Cryptoeconomics: Technological Challenges

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# Blockchain Trilemma

A famous technological issue of the current state of blockchain technology is the so-called *blockchain trilemma*, firstly introduced by Vitalik Buterin. The trilemma states that creating a scalable, secure, and decentralized blockchain is hard — but not impossible. In fact, many of the current blockchain systems are inferior in one of these points while at least trying to optimize the two other dimensions.

[Blockchain Trilemma](

For example, while Solana has 1.764 active validator nodes and relatively high hardware requirements to run a validator node, Ethereum has currently 2.201 active execution clients and 323.264 consensus clients, while there are developments to run the full Ethereum node setup on a small single-board computer like a [Raspberry Pi]( This shows that Solana performs better — which is the case regarding the transaction throughput — than Ethereum but is also much more centralized regarding the number of validators in the network.

Polkadot and Cosmos are also trying to overcome the blockchain trilemma. Instead of having only one generic blockchain for every application scenario, they aim to create an *application-specific* blockchain that can focus on their specific application scenario.

# Ethereum´s Approach

Ethereum ́s scalability issue is quite noticeable in the high transaction fees required to perform any invoke actions on the Ethereum mainnet, especially during high network usage. Currently, there are two significant concepts for scaling Ethereum in the future: *on-chain scaling* and *off-chain scaling*. While the first option requires changes to the Ethereum protocol, the second one is primarily independent of the core protocol.

Sharding is the foremost approach for on-chain scaling. The concept of sharding is borrowed from a database design concept, where the data of the database is split horizontally and then stored on different physical machines, depending on which user group needs to access the specific data more frequently. That initially allows having small databases for specific user groups while still having a unique data model. The advantages are higher availability, faster queries, more bandwidth, and a higher workload made possible due to the parallelization of queries. Applying this design pattern to the Ethereum blockchain could lead to similar advantages and is the current approach for the on-chain scaling. The roadmap also includes an iterative proceeding where, as of 30/05/2022, two proposals are discussed in the Ethereum community.

The options for off-chain scaling are a bit brighter. Currently, the solutions with the highest user adaption are rollups and sidechains. The Polygon PoS Chain is one of the most used sidechains of Ethereum. The Indian-based company behind the Polygon PoS Chain, namely *Polygon Technology,* has the value proposition to support the Ethereum blockchain’s scaling opportunities in the future with various solutions. Through its current design, the Polygon PoS Chain does not inherit the security of Ethereum itself because its own set of validator nodes is validating the network’s transactions. That leads to a more centralized EVM-compatible blockchain, which is much cheaper to use in terms of transaction fees.

On the other hand, rollups inherit the security and decentralization aspects of the Ethereum block- chain. The most popular general-purpose rollup solutions as of 30/05/2022 based on the TVL are *Arbitrum* and *Optimism.* Rollups on Ethereum can also have a specific purpose, e.g., *dYdX* is a rollup solution, especially for the purpose of being an exchange. While Arbitrum and Optimism are so-called *optimistic rollup* solutions, dYdX is a *zero-knowledge rollup*. Without going too much into detail about the specific implementation of either of the rollup solutions, which also are referred to as *layer two* solutions, both variants work — as the name suggested — in that way that a batch of transactions is *rolled up —* or in other words *—* committed to the Ethereum mainnet from an external resource.

An optimistic rollup solution works as it assumes transactions made by an external sequencer are valid by default and only runs a computation proof in the event of fraud. Therefore, these solutions need to implement a system that can submit a transaction in the same state used in the original rollup transaction to the Ethereum mainnet and prove its correctness.

A zero-knowledge proof runs an off-chain computation for a transaction batch leveraging a crypto- graphic proof called *zk-snark.* This proof can then be easily verified by the Ethereum blockchain, proving the transaction validity state. A zk-snark proof is a mathematically complex calculation; therefore, as of 30/05/2022, there are no generic-usage zk-rollup solutions in a production-ready state.

# Conclusion

There are many approaches for solving the blockchain trilemma. Currently, there is no clear winner whether it will be the approach of Polkadot and Cosmos with different application blockchains or the approach of ethereum with additional L2 protocols to ensure better scalability. In the end, the ecosystem that can be best adapted and used by people will win.

If you like the ideas and theories examined here, feel free to subscribe and stay tuned for more stuff like that! Cheers, Flo.

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3 thoughts on “Cryptoeconomics: Technological Challenges”

  1. As long as decentralization continues to remain a focus, Im open to whatever method of scalability turns out to be the best.

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  2. Thanks for the text, I really enjoyed it, kind of found a parallelism with the trilemma of public finances with exchange rate, monetary policy and interest rate, guess in both cases there isn’t a clear winner if not it would not be a trilemma haha

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