Blockchain Today

Blockchain has been continuously maturing and turning from its infancy into adolescence. Just as that of humans, this part of its lifecycle faces conflicts, needing to be overcome by the time blockchain achieves adulthood. 

Blockchains have a trilemma which they have yet to overcome and which would enable this technology to disperse throughout society. The trilemma relates to the struggles to accommodate three key elements:   
security, scalability and decentralization. 

Security

Security of the blockchain relates to the resilience it can provide to all threats, assuring that the blockchain truly is a trustless immutable system. This resilience comes in the form of making sure that 

  • the blocks are accurately created on the chain
  • by the correctly selected people
  • without corruption of the protocol or the risk of prevailing network forks through malicious intent.  

Nevertheless, security cannot be constrained solely to the functioning of the blockchain itself. Security also has to be given to the network on top of which blockchain operates. It has to be ensured that all participants receive the information of a new block being forged or minted. Furthermore, it has to be made sure that people who access the blockchain – e.g. by creating a transaction or consulting their wallet – are not hacked. 

In different media outlets, it is quite common to hear about hacks to digital asset exchanges. 51% of attacks happen in blockchain networks to users who are tricked out of their private keys. This bad news undermines any sort of confidence newcomers could have when aspiring to adopt this technology into their daily activities. Seemingly, the initial times of the internet were similar: many activities and websites were sketchy and dubious even back then, but without the amplification of today’s social media platforms, those dangers weren’t heard of as much. 

Blockchain networks may truly be secure ways in which data can be recorded and distributed in an immutable manner. Nevertheless, more time needs to go by before the public gains more trust in these systems. The Lindy effect proposes that the longer something exists the more it will tend to continue existing in the future. Blockchain does still need to exist longer and permeate more into the eyes and ears of the public in order for it to increase its adoption. 
Scalability
Scalability of a technology is what enables it to achieve mass adoption – an aspiration of any new technological development. Even the largest and most renown public blockchains face challenges in scaling to the demand in certain periods, as of now when blockchain is still in a very early adoption phase. With ongoing increase in demand, scalability options will also need to be in place in order to respond well to this growing demand. There are many reasons behind the lack of current scalability; from the architecture of the different consensus protocols to increasing sizes of blocks to fit more transactions. The consensus within this industry is that alternative developments are required to increase this supply capacity. We believe that, once scalability is thoroughly addressed, demand will quickly accelerate to meet that supply and eventually mass adoption will follow. 
Decentralization

Decentralization is a less straight-forward topic to discuss and requires an open mind in regards to the heavy philosophical part of the subject. In the blockchain space, decentralization is perceived as the ability for multiple parties to perform a certain task without the oversight of, or dependence on, a central third party – a view that sprung because of the aftermath of the financial crisis of 2007-2008. 

This is a narrow view as to what decentralization could be understood as, but there is more to it:  

  • Why not decentralize the developers of the protocol: those who dedicate time and effort in upgrading blockchains with new features?  
  • Why not decentralize the hardware producers that enable blocks to be forged through proof-of-work protocols?  
  • Why not decentralize the programming languages in which different blockchain protocols are written, by diversifying development of nodes to more than one language?  
  • Why not use multiple network protocols to propagate the information of each block to the different peers? 
  • Why not allow the network users to decide what the development updates should be as opposed to a central team? 

This rationale could go on and on, and we believe that the conclusion we would reach is that nothing can be purely decentralized in all its facets, so a balance needs to be reached. There need to be discussions about what we can live with when it comes to the notion of decentralization, at any point in the evolution of this industry. 

Currently there are a series of compromises within this trilemma of security, scalability and decentralization that blockchain platforms opted for during their design process. This usually means the fulfillment of one or two of the trilemma vertices, conceding on the third.  

  • Compromises as mentioned, come in the form of providing enhanced security, meaning more verification time or confirmation blocks ensuring higher probabilities of the certainty of a transaction being validated. However, this also means crippling any attempt to scale these solutions.  

  • Another example would be promoting more decentralization which would hamper scalability: The network in its current design has constraining effects to transaction output. Also, through increasing throughput of the system, more centralization would inherently be required. The concession of system control would be needed to a more restricted number of parties, or through the need to reduce security parameters such as honest majority thresholds. Increasing the size of each individual block means that more transactions can fit into each block which would increase throughput. Even so, the counterargument is that over time there would be a reduced number of entities that could manage the full size of the blockchain and continue with the resources, to store the data and perform all the necessary verifications. 

