Protocol in Cryptocurrency

Fredrick Awino

Blockchain Technology

25.08.2022

471 Views

A protocol refers to a set of rules which allow data to be shared among computers. In cryptocurrencies, the protocol establishes a blockchain structure. Blockchains are different. However, it is a protocol that determines the way they work.

Protocols do not only exist in the crypto world. For instance, in every organization, there is a set of rules that govern the institution. They are the ones that determine the way information is transmitted. Basically, they are in charge of running an organization.

Bitcoin was the first crypto to be introduced in the world. It came in the form of a white paper written by an anonymous individual with the name Satoshi Nakamoto. The paper outlines a set of computational rules that developed a new type of distributed database known as a blockchain.

The blockchain was to work as a ledger. It means that it had the responsibility of tracking and verifying every transaction. The miners having heavy machines that maintained the chain got rewarded with Bitcoin. Therefore, these are the rules governing the Bitcoin protocol.

The Main Blockchain Protocols

There are over hundreds of protocols available. However, the main ones in cryptos include Hyperledger, Corda, multichain, quorum, and enterprise Ethereum.

Enterprise Ethereum

Ethereum is among the top public blockchain systems. Its features include dApp development, smart contract, and NFTs. However, for it to be useful to a business, it should be permissioned. It is here that Ethereum for business comes in. Ethereum for business gives businesses the opportunity of establishing private permissioned networks which may scale in meeting their demands.

Enterprise Ethereum establishes private chains which are different from the public ones. Consequently, private chains have the capacity of communicating with public chains. The main distinction between Ethereum Enterprise and Ethereum is permissioning. As a result, Enterprise Ethereum offers a high level of anonymity as it still improves scalability and efficiency.

Hyperledger

Hyperledger was developed in 2015. It is an open-source enterprise and Linux Foundation oversees it. The foundation is a great supporter of Hyperledger. This has made it supply expertise in accelerating protocol creation. Additionally, Hyperledger is an open source, any person who has the required expertise has the opportunity of contributing.

Furthermore, Hyperledger highly aims at permissioned blockchain. Its goal is to offer a set of guidelines or universal frameworks for the implementation of blockchain for enterprise blockchain solutions. Most technicians are currently involved in the project. They all have a similar goal of creating a protocol, which may be utilized by enterprise solutions.

Advantages Of Hyperledger

Hyperledger fabric can be used in building permissioned blockchain, especially when building a business one. Businesses including banks operate under regulatory requirements. Thus, they cannot afford to have unknown users viewing transactions.

The other advantage is scalability and performance. The Proof of Work (PoW) algorithm as well as crypto mining in fabric delivers fast transactions and high scalability. The transaction validation mirrors the way transaction workflow works in normal business. In addition, the transaction process has 3 phases including transaction validation, transaction ordering, and distributed logic processing. This process reduces overhead by ensuring few trusts level and validation across varied kinds of nodes.

Moreover, another advantage of Hyperledger is cutting-edge technologies. Besides, through these kinds of technologies and frameworks, productivity has highly increased. The other benefits are taking a cooperative approach as well as enhanced intellectual property management.

Quorum

Quorum is another important blockchain protocol. It helps financial institutions. Besides, it is worthy as it has the support of the financial community. For example, it has J.P. Morgan Chase support. This person is an important financial sponsor of the protocol. Quorum has also remained an open-source project. It means that anybody may use it. Lastly, it is closely linked to Ethereum since the project commenced by changing the Ethereum code.

Multichain

Multichain technology refers to a platform that gives the users the chance of creating private blockchains. These are the blockchains utilized by businesses for financial attractions. To the users, Multichain offers both a command line interface and a simple Application Programming Interface. The two interfaces help in the establishment and preservation of the chain.

In multichain, the Blockchain visibility should just be kept with specific participants. The aim of this is to preserve control and stability over the existing transactions. In a way, it also minimizes misunderstandings. With the help of expense connected and evidence of work, the operations of the mining can be conducted in a safe way.

The Process of Hand Shaking in Multichain

It is in multichain that the nodes prove their identity while connecting to the other nodes. Besides, in multichain blockchain, verack and version messages in the bitcoin protocol are replaced with verackack, verack, and version. They perform different functions including checking if both the peers are on the blockchain with a similar name.

Furthermore, when there is a necessity, the MultiChain download the parameters of a blockchain from the other side. If not, it checks whether both use identical parameters. Also, every node sends a challenge message to another node. It must sign this using the private key which corresponds to the presented address. Every node recognizes a public address with connection permission. And for this, it has a private key.

The handshaking in MultiChain takes place if nodes in a given blockchain connect with each other. Basically, it takes place when two nodes (Blockchain) connect. Identifying every cone comes with an address as well as a list of permissions. Therefore, every node that it represents sends a message to the other users. Additionally, the peer-to-peer connection stops if they do not get satisfying results from the process.

Corda

Corda is MultiChain’s rival. It provides an enterprise-focused protocol. Additionally, most of the Corda-based applications are in banking as well as financial industries. Since Corda is credited by the R3 banking consortium, it is a solid choice for the financial industry Blockchain development solutions.

Furthermore, Corda uses consensus methods in enhancing transaction validation, traceability, and transparency. The availability of smart contracts also indicates that there is the possibility of automating most financial solutions. Corda is permissioned and open source just like the other blockchain ledger. This issue makes it a great choice for a business that needs excellence in the area of Corda R3 architecture.

The Importance of Protocols

Protocols are significant as they allow cryptos to be decentralized through blockchains. Protocols are important in cryptocurrency as it helps in establishing the whole structure to ensure that digital money is securely exchanged. Besides, the protocols give users the opportunity of managing data. The reason is that most crypto networks allow traders to have digital wallets.

Furthermore, protocols facilitate data transfer in a secure way. In the blockchain, third parties such as middlemen, government, and central authorities are not involved. Therefore, in governing the network, some rules are needed. Also, protocols helps in preventing double-spending. Lastly, the protocols are in charge of handing payments and transactions for all services.