Can Blockchains Overcome the Scalability Trilemma?

It’s been over a decade since the first decentralized blockchain launched, giving us Bitcoin. However, blockchains are still considered nascent, in part due to the fact that they’re unable to scale with adoption. On the other hand, centralized platforms like VISA still remain a major player in processing transactions.

There have been multiple blockchains that claim ‘unlimited scalability,’ but are nowhere close to getting this industry mainstream. This is because the blockchains of today face what is known as the Scalability Trilemma.

The scalability trilemma refers to a situation where a blockchain cannot be scalable, decentralized, and secure at the same time and has to sacrifice one attribute in order to excel at the other two.

Projects like Bitcoin and Ethereum that use a Proof of Work consensus suffer from scalability. Transactions take a longer time to be confirmed leading to network congestion. Moreover, gas fees on Ethereum have skyrocketed, a reason why the network is transitioning from Proof of Work to a Proof of Stake consensus model.

But is Proof of Stake the stardust sprinkle that makes blockchains scalable? Let’s take a look at how POS differs from POW.

Proof of Work:

Proof of Work relies on the work done by nodes to arrive at a consensus that the said work (finding out a random string of letters and numbers, the hash or transaction ID that corresponds to a block, using complex mathematical computations) is proof that a block of the transaction is valid. So, to participate in a POW network, you must set up a miner that can range anything from a simple PC to expensive equipment consisting of GPUs, ASICs, and FPGAs. For example, the cost of Bitcoin miners today is anywhere between $8000 to $10000 USD.

In the early days of Bitcoin though, a PC was sufficient to mine Bitcoin. But now, expensive machinery has become a necessity for Bitcoin miners as the network’s hash rate grew by 18X from 10 TH to 180 TH just in the last 4 years. Mining with a PC is now a losing race. So, there’s a significant entry barrier to network participation, which in turn leads to centralization. Heavy machinery has also been hard on the environment. Those who oppose Bitcoin, and crypto in general, jump on this bandwagon argument: “But it runs on fossil fuel, it’s dirty money”.

Does Proof of Stake solve these problems? Let’s take a look.

Proof of Stake:

Proof of Stake is the only solution that’s close to solving the aforementioned problems. POS eliminates the need for heavy machinery by transferring the validating rights to ‘validators’ who own a minimum stake within the network. The consensus works on the principle that if a person holds the minimum required stake, then they’re eligible to validate a block (find the hash associated with it).

This significantly reduces the entry barrier, since the minimum stake required on most networks is considerably low when compared to investments in mining machines. Anyone with a PC can become a validator, thus invalidating the dirty money argument. Moreover, validators don’t compete, but rather nominate each other. This ensures that each validator is rewarded for their contribution.

Proof of stake introduces its own set of complexities. If a validator owns a large number of the network’s tokens, then there’s a high chance of centralization. For this reason, certain blockchains limit the maximum stake a person can hold.

POS networks are highly scalable than POW networks. The POS consensus provides enhanced Byzantine Fault Tolerance where the new blocks are agreed upon by the validators before they’re created. Any dishonest validators are slashed or removed from the network and their stake is locked. This prevents validators from acting against the network.

To achieve low latency, most POW networks either increase the block size (so that more transactions can fit into a block), or introduce off-chain second layer transactions for scalability. Needless to say, this hasn’t been very efficient. Bigger blocks eat up space, making the network heavy whereas off-chain solutions still need the on-chain counterpart to be scalable.

POS achieves low latency with lesser bandwidth requirements. Instead of increasing the block size, most POS architectures decrease the transaction size and increase the block creation time or implement a sharding mechanism, where multiple side chains (shard chains) validate transactions and relay them to the main chain (in the case of Ethereum).

For instance, Beldex, a privacy project, is implementing POS by reducing the block size and the block time, meaning more transactions can fit into a block and at the same time blocks will be created faster. Another area where Beldex POS expands is privacy, building the first privacy-based DApps ecosystem.

KYC free dApps: Are they truly anonymous?

Blockchain transactions at large are facilitated by centralized applications. However, crypto-savvy users prefer decentralized apps (dApps) that offer privacy. DApps also enables the users to stay in full control of their funds since users, and not the platforms, hold the private keys to their wallets.

If it’s not your keys, it’s not your funds.

In centralized apps, the private keys to your wallet are held by the service provider. For example, centralized exchanges, due to their custodial nature, are similar to a bank that offers crypto services.

Due to this reason, dApps are becoming more and more popular amongst crypto traders. Privacy is one of the major reasons. DApps do not mandate KYC and thus can be used by anyone online. They are open-source and non-custodial and so, they’re not confined to borders.

Beldex POS lays the foundation for the development of DApps such as BChat, BelNet, Beldex Browser, the Beldex privacy protocol, and the Beldex bridge that leverage the Beldex blockchain.