Blockchain technology is still relatively new and arguably still in its infancy, given the fact that it was invented in just 2009.

This does not in any way downplay the fact that it has attained daunting heights already and that it has had such an impact on the world already.

Being a new technology, some of its principles are still being refined. There's still some trial and error involved here and there. Being quite the complicated technology does not help matters too much either.

And the fact that Blockchains are aiming to be as decentralized as possible adds to the difficulty in making decisions and settling some issues. That's because a large number of people always have to agree before a decision is made, rather than just one person or a few people.

Right now, amidst this backdrop, let's look at the top two dilemmas facing the two biggest cryptocurrencies/blockchains. These are points where there is a problem, and a decision has to be made, but all the options seem very problematic and there are good arguments for and against all the options, so, what should be done?

The Two Biggest Dilemmas

The Ethereum Staking Protocol
The Bitcoin Lightning Network "Hard Dilemma"

1. The Ethereum Staking Protocol

Here there is a very huge problem that requires a quick solution, or else the entire Ethereum blockchain can be attacked and brought down. But then the way out has its own pros and cons that can't really be messed with.

Let's break it down from the beginning:

When the Ethereum blockchain was being created, the team wanted it to be as simple and basic as possible. Due to this, they didn't overcomplicate it and didn't build too much into the protocol.

They made it so that other people can build other functions on top of it (on top of it and not into it. That is, as an addition and not as part of the foundation [Layer 2]), and one thing they didn't build into the protocol but left it up to others was staking.

And as we all know, staking is simply locking your tokens away and earning crypto rewards for your locked tokens. This is quite profitable stuff, and in every blockchain where this is possible, people would have a lot of interest in doing it.

So, other people came on Ethereum and built this function on Layer 2. Examples are Lido, Arbitrum, and Optimism.

But this is now a threat to Ethereum because, Lido, for example, has about 32% of all the Eth in the world. That is how much Eth is staked using Lido, which means Lido has that much power.

On the Blockchain the more tokens you have, the more power you have. And power can be used to make dangerous alterations to the Blockchain because the Blockchain bends to the will of the majority. If you have a majority of the available Eth, for example, 51% of the available Eth you become the majority and can carry out a lot of actions singlehandedly.

But getting up to 51% of the available Eth is supposed to be very difficult and costly. But now that you can simply stake it under Lido, a lot of people have brought in their tokens, staked it under Lido, and now Lido has 32% of the available Eth.

And Lido is so popular, that its percentage of Eth staked would only increase because with time more Eth would be staked there. 51% is possible in the future. No one is saying Lido would attack Eth for sure if that happens, but it would have the ability to do so, and that's too dangerous.

Someone else can also acquire a majority of Lido's own currency and be able to make decisions on Lido, decisions like attacking Eth. And getting a majority of Lido's tokens is easier because 1 Lido is currently $2.18 and its market cap is $1.9 Billion. Easier to acquire, unlike Eth it's with a market cap of $233.8 Billion.

Even currently, other Layer 2 staking protocols are easy to acquire as their market caps are low too. Someone with a few billion can acquire a majority stake in Lido right now, and do the same on other Layer 2 protocols, and find themselves with enough Eth to attack the Ethereum blockchain if they want.

Also, acquisition is not the only option, hacking is also an option. Hacking Layer 2 is more possible than Eth itself, so this is another danger of letting these Layer 2 protocols have this much Eth.

So, there you have it. What then is to be done?

*You can read Eth's founder Vitalik Buterin's blog about it here.

The Eth team is considering building staking into the Eth protocol so that people would no longer need to stake using Lido, and Lido wouldn't keep growing into a bigger threat as a result.

But if they do that Lido would become useless as its staking services would no longer be needed since people can just stake directly now. When Lido becomes useless, its tokens will become worthless, and what will happen to all the people who have invested in it?

This would not only happen to Lido but to other Layer 2 staking protocols like Arbitrum, Optimism, Rocketpool, etc. Catastrophic, isn't it?

So what should be done?

2. The Bitcoin Lightning Network "Hard Dilemma"

The term "Hard Dilemma" was actually given to this situation by Antoine Riard, a Bitcoin Lightning Network Security Researcher and Developer. He actually withdrew from the development of the Bitcoin Lightning Network due to this complication.

Let's break it down, as usual.

Bitcoin has a scalability problem. What this means is that Bitcoin is not fit for a great number of transactions as it takes too much time to process transactions. How then can it handle mass adoption?

If the masses are making transactions on it at the same time, this increase in the number of transactions is going to be too much for Bitcoin's capacity and this is going to lead to transactions taking days or weeks, and processing fees being very exorbitant.

Bitcoin's capacity was actually programmed by Satoshi Nakamoto and the founding developers to be this small. This cannot be changed except if a majority of Bitcoin holders vote on it. But it's almost impossible to get the majority to do anything.

So the Lightning Network was proposed. It is a Layer 2 protocol that would enable transactions to be done way faster. It was proposed in 2016 and it has been under development since then and it's not yet operational.

But just on October 21, it was announced that Antoine Riard was stepping back from its development due to the "hard dilemma". He said there's an attack the lightning network is susceptible to, it is called "replacement cycling attacks".

And the only way to make the network able to withstand those attacks, a change in the Bitcoin base layer is required. This means Bitcoin holders have to reach a consensus and vote for this alteration in the Bitcoin code to be permitted.

And as we pointed out earlier, agreement on anything to be done to the Bitcoin base layer is almost impossible. The Bitcoin community is strongly opposed to any changes being made on the base layer.

So, there is the dilemma.

It's very important for something to be done about Bitcoin's scalability problem, but at the same time, we don't want the base layer tampered with. So what is to be done?

Conclusion

For the Ethereum dilemma, the team hasn't made a decision yet. They opened it up for discussion and are considering their options. I think the protection of the Ethereum Blockchain should be placed above everything else. So staking should be built directly into the Ethereum protocol.

All those layer 2 tokens that would be rendered useless and worthless if direct staking is built into the Ethereum base protocol can go ahead and become useless. But the team should also find a way to compensate investors.

There should be a form of transition, it should be well-thought-out and planned so that investors get something for their money. The funds for Ethereum development can and should go to this. Also, buying off other assets these Layer 2 guys have can further help.

As for the Bitcoin dilemma, I'm also against any tampering with the base layer. Bitcoin has this cult following and loyalty because it is seen as the original Blockchain which is just the way the founding fathers of the entire Blockchain idea wanted it to be.

This cult-following is one of the main things that power the entire crypto ecosystem, and any tampering with this might tamper with people's faith in crypto too. And by the way, convincing the majority of the community would be almost impossible, so there's probably no need to embark on it in the first place.

Bitcoin should be left with its scalability problem. It should be viewed more as a store of value than a means of payment, except this lightning network can go without touching the base layer.

[Cover image created by Yours Sincerely]

The End

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