Thanks to the creation of Bitcoin that eliminated third parties entities when it comes to transactions. It only involves the buyer and the seller (peer to peer network)
For the fact that decentralization is a good idea, it does not make up the fact that developers have to give it up in other to improve upon the speed of transactions.
To improve peak decentralization, blockchain networks utilize the proof of work consensus model, which means the high number of nodes, the more decentralized the blockchain is.
One disadvantage of the proof of work is that it consumes a lot of energy and can’t scale well with a large number of users.
It’s the measure as to how blockchain networks are when it comes to processing transactions, rather than binary features, scalability is a scale that at any time reaches both ends of the spectrum depending on the workload at hand.
Certain crypto projects boost their amazing speed by listing numbers comparable to that of leading payment processors like the VISA and Mastercard.
In other, for crypto to improve upon its scalability, it will have to reduce the rate at which it runs on the decentralized network and increase its scalability.
Scalability is advantageous because.
It helps blockchain by supporting a higher workload as compared to the current standard for the public and decentralized networks.
None of all these aforementioned is useful without security, malicious activities can distrust the blockchain network by manipulating transactions.
On blockchain networks that feature the smart contract functionality, the issue is far worse all though hackers affect the ledger, but they do have the ability to perform exploit features like the flash loans thereby manipulating investors in the network.
The goal is to maintain stability and also function its network decentralized so that data in the network can’t be manipulated.
An important thing is that security can’t be sacrificed for either scalability or decentralization.
Security is very important when it comes to creating a blockchain because, without security, hackers get to manipulate data to their advantage.
4)Based on your knowledge, explain at least two viable solutions to the challenges posed in the Blockchain Trilemma.
Layer 1 Solution
To understand the layer-1 solution, we have to first look at the scalability of blockchain.
Despite blockchain providing its users with a variety of benefits such as decentralization, a high level of securities. Blockchain comes with a lot of drawbacks.
As blockchain gains more and more popularity, various issues surface such as the issue of scalability.
Scalability is responsible for measuring how many transactions are performed per second.
Let’s consider the increased usage of cryptocurrencies in our everyday life, the need for the blockchain layer has also grown such layers are necessary for ensuring that there is higher security and speed, better recording keeping, and so on.
In layer one’s solutions, its purpose is to improve upon the base protocol itself to make the scalability of blockchain possible.
Currencies like Bitcoin and Ethereum are all considered layer 1 blockchain. In this layer, rules of the blockchain’s protocol are changed to increase the speed at which a transaction takes and also the capacity which will help to accommodate more users and data.
Let’s say a layer 1 solution could be used to accelerate the speed of block confirmation on how much data a block can contain.
Such a solution will help to increase the network.
We have two types of layer 1 solution which includes the Consensus Protocol Changes:
Some consensus mechanisms are more effective than others, projects such as the Ethereum are moving from the slow proof of work mechanism to the proof of stake which ensures higher spoken and more energy efficiency which doesn’t involve miners trying to solve complex cryptography.
Another type is the sharding:
Sharding is popular in terms of scalability and it is a mechanism that has been adapted from the distributed databases.
In sharding, transactions are broken down into smaller pieces which are mostly processed by the network in a parallel form.
Since workloads are often spread across the peer to peer network, blocks are mostly completed faster.
Layer 2 Solution
They are the secondary framework that is built on top of an existing blockchain and operates without tempering with the base layer protocol by performing a great portion of the work.
Layer 2 solutions ensure high throughput, reaching even thousands of transactions per second.
It also enables its users to make micro-transactions at low fees.
In layer 2 we have so many types which include the side-chain.
In the side-chain, a unique blockchain is attached to two main chains using the two-way peg. Token and digital assets from blockchain one can be used in another blockchain and then, later on, be moved back to the original chain when needed.
Sidechain functions on their own which form the main chain and are responsible for their security. This means the side chain needs a mechanism for achieving consensus whiles protecting from bad actors. Being functioned on its means that Incase the side chain ever gets compromised, it will have no impact on the operation of the main chain.
Conclusion
Blockchain trilemma is a huge problem faced my most crypto developers in the world.
They are mostly faced with the difficulty of which feature to choose.
Some developers choose the scalability of their currency which makes transactions fast but then doesn’t run on the decentralized network making the currency centralized.
Most developers like Bitcoin too also choose to run their currency on the decentralized network which is why it has no central control but one disadvantageous thing is the low scalability.
It takes Bitcoin a whole lot of hours for a transaction to be completed.
With the study of layers, crypto developers stand the chance of improving upon the scalability and decentralized nature of their currency without having to choose which one they will like to use.
I stop here by saying a big thank you to professor @nane15 for giving us search an exclusive lecture on blockchain trilemma