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What is a Protocol?

In the blockchain industry, the word “protocol” refers to any distributed ledger-based service, including the blockchains themselves and any services or applications that run on them, that can programmatically receive and respond to specially formatted requests.

Related Term:

Smart Contract

What is the definition of the word “protocol” as used in the blockchain industry?

The blockchain industry’s definition for the word “protocol” is essentially any distributed ledger-based service, including the distributed ledgers themselves, that can receive and respond to programmatic requests. For example, if a public distributed ledger can programmatically (via software as opposed to a user interface for humans) receive a request (and respond to it accordingly) to transfer cryptocurrency from one ledger account to another (which most chains can do), then it’s a protocol. Similarly, if a decentralized autonomous organization (DAO) offers an automated liquidity pool (LP) that includes various forms of cryptocurrency liquidity via a software programmable interface, that LP is considered to be a protocol. Even though some of these services might be layered on top of one another (with a distributed ledger often being at the bottom layer, serving as a foundation), most if not all individual services in each of those layers are considered to be protocols.

Stretching the definition of the word “protocol” to include all distributed ledgers as well as the layers of software that run on top of them is unquestionably a departure from the traditional use of the term in technology-related conversations. For this reason, IT and business technology professionals who are breaking into the blockchain field will often find themselves doing a doubletake when they hear the word used in such an unorthodox context. It will take some getting used to, but understanding the possible origins of this usage might be helpful.

What is the origin of the word “protocol” as it is used in a blockchain context?

The exact origin of the blockchain industry’s unique use of the word “protocol” is unknown. But, the etymology of the word “protocol” in blockchain conversations may be connected to how the word “protocol” has been historically used to describe a collection of layered, always-on services that are part of the public internet. This is probably because public distributed ledgers bear similar operational resemblances to the public internet itself.

In the early days of computer networking, when two or more systems communicated with each other, the systems’ operators had to agree to an exacting degree on how each computer would package (aka “serialize”) the data it was sending so that (1) any recipient system could accurately unpackage (aka “deserialize”) that data, and (2) the interconnections (aka networks) over which these packages of data were implemented improved the odds of successful delivery.

If all systems were of the exact same type and all networks functioned identically, the idea of networking computers might not have been as challenging as it once was. But such homogeneity in technology has never been the case. Where physical interconnections were used to network dissimilar systems to each other, multiple dissimilar connection types including Ethernet, Token-Ring, and the plain-old telephone system (POTS) were also involved. But even if all systems adhered to one physical interconnection type, it was still challenging to get the software of one system to understand the software language of another system.

Similar to how cultural protocols are necessary to bridge the communication gaps between people of different nationalities and cultures, getting all of the world’s systems onto a level playing field of communication required some widely accepted technological lingua franca-like protocols that could not only work at the various physical and software layers, but that could also handle the translations and transformations where system and network dissimilarities were obstacles.

For decades, the internet has been a heterogenous network of nodes that can magically talk to one another despite their technological differences. However, most people don’t realize the extent to which that magic lies in the many open protocols that collectively form the basis of the internet and the web.

For example (get ready for an oversimplification), when a user searches Google for a recipe, there are different protocols just to cover the physical networking mediums all the way from the user’s device (e.g., connected via WiFi), across the local cable provider’s network (e.g., broadband), up to an extra-terrestrial satellite network, down to a cluster of Google servers connected on the other end, to a super high-speed Ethernet switching fabric. Then, there’s a layer of protocols like TCP/IP and UDP/IP that know how to “ride” that end-to-end physical medium in order to carry the user’s recipe request (as well as Google’s response) between the sending and receiving systems.

The ability of such a request to find its way to the right destination system involves Address Resolution and Domain Name System protocols. Then, there’s an application-specific layer of protocols like HTTP (aka the web) that know how ride the TCP/IP so that the systems on both ends know how to ask for a specific resource like a web page (and how respond to that request). And then, on top of that layer is another protocol layer (HTML) that’s specific to how the content of the request and response is presented to the computers on both ends (the user and Google).

Yet almost nobody thinks about how it’s very much the same multivariant stack of protocols that brings us YouTube as easily as it brings us email or TikTok. But, more importantly, getting back to the origins of the word “protocol” in conversations about blockchain, it’s the parallels between the always-on and layered nature of all of the internet’s protocol-based services like the web (HTTP), email (SMTP, POP3, and IMAP) as well as the internet itself to which blockchain services bear a striking operational resemblance.

Much like TCP/IP at the base level of the internet, distributed ledgers—as the base level or “L1” of the blockchain stack—typically offer native services whose access, like most internet protocols, depend on mutually agreed-upon standards for how requests are formed, presented, and then serviced. The same is also true of decentralized exchanges (DEX), LPs, other decentralized finance applications, and custom developed smart contracts that run on top of the various blockchains. Like the openly accessible protocols of the public internet (in many ways, their openness is what makes them “public”), these “protocols” are essentially always on and ready to service requests as long as those requests (similar to how web requests and responses work) conform to mutually agreed-upon application-specific standards for how those requests are formed, presented, and serviced (often referred to as technological contracts).

So, much like the way the internet and all its offerings are viewed as a layered collection of always-on, standardized protocols, it’s not surprising that blockchain enthusiasts would also consider protocols to be representative of distributed ledgers and the many always-on, ready-to-respond services and applications that are layered on top of them.

What are examples of blockchain protocols?

In order to spot distributed ledger technologies (DLT) that qualify under this broadened definition of the word “protocols,” it’s important to look for the following criteria:

  • Much the same way that the internet is an omniscient entity that’s always on and provisioned through the efforts of multiple organizations and individuals, is the blockchain technology in question similarly always-on, open 24/7, and provisioned in one or more ways by a non-centralized coalition of entities?
  • Is the blockchain technology in question openly addressable by other software as long as that software makes its requests according to mutually agreed-upon standards and specifications for how those requests are programmatically formed, presented, and serviced?
  • Most blockchain protocols are easy to spot because they have their own total value locked (TVL), which is measured (typically in US dollars) by the total cryptocurrency deposits that are locked into the service. TVL is often used as a comparative metric to rank order market adoption of one protocol versus others.
  • Examples of DLT-based services that satisfy this criteria are as follows:

  • A layer 1 blockchain like Bitcoin, Ethereum, or Avalanche
  • A decentralized cryptocurrency exchange like Uniswap or PancakeSwap
  • A liquidity pool like Balance, Curve Finance, or Bancor
  • Decentralized services with their own TVL such as MakerDAO, Lido, or AAVE
  • What is the relevance of the phrase “blockchain protocol” to enterprises and businesses?

    It’s not unusual for an experienced business technologist to be disoriented the first time he or she hears a blockchain enthusiast refer to a distributed ledger or one of the many types of services, applications, or smart contracts that run on a distributed ledger as a protocol. After all, the word “protocol” is typically used to refer to standard digital communications or networking specifications.

    But, the more blockchain and DLT come up as topics of conversation (and as disorienting as it may be), the more that IT professionals should expect to hear the word “protocol” being used as a generic reference to just about any blockchain-related offering.

    Eventually, as out of place as it sounds to use the word “protocol” in such non-traditional context, the more you practice its usage when sharing your ideas about blockchain, the more your blockchain contemporaries will appreciate how you’ve fully embraced the DLT lexicon.

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