Blockchain Protocol: Everything You Need to Know

Beginner’s Guide / 21.10.2020

The world is increasingly switching to cryptocurrencies as a means of trade. A particular study shows that up to 19% of the global population bought them as of 2019. For those familiar with cryptocurrencies, terms like decentralized currency or blockchain protocols are more common. 

Protocols, as used in computers, are the set of rules governing data exchange between the devices. This article shall expound more on the protocol terminology as used in blockchain and thus cryptocurrencies at large.

Definition of Blockchain Protocols 

First, a Blockchain is a decentralized public ledger system that stores information about a transaction, its participants, and the specific data from other blocks. It consists of many computer devices called nodes connected through the internet, each equally crucial to the blockchain.

The ledger system’s operation is governed by rules as agreed upon by all the participating nodes. These rules are the blockchain protocol. The essential purpose of these rules is to define the following;

  • How to govern and validate transactions.
  • The algorithm that gives the nodes’ an interaction mechanism.

The blockchain protocol outlines the network’s interaction rules.

Key Terminologies Used

Some key terms used include;

Blockchain Algorithm 

Also referred to as the consensus algorithm, it is a sequence of instructions that allows the agreement to verify transactions in the network.

Decentralized Ledgers

It refers to the continuous form of catalogs that a computer device (nodes) maintains in a network. It removes the reliance on a central authority to cross-check for manipulation. 

Smart Contracts

A smart contract is a coded script that is embedded in the blockchain. It plays the role of automatically executing, documenting, and governing a transaction.

Coins and Crypto Tokens

Coins and crypto tokens (shortened as a token) are the existing digital assets that power blockchain’s network. They intend to serve the same purpose, being differentiated only by the protocol levels that define them.

A coin in the lowest level of the protocol itself serves as the blockchain network’s main asset. Tokens are a higher level of digital assets as defined by the smart contract rather than the protocol itself. They are usually the native coins of dAPPs, the later differing with other dAPPs as defined by the smart contract.

51% Attack

It explains the relative invulnerability of the blockchain. The 51% attack rule means that an attacker must have control over more than half of all nodes. In a typical protocol, this means millions of computers.

In controlling these computers, the attacker or group of attackers can then manipulate the transaction recording process by first sending and then reversing it. It would appear as though they are still in possession of the coin and thus free to use it again, hence double-spending.

Main features of a Blockchain Protocol


A blockchain protocol transaction is the actual exchange of digital assets as per the smart contracts (rules). 


Refers to the agreement arrived at by all nodes when verifying a transaction. This consensus is as confined by the consensus algorithm.

Evolution of Blockchain Protocols in Cryptocurrencies

The blockchain protocol is an ever-changing and adapting space. In a bid to address previously released protocols, new types of protocols and their coins, on release, come with an edge over previous versions. The key evolutions are the following;

Blockchain 1.0 – Bitcoin Protocol

The Bitcoin protocol, launched in 2009, was the pioneer blockchain protocol. It is a public permissionless blockchain with transactions organized into blocks, and their validation is by miners using a proof-of-work (PoW) algorithm.

Copies of these transactions get hashed using SHA256 encryption. The pairing of these hashes repeatedly executes until a single hash remains stored in the block header. Each block also holds the hash of the previous block creating a chain that safeguards against changing a transaction as one has to change all the blocks that follow.

The Bitcoin community keeps on contributing ideas to improve the protocol called Bitcoin Improvement Protocols (BIPs). The implemented ones are grouped into small adjustments and hard forks, resulting in whole new coins such as Bitcoin Cash.

Blockchain 2.0 – Ethereum Protocol

Bitcoin faces some significant challenges, such as usability, limited coding execution ability, scalability, and extensibility. To address them, a considerable evolution of blockchain protocols culminated in the formation of the Ethereum protocol.

Ethereum introduced smart contracts. One can add a new smart contract using the Solidity programming language. The rules and regulations governing these smart contacts are digitally documented and executed by thousands of nodes in a process called Democratic Autonomous Organization (DAO

Despite the protocol having its coin, Ether allows for other currencies’ development and issuance by users in tokens. The protocol also gives the ability to develop dAPPs based on the Ethereum decentralized machine and its smart contracts.

Blockchain 3.0 – Altcoins

Ethereum, while solving usability and coding execution abilities, does not address scalability, interoperability, and performance issues. It promoted the launching of several altcoin protocols. 

New features include side chains to allow digital assets from one blockchain to be securely used in another. New consensus algorithms have been coming up like Proof of Authority (PoA), Proof of Stake (PoS), Delegated Proof of Stake (DPoS), Proof of Weight (PoW), Byzantine Fault Tolerance (BFT), and Practical Byzantine Fault Tolerance (PBFT). Initiated coin offerings (ICO), which act like unregulated IPOs, were launched to address developments’ funding.


Blockchain protocols contain the rules of interactions within a Blockchain network. Being a relatively recent means of transaction, challenges to cryptocurrency adoption keeps on being discovered—the protocol’s open-source nature allows many studies and modifications to provide solutions to these challenges.

A key prevailing issue that’s under consideration is interoperability. A difficult hurdle is the presence of over 2000 cryptocurrencies, each with its protocols in the market. The Hyperledger, an umbrella project of Linux, is a potential solution to interoperability. Its aim is a cross-industry collaboration by integrating independent open protocols, blockchain consensus, and storage facilities.

Adam is an outgoing young lad who likes adventures and discovering new things. Despite his boring life, he loves writing about cryptocurrencies and exploring what blockchain technology can do for the coming digital world where all adventures will be virtual.