Even though blockchains are generally considered superior to traditional networks, they are not perfect either. The problem lies in maximizing the three most important factors of a network - scalability, security and decentralization - and is known as the Blockchain Trilemma.
For each blockchain, the three properties are handled differently and give it various advantages/disadvantages. To better understand these, let's first look at each of the properties in detail:
- Scalability is the ability of the blockchain to accommodate a higher volume of transactions.
- Security is the ability to protect the data held on the blockchain from different attacks or blockchain’s defence against double-spending
- Decentralisation is the redundancy in the network that makes sure fewer entities do not control the network.
The interaction of these three factors then leads to different functions, depending on their characteristics. If a blockchain has a large number of participants, the agreement may take some time.
Prominent problem in the blockchain sector
Therefore, given similar security parameters, we see that scalability is inversely proportional to decentralisation. Now, assume that two Proof-of-Work (PoW) blockchains have the same degree of decentralisation and we can think of security as the hashrate of the blockchain. If the hashrate is higher, the confirmation time is lower and scalability increases with security. Therefore, at constant decentralisation, scalability and security are proportional. Thus, a blockchain cannot optimise for its three desired qualities simultaneously and it must make trade-offs.
