Crypto Beans #10 BLOCKCHAIN TRILEMMA!

Hey there everyone! 👋 This is Shivam. I bring to you the 10th weekly edition of Crypto Beans. This is an effort through which I try to share my thoughts on the crypto space and help you stay updated. Your 0 to 1 guide in crypto.

Read time - 4 mins

Today at a Glance:

• State of Crypto affairs

• Top crypto projects/protocols

• Greed and fear index

• Is ETH ultrasound money?

• Spill the beans (Explain to me like a 5 year old)

• What's brewing today?

• Whats meme-ing?

In this edition, the article I explore is "BLOCKCHAIN TRILEMMA". Hope you enjoy it.

State of Crypto affairs? A quick look at the market 

The global cryptocurrency market cap today: $1.11 Trillion

Weekly change: -5-.59% | Yearly change: -40.80% 

Bitcoin (BTC) is the largest cryptocurrency with a market cap of $466 Billion.

Weekly change: -6.15% | YTD change: 39.23%

Another important metric is Bitcoin dominance which can be used as a rough indicator of the relative strength of Bitcoin versus other cryptocurrencies. A high Bitcoin dominance means that Bitcoin has a large market share and is potentially more influential in the overall cryptocurrency market and vice-versa.

Bitcoin dominance: Current Year: 42.10% | Last year (Feb 2022): 42.49%

Top crypto projects/protocols by different metrics 

The Interesting thing to note here is that although Tether (USDT) has just $71B market cap, it is traded the highest with volume close to $30B given its use as a stablecoin for the exchange of assets. Meanwhile, Stablecoin market cap is at $136 Billion and has a 12.34% share of the total crypto market cap. 

Greed and fear index 

The market sentiment has been turning, now the market seems to be getting more cautious with the news around layoffs and looming recession.

Note: The data used is based on metrics like Volatility, Surveys, Bitcoin Dominance, Social and Google Trends. Source: Coinstats

Is ETH ultrasound money? 

Let's have a look at Ethereum supply changes post its merge to a PoS blockchain from PoW, as there is a shift in the narrative for Ethereum to become a store of value due to the expected reduction in ETH emissions.

Supply change since merge POS -38,090 ETH

The graph highlights POS vs POW issuance since the merge. Impressive numbers, look super bullish for ETH long term given the supply of ETH is not growing as before

Spill the beans (Explain to me like a 5 year old) 

The Bermuda Triangle of Blockchains

Picture this: A tightrope walker trying to balance three spinning plates on their head. They can focus on keeping the plates spinning, but if they start to wobble, they risk dropping them all. That's the blockchain trilemma in a nutshell.

In the world of cryptocurrency, security, decentralization, and scalability are the three plates that need to be kept spinning in perfect harmony. But, as coined by Vitalik Buterin, it's not an easy feat. The blockchain trilemma is the constant struggle to find a balance between these three pillars.

Let's break it down.

Decentralization is like a power-sharing agreement among a group of friends. It ensures that no one person has all the control, and everyone has a say in how things are done. This is the foundation of blockchain technology, where control is spread across nodes all over the world.

Security is like the security guard at a museum. They make sure no one steals the priceless artwork on display. In the case of blockchain, the security guard is made up of nodes, and the artwork is the network's transactions. The more nodes, the more secure the network.

Scalability is like a kid growing. As the child grows, their parents need to make sure they have enough food, clothes, and space to accommodate their needs. Similarly, blockchain networks need to be able to handle increased transaction volume without sacrificing speed or efficiency.

But then what's the the catch:

When scalability and decentralization team up, they can compromise security.

On the other hand, if security is the top priority, it can be challenging to make changes to allow for decentralization and scalability. Let me explain:

Decentralization and security: Blockchain best friends

Decentralization is basically the backbone of blockchain and cryptocurrency. It means there is no central authority or entity driving the project and eliminates the need for third parties to allow industries to operate.

For example, in traditional finance, we’ve got banks. They’re centralized and act as a party that sits in the middle between you and your money. This is generally accepted because banks take responsibility to offer a way for us to store and send money safely.

With blockchain, decentralized networks hand the keys to the individual, with direct access to their money. Blockchain, by means of a set of self-executing rules, offers an alternative to a middleman approach.

Security is established in the network because each transaction needs to be validated by more than half of the network’s nodes (and remember: the more nodes that are part of the network, the more the blockchain becomes decentralized, enhancing the security that the network offers).

This is great, right? But it comes with a bit of a tricky drawback:

Because of the sheer weight of information processed to maintain the shared system, transaction times can be slow, and the system is harder to scale.

On a blockchain, you can think of each bit of information as something with weight. As more information is added, the data becomes heavier and it is slower to move around. It’s important to keep the information up to date to streamline the cumbersome amount of information moving around. One way of doing that is by limiting how far and wide the blockchain is distributed.

But, by limiting how far the network is spread, there is less of a barrier for attackers who want to take over the network. This means there’s more chance of an attack because hackers will have an easier time taking over enough of the network and they’ll be able to manipulate the blockchain. It’s not ideal and it shows how adding in scalability to the blockchain trifecta comes at a price.

But why do blockchains need to scale?

Well it's simple. The faster the blockchain, the better is the user experience. You know how awful it is to sit in traffic? Traffic on a road exists because roads weren’t built to scale the number of cars that would be on the road at the same time.

Imagine every time you had to make a transaction, you had to wait in traffic for your transaction to be validated and go through. And more people transacting means the more the network and validation process needs to happen. It creates traffic on an unscalable network, presenting an unsustainably slow approach.

So simply put, if blockchain technology is going to reach any sort of mass adoption, scalability is critical. If a network can’t scale, it just won’t be able to compete with traditional platforms in convenience, transaction speed, and throughput.

The problem, which presents a demanding challenge to resolve, has led to some interesting innovations in the blockchain industry. Till we find the perfect solution it's the trade offs that blockchains would have to follow.

What's brewing today? Bringing fresh beans to you: 

Adidas to 'Scope Out' Token-Gated Sneaker Drops, Says Web3 Lead: Adidas' Web3 lead hinted at unique ways to integrate crypto beyond simply adding a payments option. Instead, it's all about community.

Global Crypto Rules to be Based on Coming FSB & IMF Synthesis Paper, India Says After G20 Meetings: YouTube’s new CEO Neal Mohan previously emphasized that NFTs could be an important tool for the platform’s content creators to develop additional revenue streams.

Whats meme-ing? Better make sure this is fun

And now the funny part,

What did you think of today's edition?  

Reach out to me on Twitter or Linkedin for any feedback :)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.