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Since the launch of Bitcoin in 2009, the blockchain and crypto space has struggled to solve the blockchain tri-lemma problem, which simply states no blockchain is able to achieve all three of decentralization, security, and scalability at once.
Proof of work (PoW) chains have suffered most on scalability, proof of stake (PoS) on centralization etc. In an effort to solve the problem, blockchain developers are now working out ways to achieve all three, without sacrificing any of the properties.
Is Decentralization Being Ignored?
In the haste to build better features for blockchains, many developers are selecting scalability and security over decentralization, an important feature for some of the users in the space. Satoshi envisioned a platform that totally removes any aspects of a central authority controlling the network, no single point of failure and no censorship while maintaining resilience to any external attacks.
As the blockchain field’s total market capitalization soared to a $2 trillion industry, every single cryptocurrency project is foregoing decentralization by choosing to build scalability and security features on the network, sacrificing some or all of their decentralization properties.
Take a look at Bitcoin today. Building its name off decentralization, Bitcoin has backtracked into centralization gradually through its mining processes. Simply put, a group of users (miners) is paid to verify transactions and find new blocks for the rest of the community. This has inevitably led to partial centralization of the network as the blockchain’s hashing power is distributed amongst a few companies or individuals.
Problems with Miner-Centric Proof-of-Work (POW) Chains
As alluded to, proof-of-work chains such as Bitcoin essentially rely on a relatively small number of users (running full nodes) to keep the network safe. These nodes accept valid transactions and keep away bad actors from sending through invalid transactions. However, most of these nodes are not responsible for creating new blocks – a task left for miners – but only validating transactions.
Miners are even more centralized than the node operators. For instance, the top nine Bitcoin mining pools control over 55% of the total mining power of the network, which gives them absolute power over the network if they choose to collaborate, nothing would stop them from taking over the network. These miners are the deciding factor of which valid transactions actually make it into a block or not, and only this small group is involved in ensuring the liveliness of the network and the prevention of censorship attacks.
You can already sense the lack of decentralization in all of this. If the miners are coerced or paid to disrupt the Bitcoin blockchain, there could be serious consequences that would even render the blockchain useless. This is the case for all blockchains, whether they use PoW or proof-of-stake (PoS), or any other paid consensus.
It’s clear that if you pay a group of miners to secure the network, increasingly the blockchain will become more centralized, removing the desirable qualities of much-needed decentralization on blockchains.
Can Total Decentralization Be Achieved on POW Blockchains?
While it seems out of the world, having a network where every single user participates in securing it equally is the best way forward for blockchains to maintain decentralization without losing any security properties. To destroy or take over this kind of blockchain, you’ll need to coerce, pay, or bribe millions of users on the network, which is practically impossible, hence keeping the blockchain fully decentralized.
Launched in 2019, Minima, an ultra-lean blockchain, allows every user to take part in the network as a complete node (miner) while not compromising on scalability or security. To elaborate, the blockchain uses a transaction-based PoW consensus mechanism, allowing users to perform “small amounts of work” on mobile phones or other IoT devices and then sum up all these small pieces of work into a full block’s worth of PoW. This removes the need for miners while simultaneously keeping the blockchain secured using PoW consensus.
As the blockchain trilemma dictates, the trade-off of pure decentralization is the transactional speed and latency of the blockchain. If a transaction requires multiple confirmations before reaching consensus, then inherently, it would take longer than if a transaction can be confirmed by a single entity.
— Minima (@Minima_Global) August 21, 2021
Consensus protocol improvements are the most common solutions to solving the scalability problem while maintaining decentralization. Ethereum (ETH) is closing in on launching ETH 2.0, which will see the blockchain switch from proof-of-work to proof-of-stake in an effort to reduce gas fees and scale the platform. This has been the trend in solving scalability across various blockchains including Minima, which employs a unique algorithm.
To mitigate the problems, Minima employs a transaction proof-of-work (Tx-PoW) consensus meaning every transaction on Minima is mined by the user. This greatly enhances the possibility of the blockchain being fully decentralized. Once a certain threshold of “little work” is reached, “your transaction may be broadcast, relayed across the network, and added to blocks,” the whitepaper reads.
The more transactions being sent the higher this block difficulty will be. This enhances the decentralization of the network, incentivizing users to find a block (do more “little work”) in order to safeguard their coins and secure the network. The platform makes this seamless allowing users to simply send a transaction and in the process mine some blocks.
Decentralization and Blockchain in 2030?
We have discussed the blockchain tri-lemma, the problems that it causes (especially for major coins) and some of the solutions crypto developers are taking to ensure decentralization remains a key feature on a blockchain. So what does the future hold for blockchains such as Bitcoin, Ethereum, Litecoin, and the thousands more who are compromising decentralization for scalability and security?
In the future, blockchains will need to reduce their reliance on pure proof-of-work algorithms in favor of decentralized, low energy, and resilient blockchains. By making every user a miner, decentralization will be easily achieved without the need to sacrifice security. To make these platforms scalable, the use of Layer 2 scalability solutions will become more common in order to offload simple duties from Layer 1, which is used to secure the network only.
The future of blockchains lies in solving the trilemma problem. PoW chains, in particular, will need to work on developing lean blockchains that are supported by every IoT device, are censorship-resistant, and have complete decentralization in their mining process. This will reduce environmental harm, reduce electricity consumption, and scale the blockchain-boosting adoption.
With solutions such as Minima in the works, PoW algorithm blockchains will be able to scale on Layer 2, secure the platform on Layer 1 and ensure decentralization by making every user a “miner”. PoW algorithms, which scale and are deeply rooted in cryptographic security measures, could lead the future of cryptocurrency and blockchain technology.