In crypto, protocol usually refers to the underlying rulebook a network follows, covering things like how transactions are validated, how new blocks are agreed upon, and how nodes communicate with each other. The Bitcoin protocol and the Ethereum protocol, for example, each define the specific rules that their respective networks follow. Protocols also typically set technical details such as transaction formats and how disagreements between participants about the correct version of the chain should be resolved.
The term is also used at the application layer, not just for base blockchains. A lending protocol or a decentralised exchange protocol, for instance, is a set of smart contracts and rules governing how that particular application works, built on top of an existing blockchain rather than being a blockchain in its own right.
Because a protocol is essentially a shared rulebook, changing it requires an upgrade that the network's participants need to adopt, whether that is node operators, validators, or miners depending on the network. Some upgrades are minor technical adjustments, while others can meaningfully change how the protocol behaves, which is why protocol changes are typically proposed, discussed, and tested before being rolled out. In most networks, no single participant can force a change through unilaterally, which is part of why protocol upgrades tend to move more slowly and cautiously than updates to a typical software application.
Key takeaways
- A protocol is the underlying rulebook that defines how a blockchain or crypto application functions.
- The term applies both to base-layer blockchains and to individual applications, like lending or exchange protocols, built on top of them.
- Changing a protocol's rules requires an upgrade that the network's participants need to adopt.
Protocol — frequently asked questions
What is the difference between a protocol and a blockchain?
A blockchain is the underlying ledger and data structure, while the protocol is the rulebook that governs how that ledger gets updated and agreed upon. In practice the two terms are often used closely together or loosely interchangeably.
What does a protocol upgrade actually involve?
It means changing the underlying rules a network or application follows, which can range from a small technical fix to a substantial change in how consensus, fees, or transactions work, depending on what the upgrade addresses.
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