In today's episode we cover the "blockchain trilemma" - Vitalik Buterin's concept of three primary attributes of a blockchain:

• decentralized
• security
• scalability

Any blockchain in development has to make compromises between these three aspects. They simply can't have the best aspects of all three attributes. We discuss each of these and how they relate to some of the most popular blockchains with an eye towards enabling you to evaluate any blockchain's chances of long-term success.

Hey everyone, no one on this podcast is a financial advisor all the information presented on this podcast is for

Informational purposes only now that we have the legal stuff out of the way. Let's jump on in

Welcome to the generational wealth cryptocurrency podcast. I'm your host McIntosh and today we're going to be talking about the

blockchain trilemma

What's the blockchain trilemma? The blockchain trilemma was a phrase that was

coined by Vitalik Buterin who is the

founder of

Ethereum and very well-versed certainly in blockchain technology really smart guy

basically this phrase was a way to

highlight the three main issues that developers deal with when building a new blockchain whether that was Ethereum

back when it started in 2015 or

Solana which just came out this year or

Bitcoin back in

2009 although certainly they probably didn't have a well

Satoshi was a really smart guy, but certainly

Now that this has been around for a while

There's been a lot of discussion about this and basically any blockchain has to deal with these three aspects and there are trade-offs

You can't there's no blockchain that's going to perfectly implement all three of these

So we're going to talk about them as as quickly as I can

I'm going to discuss them in relation to actually those three blockchains. I've already mentioned Bitcoin

Ethereum and Solana I may throw in some others as well

but I think these three actually give us a good idea of

Kind of the trade-offs that are made and why is this even important? Well, I think you will find in the long run

That it's very important

And I'm talking about five to ten years the choices that blockchains make

around these three

Legs of the stool so to speak will determine in my opinion

How well they perform in the future if a blockchains not scalable and it will fall on its face

It will eventually if it becomes popular which would make the you know, the token price go up. It won't work

If your blockchain doesn't have security it will be compromised if it's not decentralized

Ultimately that may end up causing you a problem

so we'll talk about each one of those in relation to some of these more popular blockchains and

Give you I hope a framework so you can evaluate look. I'm not telling you that

you shouldn't

Invest that you shouldn't invest in a blockchain that doesn't

Rank really well on these but it does give you a framework certainly for your long-term investments

Which of course here at generational wealth with cryptocurrency is something we're always keeping in mind. I'm not in this for the day trading

I'm not in this for the short term. I'm always looking five to ten years from now

Is Bitcoin still gonna be around as a theory? I'm gonna be around is Solana gonna be around is

Phantom that's a new token, right? Everybody's hot is Phantom gonna be around. Well, I don't know

How does it do on these things and we're not going to talk about Phantom right now because I don't know the

Specs on that in regards to these but just as an idea you can apply this same framework

If you do your research if you need to on these things

Let's talk about decentralization

What does decentralization do? I'm going to talk about two things. I'm sure there's a number of others

it does provide for sensors it makes a blockchain censorship resistant a

Second thing it does it makes it resilient and I will give you a good example of this

we saw this earlier this year when China stopped the

Mining of Bitcoin when they banned Bitcoin mining earlier this year. What happened?

Well, a lot of those miners left China Bitcoin didn't shut down

It might have gotten a little more expensive

The miners actually made more money because of that who were still online

Things shuffled around the hash power went down a little bit, but it all settled out and

Because it's decentralized because there was people everywhere things kept going

Ethereum Ethereum is pretty decentralized and I'm just going to go in this same order from

I guess maybe their birthdate if you want to put it that that way

I'll try to be as fair as possible

Ethereum Ethereum is also quite decentralized

One of the reasons that Ethereum is so decentralized is that the cost to run a validator is pretty cheap

There are a lot of validators for the ETH 2.0 mainnet, which will be coming online here

Hopefully in the first quarter of next year

You can run one of those really off a laptop it's not ideal, but you could do it

I've run a on the test network. I've run a validator running

I think it had eight gigs of ram four cpus. It was only using a couple of gigs of ram

And and one cpu actually to run that and I was running the validator

I was running the beacon chain, which gets the information off the current mainnet

And that was all running quite comfortably on that little machine

And then finally we'll talk about Solana Solana is the newest of these it's not very old at all

Solana is also not very decentralized for a couple of reasons for one thing because it's not very

Own. I was thinking about this a few minutes ago with bitcoin

Do you realize like when Satoshi started mining bitcoin?

