Understanding Decentralization and Crypto’s Blockchain Technology: [A Beginner’s Guide]


One of the major roadblocks to crypto’s general acceptance is its absence of scalability in the blockchain industry. As cryptocurrencies become more popular, so will the demand for the blockchain technologies that underpin them. We may anticipate seeing both blockchains operating together in such a single system if this problem is fixed.

Blockchain and cryptocurrencies are built on the principle of decentralization. For the project to be successful, there has to be no central authority or body in charge of it, eliminating the need for third-party intervention. As an example, there are banks in the conventional financial sector. There is an intermediary between you and your money that is centralized. In return for security, we give up part of our authority over our money to banks, which are responsible for providing a secure place for us to keep and transmit money.

Individuals have direct access to their money via blockchain-based decentralized networks. Having no one in charge of the system is excellent, but it has some drawbacks. For one thing, transaction times may be longer, and the system is more difficult to grow because of the enormous volume of data being processed.

Knowing scalability in the blockchain

Scaling a computer system increases the number of transactions per second (TPS) it can perform.

A system’s “throughput” is the number of transactions it can handle per second. 

Layer Two blockchain technology is presently being used by a large number of individuals. The use of smart contracts in these systems allows for automated transactions. Despite the complexity of this technology, it all boils down to the capability to trade and invest that it has provided through trustworthy channels. There are cryptocurrencies like Codaprotocol that work like a tiny and portable blockchain, which could enable a cryptocurrency to be as accessible as any other app or website.

As the value of Bitcoin rises, blockchain developers aim to widen the scope of blockchain administration. There are two ways of reducing processing times and increasing transactions per second: increasing the scalability of the blockchain’s layer two.

What’s this Trilemma?

To solve one of these problems, computer scientists in the 1980s developed the  (CAP) concept notion of consistency, availability, and partition tolerance. Only two of these assurances can be satisfied simultaneously when using decentralized data storage systems like blockchain.

This concept has given birth to the blockchain trilemma when seen through the lens of today’s contemporary distributed networks. According to conventional wisdom, public blockchain infrastructure must forgo security, decentralization, and scalability to be secure.

Blockchain technology’s holy grail is to achieve internet-scale transactional throughput while maintaining impenetrable security over a broadly dispersed network.

Three points should be kept in mind: security refers to the blockchain’s ability to protect data from various types of attacks and its defense against double-spending; scalability refers to the blockchain’s decentralization; and network redundancy ensures that no single party has complete control over the network.

Scalability, security, and decentralization

Before a transaction can be paid out, the network must verify its validity. With a large number of players in the system, obtaining an agreement may take some time. While decentralization reduces scalability, security needs remain constant.

As the hash rate improves, the system’s security and scalability improve, as transactions can be confirmed more quickly. Decentralization and size, as a consequence, are intimately intertwined.

A blockchain is compelled to make trade-offs to achieve all three desired characteristics simultaneously. The trilemma has been implemented in Ethereum. On the Ethereum platform, Decentralized Finance (Defi) applications have witnessed significant growth in popularity. The expansion of Ethereum is restricted.

Due to the increased demand for blockchain transactions, several customers have found it excessively costly. The increasing fees on Ethereum illustrate a trilemma, indicating that scaling Ethereum does not jeopardize its security or decentralization.

Miners favor users that pay more fees. Scaling is a secondary concern for Bitcoin users compared to decentralization and security.

Scalability is a well-known property of blockchain technologies such as Bitcoin and Ethereum. A global community of start-ups, enterprises, and technologists is tackling the blockchain trilemma.

Speed, security, and development are the primary objectives of layer one blockchain networks. 

Bitcoin Cash (BCH) features a bigger block size to facilitate scaling. Whatever the case, it does not seem to be gaining traction.

The Bitcoin blockchain is being expanded with an additional layer to remedy this problem. Many transactions, in principle, will be pooled and only very rarely available through the base layer blockchain. With the base layer blockchain sharded, a multitude of layer two solutions are anticipated to significantly increase throughput.

Bottom Line

Even though the Blockchain Trilemma poses major barriers to blockchain technology adoption, new ideas may provide a remedy. The objective is to achieve a good balance of network security, decentralization, and scalability. While the CAP theorem has been valid for almost 40 years, the adoption of Layer-1 and Layer-2 solutions and the introduction of Proof-of-Stake systems are altering the trend toward decentralized, secure, and scalable blockchain networks.

Even though it was only an idea at the time, a “trilemma” has remained. Based on the available evidence, this hypothesis seems to be valid, albeit it has not been tested or ruled out. 

It’s important to remember that the Trilemma is only a symbol of the many challenges that blockchain technology confronts. There are no restrictions on your ability to complete all three tasks. Several teams have thus far placed a premium on decentralization, scalability, and security.

The Trilemma’s nature complicates attaining decentralization, scalability, and security in any blockchain system. Despite the excitement, blockchain technology is still in its infancy.

Read More: Understanding Decentralization and Crypto’s Blockchain Technology: [A Beginner’s Guide]

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