Being around the crypto space, you would likely have heard the term Protocol from time to time. Protocols are a core piece of the internet from Simple Mail Transfer Protocol(SMTP), to HyperText Transfer Protocol Secure (HTTPS) and many more, but today we’re talking specifically about protocols in the context of crypto.
So what is a crypto protocol?
“A Crypto Protocol is an established set of rules that apply cryptographic methods to security related functions. This allows data to be relayed safely between nodes(computers) on a blockchain.”
The basic workings of a protocol
Protocols are a set of rules programmed into a blockchain that regulate how it is operated and actually are 1 of 2 components of a blockchain (the other is the distributed ledger). This software basis is an operating standard by which all connected nodes (computers) must operate in a congruent way to achieve a decentralized network.
The protocol determines:
Network limitations via rules and a consensus mechanism.
How applications & bridged chains interact with the blockchain.
Set regulations or parameters for building on the blockchain.
Data transfer methods between computing systems.
Security measures.
Yet another reason why a protocol is extremely important comes down to monetary accuracy. Historically speaking, traditional finance relies on a team of people to keep up with all financial records in order to ensure money is accurately traded, not overspent, and properly distributed.
A protocol on the other hand must be self-reliant with 100% accuracy of communicated data as it is shared across its computing network. One key factor in accuracy and data is the utilization of addresses through Symmetric Key Algorithms, which are cryptographically generated and only accessible to the owner of the private key associated with each address. This makes all information completely unique to the specific identity and provides a safer, more personal experience for the user than that of a banking system.
The protocol dictates all consistent actions on the blockchain.
3 components required for a protocol before the blockchain goes live
[1] Either a consensus mechanism is created or one is chosen as the basis for the blockchain network. As the consensus mechanism is responsible for the network environment, the type of consensus mechanism must be appropriately selected in order to support the network values and focus points, such as security, decentralization, scalability, and consistency.
[2] The Protocol then requires coding to build out additional frameworks so the blockchain can initiate activity. This framework must include the communication method between nodes in order to create a distributed, decentralized network.
[3] Security measures and blockchain access – by wallet, address, or account – are determined and added to the protocol.
How the Bitcoin protocol works
[Step 1] All nodes in the network expend energy trying to solve a complex math problem in order to earn the right to create the next block (a new block is created every 10 minutes).
[2] All transactions that take place in this period are added to the block.
[3] At the end of this period, all of the connected nodes check and validate to ensure there is no illicit transactions in the new block.
[4] Once the the block is validated by the nodes, it is then added to the ledger.
[5] The creator (node) of that block is then rewarded with a specified amount of BTC.
[6] This process repeats.
[7] Every 4 years the amount of BTC awarded to the creator of a new block is cut in half, otherwise known as “The halving.”
The Bitcoin protocol has operated in this way since it went live 14 years ago, and it will continue on.
5 other leading open-source protocols
1. Openchain
Primarily deal with digital asset management, especially technical tokenomics.
Enables Partitioned Consensus, which is ideal when it comes to user ability and Individual control.
2. Corda
Serves as a host primarily for financial and banking services.
Agile and flexible framework to meet any business requirements.
Provides a variety of blockchain solutions and standards for customization purposes.
Highly scalable and can maintain up to 600 transactions per second.
100% interoperable.
3. Hyperledger
Built to help enterprises efficiently address complicated and critical developments.
Leading enhanced smart contract governance.
Already proven as it supports mainstream enterprises such as IBM, Samsung, Fujitsu, JP Morgan and American Express.
Exclusive access.
Focuses on intellectual property.
4. Symbiont Distributed Ledger
Capable of scaling up to 80,000 transactions per second.
Specializes in setting up and catering for complicated financial instruments and utilities.
5. Enterprise Ethereum
Predominantly, this Ethereum based protocol facilitates the creation and deployment process of dApps.
Peer-to-peer network-based system.
Rapid asset transactions and fluency.
High compatibility and wide scalability.
Efficient data coordination.
Ideal for large scale applications preparing for Ethereum 2.0.
DeFi focused.
Leading protocol for gaming tools and development.