One of the fundamental concepts of blockchain is protocols. So what exactly are blockchain protocols, why do we need them and how are they used in blockchain? In the IT industry, protocols allow for information to be shared securely between different systems. Protocols define what information can be shared and how the data should be structured in order to prevent malicious activity. Some of the most popular protocols that we are familiar with include the hypertext transfer protocol (HTTP), file transfer protocol (FTP) and even the internet protocol (IP). So what do we mean we talk about blockchain protocols?
Well, it allows for information to be shared securely between different nodes in a blockchain network. In this way, the protocols are similar to IT protocols. It ensures that information sent between nodes is structured in such a way that all of the nodes in the blockchain network will be able to understand it. To fully take advantage of blockchain, it is necessary to understand how protocols work and the impact that they can have on your blockchain network.
Before taking a deep dive into protocols, let’s look back at what blockchain is and how it works. Blockchain refers to a network of computers, otherwise known as nodes, that are connected to each other. The blockchain is a distributed ledger in which all of the transactions that take place between the nodes are permanently recorded. The nodes contained in a blockchain network have a set of predefined rules that basically govern the way in which the nodes can interact with one another, where each node is in agreement with this set of rules. Some of these rules can include ways in which nodes govern and validate transactions, algorithms that define the way nodes communicate with each other and APIs that the nodes use. This set of rules is the blockchain protocol which governs the blockchain network and the way in which communication takes place.
So how does a blockchain protocol work? They are currently made up of 3 layers and only work if every node in the blockchain network complies with the protocols. The first layer defines how nodes will validate transactions that take place in the network; it is the fundamental layer of the blockchain known as proof of work. The second layer governs the way the blockchain network can achieve speed and scalability. The last layer defines how to apply and execute the it. These layers have been built by blockchain developers so that companies can use it to speed up their blockchain development and implementation.
There are key features that a protocol possesses that make it necessary to use in a blockchain network. The first feature is the use of smart contracts for transactions. Since blockchain is a distributed ledger of transactions for the exchange of assets, these transactions are performed under a set of rules which is known as the smart contracts of the blockchain. The second feature is consensus and trustlessness. Before transactions can be verified, the nodes in the blockchain have to reach a consensus. An algorithm is used to govern this consensus and is fed into the blockchain using protocols. Each node has a copy of the transactions to ensure that this information is distributed thus preventing vulnerabilities. Lastly blockchain protocols ensure decentralisation so that the blockchain can be accessed and copied from any node in the network when necessary. Protocols ensure that all transactions cannot be changed, remain permanent and are only verified when consensus has been reached.
Each blockchain has its set of protocols that it uses to ensure secure and distributed transactions. Ethereum uses Enterprise Ethereum as its blockchain protocol providing organizations with a list of requirements and specifications so that they can use it to accelerate the development of their in-house blockchain projects. Quorum is another blockchain protocol that can be used with the Ethereum blockchain, specifically for the financial sector allowing for consensus-based transactions with enhanced privacy. Additionally, Corda is a blockchain protocol that offers smart contracts allowing privacy, traceability and transparency in transactions which is vital especially for blockchains used in the banking industry. Corda is also a scalable and secure blockchain protocol that can automate a lot of the solutions that are used in the financial and banking sector. There are a number of blockchain protocols that have been developed that allow businesses to tailor their blockchain projects to their needs and enable them to build scalable solutions that can be rapidly deployed.
Blockchain protocols are vital as they determine the functionality and capabilities of your blockchain projects and provide structure to your network. Protocols are the backbone of cryptocurrency transactions ensuring reliability, consistency, security and scalability of your blockchain network. As new protocols are developed and introduced, blockchain technology changes rapidly. Without blockchain protocols, cryptocurrency would not exist.