What is a protocol?
A protocol is a set of rules that govern data transmission and processing in fields such as networking, cryptography, and blockchain. These rules ensure interoperability and facilitate secure communication among participants.
Protocols are essential to the Internet, enabling communication, data transfer, and website access. Examples include:
- Email protocols like Simple Mail Transfer Protocol (SMTP) allow emails to be sent and received between servers. Email clients (like Gmail, Outlook,and Apple Mail) implement these protocols along with IMAP/POP3 for receiving mail, enabling users to seamlessly exchange messages across platforms and providers.
- Hypertext Transfer Protocol (HTTP) governs how websites load in browsers, facilitating the transfer of data between web servers and clients. Its secure version, HTTPS, adds encryption to protect sensitive information during transmission. Modern browsers implement these protocols to render websites, handle form submissions, and manage API requests.
- Domain Name System (DNS) protocols translate human-readable domain names (like google.com) into IP addresses that computers can understand. When a website address is typed, DNS servers and protocols work behind the scenes to direct your request to the correct server.
In blockchain, protocols facilitate trustless communication between nodes, smart contracts, and users by enforcing predefined rules through cryptography, consensus mechanisms, and decentralized execution. However, some protocols - such as those in private blockchains - still rely on a degree of trust.
Types of blockchain protocols
Blockchain protocols secure networks, improve scalability, and enable interoperability, shaping how blockchains function and evolve.
Consensus mechanisms
Consensus algorithms are protocols that determine how participants in a blockchain network agree on the validity of transactions. Different blockchains use different mechanisms to achieve consensus:
- Proof of Work (PoW) – Secures the network by requiring miners to solve mathematical puzzles to validate transactions. Used by Bitcoin.
- Proof of Stake (PoS) – Enhances efficiency by allowing validators to stake tokens as collateral to propose and confirm new blocks. Used by Ethereum.
- Proof of Authority (PoA) – Prioritizes trust and efficiency by relying on a small group of approved validators. Used by VeChain.
- Proof of History (PoH) – Optimizes transaction speed by creating a historical record to prove the order of events before consensus. Used by Solana.
- Proof of Space and Time (PoST) - Reduces energy consumption by requiring participants to allocate unused storage space (Proof of Space) while using Proof of Time to ensure consistent block intervals and enhance security. Used by Chia.
Layer 1 (L1) protocols
Layer 1 blockchains operate as the base network and handle transaction validation independently:
- Ethereum – A smart contract platform known for its programmability and extensive ecosystem.
- Bitcoin – A secure blockchain focused on decentralized payments.
- Solana - An energy-efficient blockchain designed for mass adoption and improved user experience.
- BNB Smart Chain (BSC) - An Ethereum Virtual Machine (EVM) compatible chain that allows developers to migrate decentralized app (dApps) and decentralized finance (DeFi) protocols with minimal effort.
Layer 2 (L2) protocols
Layer 2 protocols are built on top of Layer 1 blockchains to improve scalability and reduce costs:
- Base – A network developed by Coinbase. It is built using Optimism’s OP Stack, while Ethereum serves as its Layer 1 for security and finality.
- ZKsync Era – A zero-knowledge roll-up solution that bundles transactions off-chain and uses cryptographic validity proofs to verify them on Ethereum.
- Arbitrum - A scaling solution that consists of a suite of protocols to make transactions on Ethereum cheaper and faster.
- Polygon - A chain that runs alongside Ethereum and uses zero-knowledge rollups to enhance speed and scalability.
Interoperability protocols
Interoperability protocols allow different blockchains to communicate and share data:
- Chainlink Cross-Chain Interoperability Protocol (CCIP) – Allows decentralized applications to transfer tokens and data across chains.
- Cosmos Inter-Blockchain Communication (IBC) – Enables blockchains to transfer assets and information.
- Wormhole Guardian Network – A decentralized set of nodes that verify messages between chains, securing cross-chain communication.
- Axelar General Message Passing (GMP) – Allows developers working on one chain to call a function on a smart contract or protocol on another chain.
Decentralized finance (DeFi) protocols
DeFi protocols provide financial services like lending, borrowing, and trading without intermediaries:
- Curve – A decentralized exchange (DEX) and automated market maker (AMM) optimized for stablecoin trading.
- Aave – A non-custodial liquidity protocol that allows suppliers to deposit assets and earn interest or borrow against their holdings.
Blockchain protocols governance and maintenance
Blockchain protocols evolve through community governance, upgrades, and formal proposals to improve functionality, security, and efficiency. They rely on code, consensus, and community-driven decision-making to implement changes.
Decentralized Autonomous Organizations (DAOs)
Some blockchain protocols are governed by DAOs—organizations run by smart contracts and community voting. Token holders can propose and vote on changes, ensuring decentralized decision-making.
Upgrades and forks
Blockchain protocols evolve through upgrades and forks:
Upgrades are protocol improvements that do not disrupt the network. For example, the Ethereum merge resulted in a change from PoW to PoS, which reduced energy consumption and improved security.
Forks are a split in the protocol where a new version is created, allowing developers to add new features and improve security. There are two types of forks:
- Soft fork – Backward-compatible upgrades that refine existing rules without splitting the network. Nodes that haven’t upgraded can still recognize the new blocks.
The Taproot (Bitcoin) soft fork improved privacy and efficiency without requiring all nodes to upgrade immediately.
- Hard fork - Splits that create a new blockchain version, requiring all nodes to upgrade. This results in two separate networks.
The Bitcoin Cash (BCH) hard fork increased the block size to allow more transactions per block.
