Trade-offs in Information Systems

When designing an electronic cash system, it must necessarily be peer-to-peer and therefore decentralised. In the past, developers of information-based systems have faced challenges in engineering security, scale and decentralisation. In a cryptocurrency context this is called the ‘blockchain trilemma’. In short, designers of cryptocurrencies are limited to optimising for only two of the three following properties:

1. Decentralisation: The degree to which the network does not rely on any one, or a small group, of its constituent participants to achieve network uptime or verify the rules of the system
2. Security: The degree to which the information logged to the transaction record represents the agreed truth and is resistant to change
3. Transaction scalability: The ability to sufficiently process and record a high throughput, or volume of transactions.

In other words, a network must set limits on the volume of data processed by each participant if it is to be optimised for security and decentralisation. This means electronic cash systems cannot be scalable at the transaction level on the base layer. Scalability can still be achieved in decentralised systems using layering.