What is a cryptocurrency and blockchain Protocol?

Protocols play an integral role in how the Internet works, from every message sent to the way you access a website from anywhere in the world. Protocols are at the core of modern communication. This naturally includes cryptocurrencies and blockchains. In this article, we review what is a protocol, and how this influences crypto and blockchains.

Modern communications rely on networks. Whether that’s a cellular phone and data network, or an encrypted Enterprise-level internal network (Intranet), or a blockchain-based project, such as a Token, DOA, or DeFi application. All of these, and everything else connecting people using one or more means of communication, use protocols to interact, and share data.

Networks themselves rely, run and operate on protocols. Even when computers, smartphones, tablets and other pieces of hardware operate using completely different software, they can still communicate, thanks to protocols. Standardized protocols, such as Internet Protocol (IP) addresses are a shared language that computers and phones use to communicate.

Let’s take a closer look at what that means, and in particular, what is a blockchain protocol?

What is a Protocol?

If you think of hardware and software as separate languages, protocols are easier to understand. Android is one language and iOS another; but that doesn’t stop two people using these different operating systems from sending messages to one another on WhatsApp or Facebook.

Protocols are a shared language, a way of communicating between devices and operating systems. And this includes everything from phones to smart TVs to computers and servers.

Protocols online belong to one of seven layers, represented using the Open Systems Interaction (OSI) model. Which is an abstract way of outlining the way the Internet works, using protocols.

Below are the seven layers that outlines how the Internet operates, within the context of protocols communicating with one another:

#1: Application Layer: This is the layer most people are aware of, the layer of the Internet that everyone sees and engages with everyday. Here is where applications — usually cloud-based, and either cross-platform or built on specific platforms (e.g., iOS, Android, Microsoft, etc.) — interact with network protocols, allowing for people to interact, communicate, create, view and consume content.

#2: Presentation Layer: Here is where data from various applications or servers is presented or encrypted in a usable format.

#3: Session Layer: Where connections are maintained, and ports and sessions are controlled.

#4: Transport Layer: Data is transmitted on this layer, using various protocols, such as HTTPS, TCP, UDP, and numerous others, depending on what’s being transmitted and where it’s going.

#5: Network Layer: Networks and other considerations, such as security, decide the physical path data is going to take. Similar to a transport control office allocating the route for trains to travel across a network to reach the intended destination.

#6: Data Link Layer: At this layer, the format of data being transmitted across a network is defined.

#7: Physical Layer: And finally, the raw bit stream of data, in whatever format it’s being sent and across whichever network or series of networks, is physically sent and transported using cables, and other technologies. How this is transported depends on the network infrastructure, distance the data is physically travelling, and a number of other factors.

On the network layer, there are a series of crucial protocols that make the Internet work. These include the following: Internet Protocol Security (IPsec), which is a collection of protocols that allow for the creation of virtual private networks (VPN). The protocols within this collection include the Encapsulating Security Protocol (ESP), Security Associations (SA), and Authentication Header (AH).

Other crucial protocols on the network layer include the Internet Control Message Protocol (ICMP), and Internet Group Management Protocol (IGMP), which ensures multiple computers or nodes on a network can receive the same data packet.

Beyond these that are integral to the functioning of the Internet, there are others you’ve no doubt heard of, such as: TCP, HTTP, HTTPS, TLS/SSL, and the UDP protocol.

Now that we’ve covered what protocols are on the Internet, let’s take a closer look at what this means for cryptocurrencies and blockchains.

What are protocols in Crypto and for Blockchains?

Cryptocurrency is built on a new format for using communication protocols. It’s one of the reasons crypto and blockchains are described as Web 3 protocols.

When the whitepaper explaining the concept we now know as Bitcoin first appeared, in 2008, it talked about a new type of distributed database, or ledger. Also known as a Blockchain. Every new “coin” would be “mined” and then verified, committed forever to this distributed ledger. Everyone — known as the nodes of the network (individual computers) — would verify the creation of each new coin.

When coins are transferred from one owner to the next (or a percentage of a coin), this transaction would also be verified across the network, using the same protocols. Those responsible for maintaining the network would be rewarded, with payment in the form of Bitcoin, or whichever form of cryptocurrency or token the network is based on.

No matter how many cryptocurrencies there are, tokens, or blockchain-based applications and other solutions, these remain the fundamentals of crypto and blockchain protocols. Put simply, that is how crypto and blockchain works.

Following the launch of Bitcoin, thousands of new cryptocurrencies and tokens have been created. Thousands more blockchain-based projects and applications are now in existence, with new ones being launched everyday. All of them operate on the same principles, using unique communication protocols.

As many of these Web 3 protocols are designed from the same fundamental principles, there are no limits to the interactivity between one cryptocurrency and another. One crypto can be swapped and exchanged for another. One blockchain can interact and transfer data to another.

Entrepreneurs, creators and developers have now found a way to buy, sell and transfer tangible and intangible assets, using Non-fungible token (NFT), and fractionalized NFT (F-NFTs). Decentralized Organizations (DAOs) can play an integral role in the management of F-NFTs, which operate using another distributed network protocol.

A new protocol is being launched soon, which will make it easier for creators and owners to benefit from assets, such as art, videos, antiques, and numerous other things people collect, known as the DEIP Protocol.

Let’s take a closer look at what this means and how creators can benefit more extensively from their work.

What is the DEIP Web 3 Protocol for Intellectual Capital?

DEIP is a series of blockchain-based protocols, tools and applications for the creative economy, specifically for those wanting to monetise digital assets through F-NFTs (Fractionalized NFTs).

DEIP is an Intellectual Capital Protocol that will empower the discovery, evaluation, license, and exchange of digital assets. It’s designed to enable intangible asset tokenization (F-NFTs), and will include governance (DAO) and liquidity for F-NFT owners using derivatives and DeFi instruments.

For creators and asset owners, F-NFTs make NFTs more accessible, and therefore easier to generate income from owning tangible and intangible assets. We are about to experience the next wave of monetization of digital assets, with more people than ever wanting to invest in them, sell them, and monetize them, for short and long-term gain. Blockchain protocols, based on Web 3 communication principles, make all of this possible, which is why it’s useful to understand the role protocols play in cryptocurrencies and blockchains.

Leave a Comment

Your email address will not be published. Required fields are marked *