Blockchain is a distributed database that allows for secure, transparent and tamper-proof transactions. It’s often touted as a solution to many of the problems plaguing the world’s financial systems, including high transaction costs and fraud. But how does it work? And what are the benefits? In this blog post, we will explore what is blockchain trilemma and its implications for the future of finance.
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What is blockchain trilemma?
The blockchain trilemma is a problem that blockchain technology faces when trying to achieve widespread adoption. The three problems are scalability, security, and governance.
Scalability is the ability to handle a large number of transactions. Currently, blockchains are not able to handle more than a few dozen transactions per second. This limits the potential for how much money can be transferred across the network and how quickly assets can be traded.
Security is the protection of data from unauthorized access or alteration. Currently, blockchains are not able to provide complete security because they are decentralized and rely on nodes to keep track of all changes made to the ledger. If one node were to be hacked, it could compromise the integrity of the entire network.
Governance is the ability to manage and control who has access to information within a blockchain system. Currently, blockchains are not able to provide complete governance because they are decentralized and rely on nodes to determine who gets added to the ledger and what privileges they have. This creates a risk that powerful entities could gain too much control over the system
The three core properties of a good blockchain
Blockchain technology is based on a fundamental property of blockchain networks – that is, all nodes in a blockchain network must agree on the current state of the ledger before any new transaction can be added. Simply put, this means that the ledger cannot be altered without the unanimous agreement of all nodes.
This property, known as the “trilemma”, has led to the development of various applications based on blockchain technology. These include cryptocurrencies such as Bitcoin and Ethereum, which are used to conduct transactions between two parties without the need for a third party (such as a bank).
The trilemma also forms the basis for another important application of blockchain technology – smart contracts. Smart contracts are computer protocols that enable two or more parties to exchange information and value without having to go through a middleman (such as a lawyer). This is useful because it eliminates the need for third parties who may charge high fees for their services.
While the trilemma is an important property of blockchain networks, it does have limitations. For example, it prevents nodes from lying about the state of the ledger (i.e., tampering with data). This limitation has led some experts to call blockchain technology “trustless” rather than “transparent”.
How blockchain trilemma leads to scalability issues
Graphs illustrating the blockchain trilemma can be found in many places on the internet. The trilemma is a problem that blockchain technology faces when it comes to scalability, privacy, and permanence.
Scalability means that the number of transactions that can be processed in a given time period. Bitcoin, for example, can process only around seven transactions per second. Ethereum has been designed to process more than 20 000 transactions per second.
Privacy refers to the ability of a blockchain to keep track of who owns what without revealing that information to outside parties. This is important because it allows people to transact without fear of being tracked or spied on by governments or other organizations.
Permanence refers to the question of how long a record or transaction will remain valid and undetectable by outsiders. Bitcoin and Ethereum both have an expiration date (sometimes referred to as a “hard fork”) for their records so that they cannot be used indefinitely.
Solutions to the blockchain trilemma
The blockchain trilemma is a problem that blockchain technology faces when trying to solve the problem of trust. The blockchain trilemma states that there are three ways to create a trustless system:
1) using a centralized authority,
2) using a distributed authority
3) using a combination of the two.
The first option, using a centralized authority, is not possible because it would require someone to control the authority and maintain integrity of the system.
The second option, using a distributed authority, is not possible because it would require everyone in the network to have an equal amount of power and be able to agree on decisions.
The third option, using a combination of the two, is the most likely solution because it allows for both decentralization and centralization.