There wasn't probably a whole lot of information available online about bitcoin

If something would have happened to him in those early days or her we don't know as always

But if something would have happened to

them

At that point bitcoin never would have happened

Because it was decentralized. It was not decentralized. It was centralized. It was on that one node

Think about that. That's kind of crazy. And now of course, there's thousands of nodes and

All this and you know, it's completely decentralized

So

Some of these you'll hear this with bitcoin. Oh, we're decentralized and you're not well

Sometimes that's simply because it's a younger project

Now another reason it could be is because of the cost of the validator or the mining rig

Now I would argue with bitcoin that it's become extremely difficult to run a mining rig because of the cost you have to have

In order to be profitable, you have to run a very specialized rig that draws a lot of power

and

It has to have a very specialized ASIC unit in order to

Basically do the computations fast enough to be profitable

And so those are expensive rigs. I think these days they're running six eight thousand dollars a rig

not

Trivial when you consider that within four years that it probably will be almost worthless

Now, yes, you're mining bitcoin and you're going to make money. I get all of that

But i'm not i'm just not a big fan of kind of that high cost

Tell somebody who's making ten fifteen dollars an hour. Oh, yeah, you can mine bitcoin. Can I?

And by the way when it comes to ethereum, it's the

Kind of the exact opposite the rig itself is cheap, but you have to stake eth 32

and

Eth as you probably know is around four thousand dollars forty two hundred something

Like that per eth so that's a lot of eth. That's a very expensive part of that setup

now

Several years ago when the specs for the validators were developed

Maybe it's been two years. It probably hasn't been but eth was a lot cheaper

But i'm hoping at some point they make an adjustment to the spec for the validators

But i'm hoping at some point they make an adjustment that you don't have to have 32 eth to run a node

All right

Solana on the other hand

You have to have a very expensive rig to run

And it's a new blockchain

The specs on the solana machine are just incredible

The minimum specs are like 128 gigs of ram

128 gigs of ram and let me go ahead and pull it up real quick

12 cores

The disk space doesn't matter. It's fairly high but

Disk is the cheapest part of this. So i'll just leave that out of the equation

Now what they actually recommend

Is 256 gigs of ram or more

And 16 cores that is a super expensive machine. So that would actually probably in my opinion be well

Now that would probably be more expensive than the bitcoin mining rig

I don't know if that'd be a good investment personally

Because of that high entry cost and because it's a new setup. There's not a whole lot of validator nodes

So they're not as decentralized. That's just

The way that it is. Let's talk about security

Bitcoin is known for its security bitcoin has a long history of good security

That is one of the reasons why you don't see upgrades to bitcoin very frequently because they don't want to make a lot of change

They do not you know, there's this

movement in

In computer circles and system

management circles

You know move fast break often that kind of thing

Break it fix it move on you know

You know, that's not the case with bitcoin. They're like they want something that's super stable. That's super secure

So we did I mentioned this on the monday podcast. We did just recently have the taproot upgrade over the weekend

That was the first major upgrade to bitcoin in something like four years

Segwit was the previous one

Now you can view that in two ways. Wow, they're slow and boring

Uh, they don't have smart contracts. They don't have this out of the other

or you could view that as

Wow, they move slower so that things are stable

and secure

And that's and that is true

Ethereum on the other hand

Even though they well they've been around for a while obviously and just being around

that helps

Shake out the bugs, right? But

But

They do make changes more frequently. We've got a major change upcoming first quarter eth two

Where we move to validators instead of mining essentially

So we're moving to a proof of state network instead of a proof of uh

Work, you could certainly say that probably provides for a less secure system not because of the switch but because of the changing

And ethereum is making changes fairly frequently

They also seem to do a really good job of it. Have they ever made a mistake probably? Well, they have

