The Blockchain Trilemma

Satoshi Nakamoto, faced a trade-off when he was deciding on the underlying features of the Bitcoin Blockchain.  He had to pick between emphasizing two of the following three features; decentralization, security, and scalability. This tradeoff is known as the ‘Blockchain Trilemma.’ He chose to build Bitcoin with decentralization and security in mind. Decentralization is evident in the fact that it is relatively easy for anyone to download the full Bitcoin Blockchain, run a node and verify transactions. The high of level of security is evident in the fact that so much mining power is devoted to mining Bitcoin and securing the network against attacks. By picking these two features, Bitcoin strongly lacks in scalability. Transactions are very slow and expensive, preventing bitcoin to scale to transactions that rival other legacy payment systems.

Decentralization is a core tenet of Bitcoin

Currently, the Bitcoin block size is 1Mb, meaning that each block can only contain up to 1MB worth of data. This allows for massive decentralization as anyone can easily download the entire Blockchain quickly and verify transactions. On the other hand, this hurts scalability, because very few transactions can get into each block and the ones that do are very expensive. Throughout Bitcoins early history, there have been many proposals on how to solve this issue of scalability. Some had the view that Bitcoin could only scale by sacrificing decentralization. They argued that the blocksize should be variable depending on network usage so fees always remain low. A fork of Bitcoin, Bitcoin Cash, was created with a variable Blockchain. Bitcoin Cash has been mired with mixed results and political infighting amongst the core development team, leading to another fork.

Other far-sighted members of the community that did not want to sacrifice decentralization and security looked for solutions on top of the Bitcoin Network instead of trying to change the foundation. The best solution the community came up with is known as the lightning network. It was first introduced in a white paper in 2015 and officially launched in 2018.

Second layer solutions are needed for mass adoption

We need Bitcoin to scale because otherwise it will not reach its full potential. If Bitcoin remains slow and expensive, people will eventually find less and less utility in it and it will fall by the wayside. We need a solution such as the lightning network as a second layer because we have already seen that changing the core tenets of the infrastructure does not work. Too few people gain too much control and influence on the forked network. This allows leads to more disagreements, fighting and eventually, forks. Bitcoin is too decentralized for this to ever happen.

Here at The Coin Shack, we believe lightning transactions are the future of small scale peer to peer transactions. This is why we are already experimenting with lightning wallets. If and when transactions on the base layer become too expensive, rest assured that we will switch our services onto the lightning network to keep fees low for all our clients.