The Scalability Trilemma in Blockchain

Decentralization

  • Decentralization, at a philosophical level, aims to bring power back to the community. By using a blockchain, where the rules of governance are literally codified and cannot be edited, one can maximize distribution of influence, wealth and ownership across the community.
  • The more decentralized a system, the more secure (typically). There is no central point of failure or hack. There are, however, certain ways to hack even the most decentralized systems.
  • Decentralized protocols like Bitcoin or Ethereum often use PoW mining to produce new blocks. This form of mining requires validators to solve difficult hash puzzles. As a result, this not only uses vast amounts of energy, but also compromises on performance and speed. This can be problematic for use-cases that require high throughput.
  • The downside to leaving disputes up to the community, is that there is no central moderator. For certain use-cases, like Social Media, this would enable the publication of hate speech or fake news, for example.
  • It is hard to shut down a decentralized blockchain, as there is no centralized server or party. While also stated as one of the core benefits, in a scenario where a destructive use-case were to arise, this would cause a problem that would be hard to resolve, apart from by the community itself.

Security

  • >50% Attack — an entity (or set of entities) that owns more than 50% of the total tokens outstanding, effectively owns the network
  • Sybil Attack — an entity (or set of entities) could forge multiple (hundreds, thousands or more) identities on a system in order to effectively control a significant stake in ownership and/or decision making of the network
  • Penny spend Attack — an entity (or set of entities) that flood the network with low-value transactions in order to stop the network from running
  • Distributed Denial of Service Attack (DDoS) — occurs when there is intent to disrupt traffic in a network by flooding the network with malicious transactions
  • Collusion Attack — one or more entities (or nodes) decide to collude together to perform some malicious operation(s) on the network
  • The primary benefit of robust security is that the blockchain is less vulnerable to attack. This is ideal for applications that require sovereign grade security and deal with confidential data. Anything in the realm of financial services would likely require the highest degree of security. Even crypto exchanges — one of the biggest targets of hackers — would be far better suited to deal with such attacks if built on a blockchain. (Indeed, we discuss the prospect of a new set of dApps — decentralized crypto exchanges — as one of the more promising ideas for future dApps on Eos).
  • There are no downsides to maintaining robust security, but in order to do so there are a few second-order effects that are concerning. Many secure blockchain networks utilize PoW protocols — these require complex hash puzzles to be solved prior to block production — but more importantly, these protocols use up an immense amount of computing power and energy. Consequently, this reduces throughput and increases network latency, a strong deterrent for many potential users, that are used to near-instantaneous transaction times on centralized networks. This is still a worthwhile tradeoff for platforms that put a premium on security, but for ones that attempt to optimize user experience, this is certainly a strong consideration.

Scalability

  • Scalability ensures that the application runs quickly and that it can support a high volume of transactions. As we mentioned, this is especially useful for audio/video streaming sites, gaming, and social media.
  • The application is less likely to break down if user demand is greater than originally planned (Cryptokitties, for example, which was run on Ethereum, was not very scalable and ran into major issues because of this:
  • The costs to achieving infinite scalability primarily regard security. Almost all of the above security risks become greater with a network of massive scale. In addition, quickly growing networks will require a fast consensus mechanism, in order to validate more transactions while delivering the same speed to individual users. This can only occur in Proof of Stake or Delegated Proof of Stake. This compromises decentralization. If the protocol is Proof of Work, the hash puzzles or mining algorithms would need to be easier in order to have a commensurately fast validation process. This compromises security, and also decentralization to an extent (mining pools would thrive if hash puzzles were made easier).

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