That being said it's still a system that works for them

In fact, just recently there was a bug

Cropped up one of the clients

I think it was one of the clients had some

a bug in the code

And it was the main client if i'm not mistaken the one that's used by more

validators

Uh more setups than anybody else

But they fixed it within like the hour

so

It didn't cause a real issue

so

in one of the

Computer terms that gets thrown around a lot programming

Agile agile programming they they did respond to it very quickly and and they were quite agile about it

They fixed the problem and moved on

Solano on the other hand, uh

Uh, they were knocked offline for a good bit

recently

So back in september, uh solano was down for 17 hours

Not what you want

Now, why did that happen? I don't know anything about solano development. It could have been because frankly because there's such a new setup

Um, I hope so and I hope that doesn't continue

But it is something that you have to consider

Because this type of these bugs, these are the kind of things that do cause security issues that ultimately

can cause

Um long-term effects. All right third part of this scalability

Scalability

so

Here's an area where?

bitcoin

Uh, frankly doesn't do very well. It's got a very low

Transaction per second count what they call a transaction per second tps

meaning how many

Transactions how many you know, hey i'm sending a bitcoin to bob. That's a transaction, right?

How many of those can it handle the main net of bitcoin cannot handle very many of those?

And this is a system that's supposed to scale to cover the globe

That's a given

I'm going to go ahead and go through the others and we'll circle back

um ethereum

Really doesn't do very many

right now

um and

It is more than bitcoin

But it's really not that much again for a system that's going to be used for global finance

Solana solana on the other hand frankly because it's more centralized

They do do a much higher

tps

It's a crazy high amount so they have the scalability

Kind of out of the box that the other two systems don't have now. Let's circle back

bitcoin

Bitcoin has the lightning network the lightning network on the other hand does provide

scalability

So lightning i've talked about this before there's a separate podcast about it

That's all I talked about but it's a peer-to-peer

Network kind of ad hoc network that's being built to allow virtually instantaneous very low fee payments

That actually also are quite anonymous

So it's a privacy win. It's a fee win

And it's a speed win. So

That so they're moving that

Basically, they're kind of moving that off of the main net. So this is a layer two protocol

It's not a protocol. It's using the bitcoin protocol, but it's a layer two solution. I would say

Just like some of the others that we talked about a few weeks ago

So ethereum ethereum is doing several things to tackle the scalability issue for one thing

Down the road, they will be doing what's called sharding that will help with the scalability issues somewhat

But the other way the way that vitalik has kind of positioned things

He feels like a lot of the scaling issues will be handled through these layer two solutions things like the zk

roll-up

Solutions that we were discussing

recently

where basically you kind of bundle up a whole bunch of transactions and then they get

Stuffed into the main net so to speak so you're on what they would call a sidechain. You're over here doing something

Along with a whole lot of other people and then that all kind of periodically feeds back into the main net

that helps a lot that can help a lot and some of the

transactional

throughput and cost

for these are

Very high transactions are very low cost. So those are very promising looking solutions

Once they become implemented. They're not there yet

again

Solana solana's got it going on with scalability. So that is an area where they're emphasizing where honestly they're at least

De-emphasizing the decentralization part. I'm not going to speak to the security part. I don't know the details. I do know

They did have an outage

Um because of a bug

That may never happen again

I don't know

But you do see right there as an example kind of of the trade-offs

of the system

both ethereum and

bitcoin arguably they're going slower they are emphasizing

as

At this point the decentralization and security and they're working on the scalability now

It remains to be seen if they can truly scale these systems

I think they both will it may take several more years, maybe five more years, but that's okay

You know people are always going on about ethereum's gas fees, right? They're extremely high

because it's such a popular system and

Because essentially of this throttle of the lower transaction per seconds on the main net

As more and more stuff moves off chain

to these side chains

You will see that the gas fees will go lower

The eth 2.0 features that are coming up over the next few years will also help with that

So ultimately we will have a main net that performs much better that the gas fees are much lower

But you will also have all of these side chains and these roll-ups that will

that will greatly increase

The efficiency and lower the cost so those are going to be some really exciting times where oh and by the way

