Blockchain technology has emerged in recent years as a disruptive innovation that has the potential to transform many industries. At its core, a blockchain is a distributed digital ledger that records transactions in a verifiable and permanent way.
One of the key innovations of blockchain technology is the protocol or set of rules that governs how the ledger is updated and maintained. There are now hundreds of blockchain protocols, each with their own unique characteristics and design tradeoffs.
In this article, we will take an in-depth look at some of the most prominent blockchain protocols powering cryptocurrencies, enterprise blockchains, and other decentralized applications.
The Bitcoin protocol underpins the world’s first and most widely-used cryptocurrency. It was created in 2008 by the still unidentified developer(s) Satoshi Nakamoto.
The Bitcoin protocol established the foundational architecture for many blockchain innovations to follow, including a decentralized peer-to-peer network, cryptographic algorithms, distributed consensus mechanisms, and the immutability of the ledger. Some key aspects of the Bitcoin protocol include:
- Proof-of-work consensus — Bitcoin mining nodes compete to solve cryptographic puzzles to validate transactions and create new blocks. This rewards miners with bitcoin for their work and makes the ledger immutable through economic incentives.
- UTXO-based accounting — Bitcoin uses an Unspent Transaction Output (UTXO) scheme to track ownership rather than accounts. This improves privacy and security.
- Difficulty adjustment — The protocol automatically adjusts the complexity of the mining algorithm to maintain an average block time of 10 minutes.
- Halving event — The bitcoin reward for mining blocks is cut in half approximately every 4 years to control supply.
- Limited supply — The total supply of bitcoin is capped at 21 million, enforced by the protocol rules.
Despite its pioneering design, the Bitcoin protocol also has some drawbacks like slow transaction speeds and limited smart contract capabilities. This has led to new blockchain designs.
Proposed in 2013 by programmer Vitalik Buterin and launched in 2015, Ethereum pioneered the concept of more advanced programmable blockchain platforms.
The Ethereum protocol enables developers to build and deploy decentralized applications, automate processes through smart contracts, and customize blockchains for various use cases. Key innovations include:
- Accounts and state — Ethereum tracks user balances and smart contract state in accounts, unlike Bitcoin’s UTXO model. This allows for more complex on-chain logic.
- Smart contracts — These are self-executing snippets of code that expand the use cases of blockchain far beyond payments and currencies.
- Gas fees — Transactions include a fee paid to miners in the Ethereum gas token to incentivize mining and deter spam/abuse.
- Proof-of-stake — Ethereum is transitioning from proof-of-work to proof-of-stake for consensus, which will greatly reduce energy costs.
- Programmability — The Ethereum protocol allows developers to program complex behaviors into smart contracts and decentralized applications.
The advanced capabilities of Ethereum make it a platform for countless blockchain implementations today. But there are still active efforts to improve on weaknesses like scalability and security.
Other Major Protocols
Beyond Bitcoin and Ethereum, there are now many other significant blockchain protocols, including:
- Hyperledger — A set of open source enterprise blockchain development tools started by the Linux Foundation.
- Polkadot — A heterogenous multi-chain protocol that enables various blockchains to share information and transactions.
- Cardano — A proof-of-stake blockchain that uses peer-reviewed research and advanced math to improve on security and scalability.
- Solana — A high-speed proof-of-stake protocol capable of over 50,000 transactions per second through innovations like proof-of-history.
- Algorand — Uses a pure proof-of-stake consensus that leverages Byzantine agreements and cryptography for security and scale.
- Stellar — An open network for decentralized payments and cross-border remittances.
Blockchain protocols are foundational to how distributed ledger technology is implemented and deployed. As blockchain adoption grows, we will continue to see new protocol innovations that tackle the weaknesses of previous generations while expanding possibilities.
The open source nature of most protocols also enables continuous improvements through community development. While Bitcoin initiated the paradigm shift, Ethereum and others have stretched blockchain utility even further — a trend that will continue for the foreseeable future.