Chapter 4: The Blockchain “Trilemma”

This chapter builds an evaluation framework around the so-called “impossible triangle” (the scalability trilemma): defining decentralization (node distribution/power dispersion/censorship resistance), security (attack threshold/economic cost/slashing), and scalability (throughput/TPS, latency, fees). We map three real-world trade-offs: decentralization + security (e.g., BTC/ETH) but performance-limited; security + scalability (e.g., EOS/BNB/Solana and other DPoS/few-validator designs) that trade centralization for throughput; and decentralization + scalability designs that tend to undercut security in practice. Against this backdrop, we introduce L2’s “compute–settlement separation” to ease trilemma constraints: rollups gain performance and low fees on upper layers while inheriting finality and security from L1—showing why better app UX need not sacrifice the root of trust.

1. The Three Core Vertices of the Trilemma

To understand the dilemma, we first clarify each corner.

1.1 Decentralization

• What it is. A system that does not rely on any single centralized entity for operation or decision-making. In blockchains, this appears as many independently operated nodes distributed globally. The more numerous, geographically dispersed, and diversely owned the nodes, the higher the decentralization.

• Why it matters.

  • Censorship resistance: No central party can block or reverse a valid transaction.

  • Robustness: No single point of failure; taking some nodes offline doesn’t stop the network.

  • Fairness: Rules are pre-coded and apply equally, limiting abuse of centralized power.

1.2 Security

• What it is. The network’s ability to resist attacks and keep the ledger tamper-proof—often measured by the economic cost required to subvert it. The higher the attack cost, the more secure the network.

• Why it matters. Security underpins user trust. If a chain is easily attacked, both assets (cryptocurrency) and data (contract state) lose value. Strong security guarantees finality and ownership.

• How it’s achieved.

  • PoW: Miners expend massive computing power and electricity to compete for block production. A 51% attack requires majority hashpower—prohibitively costly on networks like Bitcoin (and historically Ethereum).

  • PoS: Validators stake large amounts of the native token; misbehavior triggers slashing, creating strong economic disincentives to attack.

1.3 Scalability / Performance

• What it is. The capacity to handle large-scale usage. Core metrics include TPS, latency, and fees. High scalability means fast confirmations and low gas costs.

• Why it matters. It determines whether blockchains can reach mainstream adoption and serve millions to billions of users. A network processing only a handful of TPS cannot rival global payment rails or support high-frequency dApps.

• Root cause of bottlenecks. Decentralization implies redundant global verification: many nodes independently validate, execute, and store every transaction. This redundancy maximizes security and consensus but limits throughput.

2. Two-Out-of-Three Trade-offs and Real-World Cases

2.1 Choose Decentralization + Security, sacrifice Scalability

• Typical examples: Bitcoin, Ethereum mainnet

• Analysis:

  • High decentralization: permissionless participation; large, global node sets;

  • High security: PoW (Ethereum now PoS but still security-maximizing) with strong economic costs;

  • Cost: low TPS and high gas during congestion;

  • DEX impact: On-mainnet DEXs (e.g., Uniswap, Curve) inherit security/censorship resistance but accept slower, costlier UX.

2.2 Choose Security + Scalability, sacrifice Decentralization

• Typical examples: EOS, BNB Chain, (to a degree) Solana

• Analysis:

  • Fewer validators / DPoS-style delegation for higher throughput;

  • Security via staking and economic penalties;

  • Cost: more concentrated power, weaker decentralization, higher risks of censorship/collusion;

  • DEX impact: PancakeSwap-like UX is smooth, but base-layer decentralization is more controversial.

2.3 Choose Decentralization + Scalability, sacrifice Security

• Analysis:

  • In theory, admit many nodes and push parallelism for high throughput;

  • Cost: weak Sybil resistance and fragile security. Few successful public chains pursue this corner in practice.

3. L2’s Compute–Settlement Separation: A Practical Escape Hatch

• Concept. Rollups execute and scale computation on upper layers (lower fees, higher TPS) while settling results to L1, inheriting its finality and security.

• Implication. Application UX improves—without diluting the base layer’s role as the root of trust. Users get speed and cost benefits on L2, plus credible finality anchored on L1.

Summary

The trilemma captures a fundamental design trade-off: no blockchain simultaneously maximizes decentralization, security, and scalability. Projects prioritize differently: Bitcoin maximizes decentralization and security at the expense of performance; newer high-throughput chains trade some decentralization for UX gains. Recognizing this structural constraint helps us evaluate design choices and anticipate how modular scaling (e.g., L2 rollups) can advance performance while preserving the trust guarantees of the base layer.