I think I mentioned this in the roll-up

Podcast, but those roll-ups those side chains they inherit

Or they can if they choose to most of them do they inherit the security of the main net

So if you have a secure main net, which I would argue that both bitcoin and eth have proven to

To be secure then you can build upon that and you can make it scalable now

then they had the

The trade-off right of decentralization if i'm over here on some little side net that doesn't have a huge number of nodes

That's not very decentralized

But as long as there's an escape route, so to speak back to the name main net. I believe that that's

That's a reasonable trade-off and I think well, we'll see that remains to be seen. So in summary these three

legs of the stool

of a solid crypto platform

They are truly fundamental to the success of these platforms and

It is very helpful to understand

The trade-offs and understand the biases that you may have in even looking at these systems

I have a long relationship with both ethereum and bitcoin and I

Until proven otherwise, I will believe frankly that they're the best that's out there doesn't mean that I don't buy other things

But I have a bias if you want to call it that towards those but I think you can demonstrate how they are

Decentralized how they are secure their track record

Well, neither one of them are scalable. That's the part that they've chosen not to emphasize

But I do know what both of them in fact are doing to improve that scalability. So it's projects like that

that

Are going to help

Move us into the future, right? Clearly we can't throw everybody on the current blockchain

because of the current ethereum blockchain because

It would come to a standstill but as we bring more people on board as it builds out

There will be more capacity

Transactions will be higher

Fees will be cheaper

The same thing is going to happen with bitcoin

I see this. I mean the the stuff that's going on with places like al-salvador is simply amazing

How that lightning network is being used?

And the implementation the amount of liquidity the amount of bitcoin that's moving into that lightning network. It's stunning

You i've seen these charts. They look like a hockey stick. They you know, because for a long time

For a long time the lightning network was very little used and at some point

People just kind of woke up and it was around the same time that al-salvador

That whole deal started happening

and probably because of that, but all of a sudden

That usage

Just started increasing and increasing and I mean, it's just going exponential and the more nodes there are

The more decentralized it is the more reliable it is

And i'm sure that that system is going to continue to innovate so

I would actually like to see something more similar to that

On the ethereum network and I will keep saying that maybe at some point somebody will hear me

I don't really know how that can be achieved. I have an idea of being able to do it through zk

Roll-ups, I don't know if that's actually feasible or not

I would love to actually talk to somebody who knew a lot about those

That maybe I don't know

We we need a lightning network essentially for

For ethereum in my opinion. I think it could be a valuable part of that ecosystem

We don't need it, but I think it'd be valuable. So anyways, that's it

I really don't have any news this week because we just did an episode a couple days ago. I will say this

Yesterday the kind of things kind of tanked. We've gone down 10 15 percent

Over the last couple of days

The end is not nigh

The end is not here

Everything is fine

This is not the end of the bull run

We're not there yet. At least I certainly don't think so

You do see if you've not been in crypto very long

These markets are very volatile 10 15 20 percent drops nothing. We had a 30 drop earlier this year

And it was not the end of the bull run. We've gone on since then to higher highs. So by definition

It was not the end of the bull run

I think the next six weeks and we may go sideways or even down a little bit here for a few more days

But the next six weeks are going to be really exciting

I think we're going to see some kind of crazy things just like we saw in 2017

At the end of the last bull run

So anyways, I hope this helps

I really want to thank you guys for watching

Anyways, I hope this helps. I really want you to take this as a framework for evaluating

What you're going to hold long term?

Because the ones that don't pull this off. Well, here's here's the punch line

The ones that don't pull this off this compromise this trade-off between these three branches

Is they will not be around in the long term and I would hate to see you have long-term investments in some token

that

Didn't make it. I've got more than one of those that at the end of the day

When the rally was over

The price fell

And they didn't come back after that

Okay, so I hope you guys find this helpful

I will be talking to y'all next Wednesday in one more week

It'll be the day before Thanksgiving

Here in the united states

Two days before yeah, no the day before thanksgiving

Thanksgiving does take place on a thursday

and so

We'll listen to some crypto and then hopefully get a chance to eat some turkey