Is The End Of The Blockchain Trilemma In Sight?

Building blockchain systems that are at once decentralized, scalable and secure has been an ongoing challenge since the very beginning. The issue, long thought to be unsolvable, is so common in Web3 that it has its own name: the blockchain trilemma.

But advances in technology mean that, at long last, a solution is within reach.

In the past, Web3 builders were forced to choose only two of three possible attributes. Blockchain projects that were scalable and secure could not be decentralized; those that were decentralized and secure were not scalable. Too often, it was decentralization that lost out to scalability. And yet decentralization is the foundation on which all the promises of the blockchain — censorship resistance, openness and data privacy — are founded.

The process of scaling tBTC, a permissionless, decentralized Bitcoin-to-Ethereum bridge, has led us to the conclusion that we no longer have to sacrifice decentralization in order to achieve scalability and security. Nor are we alone in this discovery: Multiple developments have recently emerged that facilitate secure, widespread decentralization.

Layer 1 Blockchains Are Becoming More Scalable

As the name suggests, Layer 1 blockchains constitute the foundations of all Web3 ecosystems. They remain essential in the march toward decentralization at scale.

In the earliest days of blockchains' development, many networks — including Bitcoin and Ethereum — were built with Proof-of-Work (PoW) algorithms. But scaling PoW networks means investing ever greater amounts of money and energy into high-powered computers to perform the necessary computations. That's why a recent shift toward Proof-of-Stake (PoS) consensus algorithms is so promising. PoS networks choose transaction validators based on the size of their stakes in a network. This lowers the barrier to entry for validators and increases their numbers. The more validators, the greater a decentralized network's scaling capability.

Technological solutions like sharding are also helping make blockchain solutions more scalable. Sharding spreads data storage requirements across an entire network, meaning that every node doesn't need to hold 100% of the data. Ethereum's latest major software update, known as The Merge, is an example of both sharding and PoS in action.

Layer 2 Solutions Take the Load Off of Main Blockchains

Layer 2 solutions also play an important role in enhancing scalability. While these networks are not completely decentralized themselves, they have been an important force in making the decentralized application (dApp) ecosystem more functional and accessible. On Ethereum, Layer 2 solutions include Polygon, which just this month launched its zero-knowledge EVM testnet as well as Arbitrum and Optimism. Bitcoin's most popular Layer 2 solution is the Lightning Network.

Each Layer 2 solution employs a mix of technologies to increase a network's transactional throughput. For instance, side chains are separate blockchains that run parallel to the main network and are connected via two-way "bridges." Nested blockchain architecture places smaller blockchains atop a larger blockchain network to execute tasks. State channels facilitate two-way communication between a blockchain and off-chain channels where transactions take place.

Cross-chain Bridges and Interoperability

Creating a truly scalable blockchain ecosystem requires an architecture that supports the flow of value not just within blockchain ecosystems, but between them. So beyond the technological solutions that increase blockchain salability at the Layer 1 and Layer 2 levels, cross-chain bridges connect independent blockchains to allow the transfer of assets and information.

Bridges allow people to use assets across multiple blockchains more easily, greatly expanding the universe of possible activities. For instance, Bitcoin-to-Ethereum bridges give users the ability to use their BTC in dApps on the Ethereum network.

Bridges are therefore an important component of interoperability, which ultimately makes the entire blockchain ecosystem more accessible, and scalable, to users everywhere.

Bridges' success in making blockchain networks more accessible has also attracted hackers — some of whom have successfully made off with tens of millions of dollars, as in the recent attack on Binance. This has caused some to view cross-chain bridges as a potential vulnerability in Web3 networks. Yet we must remember that all the bridges that have succumbed to attacks have shared a fundamental security vulnerability: centralization.

Because centralized platforms concentrate activity, hackers only need to overcome a finite set of defenses in order to breach the entire system. In decentralized networks, the attack surface area is spread across a vast number of nodes, of which hackers must compromise a majority if they are to succeed. This is why decentralized bridges are so important for securely scaling blockchain ecosystems.

And there's another key ingredient. For a solution to be truly decentralized at scale, its organizational design must also distribute power amongst the participants. Decentralized Autonomous Organizations (DAOs), for instance, are novel governance structures that spread authority throughout communities, rather than to a small group of decision-makers. This can help ensure that a project's growth is shaped collectively — that there are no monopolies on decision-making power.

Scalability, Security and Decentralization Can Coexist at Scale

True secure and scalable decentralization has not yet been realized across the entire dApp ecosystem, but the technology to make it happen is rapidly expanding.

Decentralized solutions being built today have the power to support just as many users as traditional, centralized financial services do. As this tech continues to develop, builders will no longer have to make tradeoffs between scalability, security and decentralization — and neither will users.

(Doug von Kohorn is head of product at Threshold, which offers people a way to keep their digital assets private and secure while using a public blockchain.)