Protocol, Bitcoin was introduced to the world in the form of a white paper published by a pseudonymous individual or group known as Satoshi Nakamoto. The white paper, which was released in 2008 on a cryptography discussion forum, provided a set of computational principles for establishing a new sort of distributed database known as a blockchain. The blockchain would operate as a ledger, keeping track of all Bitcoin transactions, having autonomous verification, and being continually validated and safeguarded by the whole network’s computer power. The “miners,” whose computers worked tirelessly to keep the network running, would be compensated in Bitcoin. These rules comprise the Bitcoin protocol as a whole. They are literally Bitcoin.
Protocols are not, of course, exclusive to cryptocurrencies. They are important to the operation of the internet, controlling data transfer from one computer to another. E-mail, for example, is built on numerous protocols. What is the HTTP at the beginning of each URL? It is an abbreviation for “hypertext transmission protocol.”
The Bitcoin protocol demonstrated that digital money could be safely traded over the internet. Thousands of different types of digital money followed, each with its own set of protocols. Fundamental advances in encryption and decentralised computing continued to open up new possibilities for blockchain protocols during the following decade.
Why are protocols important?
The protocols enable cryptocurrencies to be decentralised through the blockchain, which means they are spread over a network of computers with no central hub or authority.
- The Bitcoin protocol’s key advancement was the creation of digital money that can be transferred or spent without anybody involved in the transaction fearing that the money had already been spent. (This is known as the double-spending dilemma, and it will be recognisable to anybody who has purchased a performance ticket from a stranger only to learn that the ticket has already been spent.)
- Following the introduction of the Bitcoin protocol, further rule sets covering a broad range of functions have been produced. Thousands of cryptocurrencies exist, each with its unique protocol.
- For example, the Ethereum protocol was built on the concept of “smart contracts,” in which a transaction or agreement is automatically performed when specific conditions are satisfied.
- On the Ethereum blockchain, a broad collection of protocols has arisen, allowing a wide range of decentralised financial products that automate anything from loans and savings to insurance.
- In the cryptocurrency arena, Ethereum is not the only “smart contract” technology. Newer blockchain protocols, such as Polkadot, have developed to compete in the market.
