Blockchain Protocols: WTF are they?

Understanding Blockchain Protocols

Blockchain technology is a relatively new concept that has become relevant in almost every field. From health to supply chain management to music, this technology has opened our eyes to a new way we can store and distribute data more openly.

But blockchain technology doesn’t work automatically; it has critical elements at its core called blockchain protocols. These protocols are the rules that dictate how data is stored, distributed, and used on the blockchain. They help a blockchain work the way it does.

In this article, we are going to be exploring what these protocols are and how they work. We would also look at some blockchain protocols. But first, it is essential to understand what a blockchain is.

What is blockchain technology?

A blockchain is a decentralized, immutable, and digital ledger made up of packs of information called “blocks.” These blocks are strung together into a chain, hence the name “block chain.” Each block contains a different set of transactions. But the information that starts one block depends on the information that ended the previous block.

So a new block possesses both a timestamp and a link to the previous block. What does this mean? Information cannot be altered on each block separately. For example, let us say we have 5 blocks and you want to change the information in block 2 because you made a mistake.

If you alter anything in block 2, you will affect blocks 3, 4, and 5, changing the whole blockchain entirely. This quality makes the blockchain a reliable, anti-fraud system for storing information. Now to the heart of the matter: blockchain protocols.

What are blockchain protocols?

Blockchain protocols are rules that govern how the nodes or moderators of a blockchain network interact with each other and handle information. On a microlevel, these rules determine how a network’s consensus is reached. On a macro level, the protocols differentiate one blockchain from another, as each network has a unique protocol guiding it.

These protocols dictate how every single thing on a blockchain network works, from the type of data the network will store, to how consensus will be reached and maintained. Protocols are necessary because they define how data is distributed within the network securely, which makes the entire network secure overall. Who sets these rules? A blockchain developer is responsible for creating and maintaining blockchain protocols.

Examples of blockchain protocols:

• Bitcoin protocol:

The Bitcoin protocol was the first protocol. It opened the world to the possibilities of blockchain technology, and thanks to its founder, Satoshi Nakomoto, we are starting to enjoy the benefits of this technology. This protocol also introduced the Proof of Work (PoW) algorithm, which requires nodes to “prove” they have solved a difficult mathematical problem before seeing rewards. But the Bitcoin protocol became insufficient to cater to new blockchain needs, hence the development of other protocols. One of these protocols is Ethereum.

• Ethereum protocol:

The Ethereum protocol made several improvements to the Bitcoin protocol, including allowing developers to create their own projects, dApps, and smart contracts. Newer cryptocurrencies used the Ethereum blockchain to build their projects or to launch their own blockchain.The fact is, the Ethereum protocol presents us with more opportunities to enjoy a decentralized and permissionless system.

• Ripple Protocol:

The Ripple Protocol is a stellar example of a protocol created for a specific purpose. While Bitcoin and Ethereum were created to solve general needs, Ripple differs. It was made specifically for payments. With a ridiculously low transaction fee and unmatched speed, the protocol is a leader in blockchain payment solutions. Some banks also employ the protocol to help speed up their transaction speeds and reduce the burden on their Web2 systems.

Features of a blockchain protocol

There are a few things that all blockchain protocols possess that enable them to work as they should. These are:

• Decentralization:

A blockchain network is decentralized, so it makes sense that the protocol governing it will be decentralized, right? Blockchain protocols are decentralized, meaning a single entity does not control them. Instead, they are applied by the participating computers on the network. Remember, protocols are rules and do not need control. This decentralization of blockchain protocols helps to protect the overall integrity of the network. It is much harder for the whole decentralized network to crash if a node is down than when controlled by a central entity.

• Smart contracts

Another key feature of protocols is their ability to support smart contracts. Smart contracts are blockchain programmes that are automatically executed under certain conditions. While smart contracts make blockchains stand out because they automate processes more efficiently than other networks, smart contracts would not be possible without protocols. And this is why every blockchain that supports smart contracts has a unique protocol that makes its execution process different from other smart contract-supporting protocols.

• Consensus:

In simple terms, a “consensus” is a state where participants reach an agreement. Here, the participants are the nodes. For any blockchain transaction to be completed, all nodes must come to a consensus, i.e., agree for information or a transaction to be added to a block. A blockchain protocol cannot work if there are discrepancies between nodes, hence the need for a consensus. A protocol determines how the nodes will reach this consensus.

How does the blockchain protocol work?

A blockchain protocol works at the lowest level of blockchain technology, i.e., the creation of blocks. Once a transaction is made on a particular blockchain, the protocol creates a unique hash for it. After this, the transaction is added to an existing block or a new one is generated.

When the block is full and can no longer take new transactions, the protocol sends the block to all the participating nodes for verification. A consensus is reached, and the protocol begins rewarding all the nodes. These nodes are based on miners, who get paid from the network fee of each blockchain network. The block is added to the ever-growing chain, and the cycle continues.

What are the major types of blockchain protocols?

1. Hyperledger:

Launched in 2015 and handled by the Linux Foundation, Hyperledger is one of the leading blockchain protocols. It is an open-source enterprise blockchain protocol that anyone can modify. However, to contribute or edit anything on this blockchain, you need permission, as the blockchain is connected to different companies. As an enterprise-scale blockchain protocol, Hyperledger serves almost 260 various enterprises. It’s a significant protocol because its development can help businesses scale up massively if they choose to harness the power of blockchain technology.

2. Corda:

While Hyperledger caters to enterprises, Corda is more streamlined as it focuses on the banking sector. Although the Corda protocol wasn’t created exclusively for the financial industry, a number of financially-inclined instructions have been used to develop their products. Financial entities seem to trust Corda more because the R3 Consortium has endorsed it. The consortium is a firm focused on providing digital solutions for more than a hundred global financial entities. Unlike many other blockchain protocols, Corda is private. Only the participants in a transaction have access to it; not every node or person on the network does. This creates privacy for financial institutions and their clients.

3. Quorum:

Quorum is a blockchain protocol that targets the financial sector, with the ability to process up to 100 transactions every second.

Founded by JP Morgan, it is currently in use by top multinationals, including Novartis and Microsoft. However, it is pretty different from Corda. Firstly, its protocol is closely linked with the Ethereum protocol. One of the problems with this protocol is its scalability. It is difficult to scale. Also, unlike Corda, it is not private; it is an open-source network that allows anyone to contribute to and view transactions on it. In recent times, however, the protocol added a new feature called the “private transaction identifier” to help institutions preserve the privacy of their transactions.

What are protocol tokens?

Every blockchain protocol needs a token or coin to keep it running efficiently. Why? These assets, also called native tokens, are going to constitute the rewards for miners whenever they are done verifying transactions. Protocols cannot use the native tokens of other networks to reward their miners or nodes. The difference between coins and tokens is that while coins are the native assets of a blockchain protocol, tokens are a derivative of the protocol because they are owned by the dApps on the protocol’s main blockchain network.

Final thoughts:

Blockchain protocols are the criteria that tell a blockchain network exactly how to handle its data. It is essential to understand what they are and how they work to get a more comprehensive understanding of how blockchain technology operates.

With new uses of blockchain technology springing up by the day, we can expect better protocols to optimize blockchain technology for various spheres. For now, however, we continue to study these protocols and how to improve on them, inadvertently improving the quality of our lives as we rely more on this growing technology.

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