Managing these three points of constraint has been the battle of this sector for several years. As blockchain is still at a very early stage of its technological adoption lifecycle, there has been little to no solutions to overcome these conflicting goals.   

So, what are the ingredients to solve the problem?

The promises of blockchain have yet to realize any meaningful fruits for corporations or the economy in general, where adoption will really take place. To some extent, this expansion into economic activity has been limited due to the trilemma described above.   
Therefore, we see two alternative forks in the road for blockchain to be able to evolve:  

  • On one hand, blockchain can live with its current compromises between the trilemma, assuming that these trade-offs are accepted. 

  • On the other hand, solutions can be developed that help overcome the limitations of each of the single elements within the trilemma: 

On the security front, the avenue to provide greater security to not only blockchain protocols but to network and user experience is multifold. For the protocol layer and network sides, academic research in cryptography and network architecture are the main contributing factors to enable shorter, quicker verifications as well as ways that proofs can be summarized and easily verified. 

Another factor needing significant focus is providing more information on security knowledge to interface users of the blockchain, from basic private key safeguarding techniques to more awareness to this overall theme. In blockchain, given the decentralized nature of these protocols, there are no customer support or consumer protection governing bodies, therefore each individual user must burden a risk when interacting with these protocols. Overcoming some infosec knowledge gaps can help minimize some of the hacks occurring in these interactions, and can help support more trust. 

Scalability has been the major hindering factor to greater adoption of blockchain solutions, as the supply is greatly insufficient to meet the demand of transactions in certain periods on these networks. The major constraints for proof-of-work platforms are the cost-benefit of dedicating compute resources to verify the blocks on the network and to receive rewards for performing those activities. Given the security requirements and the performance of the protocols, blockchains require a lot of time to fully ensure settlement (we are talking an hour on Bitcoin). As a comparison to existing payments networks, Mastercard and VISA can process on average 3500-5000 transactions per second (TPS). The two biggest blockchain networks can process 7 and 30 TPS. So, there is a long way for blockchains to even catch up with existing centralized systems. 

A technological innovation step is required to meet and surpass these levels of scale that currently exist in legacy systems which should not be considered design targets. With the prospect of machine-to-machine communication and transactions, occurring between devices as a result of developments in the Internet of Things revolution, it isn’t unreasonable for the current thresholds of TPS to be completely dwarfed in the future. So, for blockchains to become relevant in the future, the design targets of these networks should be orders of magnitude higher than what currently VISA and Mastercard process. 

To achieve these data exchange targets, solutions are under development in a variety of areas, many of which require further research or deeper testing and validation. Overall, there are none at production level. 

One form of scaling is by using a proof of stake, rather than a proof of work consensus algorithm.

One form of scaling is by using a proof of stake, rather than a proof of work consensus algorithm. Another way is by assuring a more efficient propagation of data across the network. However, these are small incremental changes that do not seem sufficient even to meet today’s current processing capabilities. 

Layer 2 solutions which sit on top of the primary blockchain consensus layer (layer 1), specifically designed to increase throughput, are one avenue to address scaling issues. Other routes consist of sharding the ledger, which basically means dividing the ledger of transactions or balances into multiple smaller ledgers. This way, validators can split focus on one specific shard of the ledger, and then group all shards together to ensure full blockchain validation at specific checkpoints. With this solution, the blockchain could theoretically have ‘n’ times throughput where ‘n’ is the number of shards of the ledger that are created. Other solutions are under design. These do not require ledger sharding and manage to separate out-payment channels that enable micro-transactions with immediate settlement. 

Even with solutions that resolve the initial trilemma, it must be expected that other constraints appear and take over in relevance to the current ones.  

As an example, one of those constraints is protocol governance: 

  • How are these decentralized protocols updated?  

  • What features should be implemented and what is the decision process for such software updates?  

Answering these questions will be imperative for future evolutions of blockchains. These themes have appeared in this space but have not been fully answered and are still in early stages of development. 

Data storage of the blockchain is another point to consider for the future:  

With large scale adoption of this technology, who will have the capacity to store all this blockchain data on their computers or servers?  

Innovative ways of summarizing proofs, pruning data and an overall discussion on whether we really need to keep the entire blockchain, will be additional points of focus in the future. 

These are some of the challenges that blockchain will need to overcome today, alongside the journey of scaling this technology and adding other features for mass adoption. Latter we will cover in our next episode of our blockchain series. 

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