Solving the Blockchain Trilemna with Algorand

The blockchain is touted as a panacea to the misaligned or competing interests of centralized institutions and those of users. This technology can potentially solve inefficiencies in supply chains, currency distribution, storage of national records etc.

Yet it now appears like the divergent needs of individual users and those of service providers have had the technology up against unexpected challenges.

It seems institutions or service providers prioritize security or the scalability of a system over user rights or needs. Individuals on the other hand prefer a decentralized and permissionless platforms since these give them greater control and autonomy.

Prior to the emergence of this technology, centralized institutions had been prevailing in this duel. Users or consumers are largely accustomed to centralized systems and in any case, there had been no other option until recently.

This uneven relationship, which sometimes is a source of friction, has subsisted for decades. It seemingly is the norm when one takes the reasons given at face value.

For example, birth registration or passport issuance can only be done at centralized points to ensure the integrity of such documents is not compromised by bad actors.

So while users or potential holders of such documents might prefer a more decentralized platform that prioritizes their privacy, they too accept the reasons for having a centralized system. In any case, governments have opposed any private sector attempts to intervene in these ‘sensitive’ areas citing security concerns.

Blockchain rattles the established order

Now with the emergence of the blockchain technology, first as anchor to Bitcoin and later as a rail that hosts other utility tokens, it has become clear that users may have options after all. In fact, this technology is beneficial to government bureaucracies and private corporations just as much as it is beneficial to users of their respective goods and services.

It was Bitcoin that brought the phenomenon of decentralization to fore. Bitcoin issuance is decentralized and better still, no bad actor has the capability to cripple or manipulate it. Bitcoin’s decentralized blockchain has demonstrated that it is possible to achieve the same in other areas.

That is why there are so many blockchain solutions today that attempt to solve some of the challenges highlighted at the onset of this article.

However, as is often the case with new technologies, flaws or defects will be detected in early designs and developers are always at hand to proffer new solutions. That is how the internet has evolved to be what it is today and it appears the blockchain technology is no exception.

In as much as the blockchain has been proven to be that elusive solution that benefits all, it however faces obstacles that stop it from being totally effective. In fact, both opponents and supporters of the blockchain are in agreement that it has shortcomings, which some have termed the blockchain trilemma.

This trilemma is a realization that the blockchain in its original format could not guarantee the benefits of decentralization, resiliency and scalability at the same time. Often an enterprise has to make a choice on what needs to be sacrificed in order for the other benefits to be realized. This has been observed in the Bitcoin blockchain itself.

Flaws of the original blockchain

As much as it is revolutionary, it seems a decentralized blockchain network like that of Bitcoin cannot sustain high transaction levels. This is a point that traditional regulatory organizations often highlight when making counter arguments against technological solutions proffered by commercially oriented tech firms.

For example, in 2018 Bank of England governor, Mark Carney, delivered a speech at a Scottish Economics Conference where he made these counter arguments.

In his remarks, Carney concludes that Bitcoin cannot match present payment systems, and such it can never replace fiat money as a currency of choice.

Carney referenced the fact that heavily used cryptocurrencies still face severe capacity constraints when compared with other payment systems. He gave an example of Visa which he says can process up to 65,000 transactions per second globally against just 7 per second for Bitcoin.

In fact, it has been observed that Bitcoin network’s processing speeds drop even further when bulls are dominating cryptocurrency markets, and this clearly shows that the ‘digital cash’ cannot scale unless upgrades are made. Indeed, there are ongoing efforts to do just that (upgrades to the Bitcoin blockchain) but so far it seems the upgrades are having a limited effect on performance.

Bitcoin is also trumped by Visa in the energy efficiency stakes. Annually, the Visa credit card network’s energy use is less than ½ of 1% of that used by Bitcoin and this happens despite this network processing 9000 times more transactions.

Bitcoin mining—which is an integral part of the network’s consensus mechanism— reportedly consumes over 85 terawatts of electricity annually according to a University of Cambridge Bitcoin Consumption Index. This figure surpasses the entire electricity consumption of Belgium!

The two Bitcoin examples pretty much sums up the case with most blockchain network, they all come short unless some kind of trade off is made. In other words, enterprises can either prioritize decentralization or choose a permissioned blockchain but not both.

A permissionless and decentralized blockchain network is more resilient and less prone to attacks by bad actors than a permissioned one. Nevertheless, a permissionless blockchain falls short when it comes to the kind of security or control that enterprises seek. This is the dilemma (or in this case a trilemma) facing blockchain developers.

Algorand’s Co-chains approach

The existence of this so-called trilemma means the much vaunted blockchain efficiency will not be realized. It is therefore imperative that future blockchain solutions must try to incorporate protocol designs that preclude enterprises from having to make such sacrifices.

For blockchain to hold to true to its many promises key attributes such as decentralization, scalability and high throughput must be mutually inclusive. The sooner this is done the faster and wider will be the adoption of the technology.

So far it seems Algorand is one of the few tech firms that are leading in this charge as its latest blockchain offering dubbed blockchain 3.0 can attest. Algorand realizes there is a need for both private blockchains to which traditional institutions are more amenable to and public blockchains that give a measure of control to users.

Algorand also accepts that there is need for interoperability between these seemingly disparate chains and that is exactly what the Co-chain blockchain is all about. Algorand believes its co-chains offering could be that missing link which may yet prove to be the game changer.

This upgraded blockchain already surpasses Bitcoin in terms of transaction throughput. Algorand blockchain is expected to process more than 1000 transactions per second, a figure significantly higher than Bitcoin’s 17 transactions per second.

Meanwhile, the improved blockchain can scale to billions of users without affecting its performance, a key factor in the quest to achieve wider adoption of these technologies.

Furthermore, Algorand blockchain blocks are propagated every 4 seconds with immediate finality to transactions over the network. Other blockchain networks usually take longer to confirm transactions and this creates uncertainty.

Certainly with the right tweaks and upgrades, the blockchain technology can still live up to the hype. It is even more imperative that this happens now when an anxious world is searching for solutions in the wake of the Covid-19, a pandemic that may have changed the established order for good.