Top 7 Must-Know Blockchain Protocols Today

In 2023, the global blockchain technology market was valued at approximately $10 billion, and it’s expected to grow at a compound annual growth rate (CAGR) of 67.3% from 2023 to 2030. This growth shows the importance of understanding must-know blockchain protocols that are driving adoption in industries ranging from finance to healthcare.

Blockchain protocols are the foundational frameworks that define how a blockchain network operates, including its security, scalability and functionality. They dictate the rules for validating transactions, maintaining consensus across nodes and ensuring the overall integrity of the decentralized system.

This article explains in-depth the must-know blockchain protocols that are shaping the future of decentralized technology. 

Key Takeaways

• Blockchain protocols are the fundamental rules that determine how transactions are validated, security is maintained and consensus is achieved on a blockchain network.

• Different blockchain protocols use various consensus mechanisms like Proof of Work (PoW), Proof of Stake (PoS), Proof of History (PoH), and Proof of Staked Authority (PoSA).

• Each protocol has distinct advantages, such as energy efficiency, scalability or security trade-offs.

• Environmental concerns and data privacy are important considerations for blockchain protocols to emphasize sustainability and privacy enhancements.

What are Blockchain Protocols?

Source: Freepik

Blockchain protocols are a set of rules and standards that dictate how data is transferred, secured, and validated across a blockchain network. These protocols ensure the integrity, security, and efficiency of transactions while maintaining the decentralized nature of blockchain technology. 

Each blockchain protocol serves as the backbone of a particular blockchain network, defining its structure, consensus mechanisms, governance, and data-sharing processes.

Why Do Blockchain Protocols Matter?

Blockchain protocols are critical to the functioning and advancement of blockchain technology for several reasons:

• Security: Protocols define how transactions are validated and secured, ensuring trust in a decentralized system without a central authority.

• Scalability: As blockchain adoption grows, protocols play an important role in enabling networks to handle more transactions without compromising speed or efficiency.

• Interoperability: With multiple blockchain networks in existence, protocols are essential for enabling different networks to communicate and work together.

• Innovation: Many blockchain innovations, such as smart contracts and decentralized finance (DeFi), are built on the foundational structures defined by blockchain protocols.

Types of Blockchain Networks

Source: Freepik

Here are some of the types of blockchain networks:

• Public Blockchains: These are decentralized and open networks where anyone can participate in the consensus process, such as Bitcoin and Ethereum. They offer transparency and immutability but may face scalability challenges.

• Private Blockchains: Operated by a single organization, private blockchains restrict participation and offer enhanced privacy and control over data, commonly used in enterprise solutions.

• Consortium Blockchains: These blockchains are managed by a group of organizations, providing a balance between decentralization and privacy, often used in industries like finance and supply chain management.

• Hybrid Blockchains: These networks combine elements of both public and private blockchains, offering flexibility by allowing public participation for transparency while keeping sensitive data private.

Key Terminologies in Blockchain Protocols

Source: Freepik

Consensus Mechanisms

Consensus mechanisms are methods used by blockchain networks to achieve agreement among distributed nodes about the validity of transactions.

Nodes

These are individual devices or computers that store and validate transactions on a blockchain network. Nodes play a critical role in maintaining decentralization and ensuring network consensus.

Smart Contracts

Smart contracts are self-executing contracts with predefined conditions encoded into the blockchain. Once the terms are met, the contract executes automatically, reducing the need for intermediaries. Ethereum is the pioneer of smart contract functionality.

Tokens

Tokens are digital assets created on a blockchain, which can represent various things such as currency, assets or utility within a network. There are two main types of tokens:

• Fungible Tokens: Identical and interchangeable tokens, like cryptocurrencies (e.g., Bitcoin, Ethereum).

• Non-Fungible Tokens (NFTs): Unique digital assets that represent ownership or rights to a particular item, such as art or collectibles.

7 Must-Know Blockchain Protocols

Source: Ledger Academy 

Here are the top seven must-know blockchain protocols:

1. Proof of Work

Bitcoin uses a blockchain protocol known as Proof of Work (PoW). In this system, miners compete to solve complex cryptographic puzzles, with the first to solve the puzzle earning the right to add a new block of transactions to the blockchain. 

This process requires significant computational power and energy, but it ensures the security and integrity of the network by making it difficult to manipulate.

One of Bitcoin’s major challenges is scalability. The network can only process about 7 transactions per second (TPS), which is significantly slower than other blockchain networks. This limitation arises from:

• Block Size: Each Bitcoin block is capped at 1MB, limiting the number of transactions per block.

• Transaction Fees: As network usage increases, so do transaction fees, making Bitcoin less practical for everyday transactions.

Efforts to improve scalability have been made, including the development of the Lightning Network, a second-layer solution that facilitates faster and cheaper transactions off-chain while maintaining the security of the main Bitcoin network.

2. Proof of Stake

Initially, Ethereum operated using a Proof of Work (PoW) consensus mechanism, similar to Bitcoin. However, PoW’s high energy consumption and limited scalability prompted a transition to Proof of Stake (PoS) with the launch of Ethereum 2.0.

In Ethereum 2.0 (also known as the Merge), PoS replaced PoW to improve efficiency. Validators now secure the network by staking Ether (ETH), significantly reducing energy usage and increasing the network’s scalability. This transition allows Ethereum to support up to 100,000 TPS through future upgrades like sharding.

The PoS system encourages more decentralized participation by reducing the hardware requirements for running nodes and offering rewards to validators. Ethereum 2.0 enhances security by making it harder for attackers to compromise the network, as doing so would require controlling a significant portion of staked ETH.

3. Proof of Staked Authority

Binance Smart Chain (BSC), designed to run parallel to Binance Chain, uses a unique consensus mechanism known as Proof of Staked Authority (PoSA), which combines elements of Proof of Stake (PoS) and Proof of Authority (PoA). 

BSC allows users to create decentralized applications (dApps) and smart contracts while benefiting from Binance’s high throughput and fast transaction processing. Here’s how PoSA works:

• Validators: A limited number of validators (21) are chosen to produce blocks. These validators are selected based on their staked BNB (Binance Coin) and their reputation in the network.

• Efficiency: PoSA allows for faster block times (around 3 seconds) and lower transaction costs compared to Ethereum’s original Proof of Work (PoW).

• Centralization Concerns: One criticism of BSC’s PoSA is its relatively low number of validators, which can lead to centralization risks compared to more decentralized networks like Ethereum.

4. Delegated Proof of Stake (DPoS) 

Delegated Proof of Stake (DPoS) is a blockchain protocol designed to improve the scalability and performance of blockchain networks. Developed by Dan Larimer, DPoS is used by platforms like EOS, TRON and Steem. In DPoS, users vote for a small group of trusted validators, or block producers, to secure the network, making it more democratic and efficient.

Instead of relying on thousands of individual nodes, DPoS networks elect a limited number of validators to produce blocks and validate transactions. This reduces the overall energy consumption and allows for faster transaction speeds. DPoS offers high throughput, with networks like EOS processing up to 4,000 transactions per second (TPS).

While DPoS is more efficient, it is sometimes criticized for potential centralization risks, as power is concentrated in the hands of a small number of block producers. DPoS is often used in blockchain networks that prioritize speed and scalability over complete decentralization, offering a balance between efficiency and democratic governance.

5. Proof of Burn (PoB)

Proof of Burn (PoB) is a protocol where participants “burn” or destroy a portion of their cryptocurrency to earn the right to mine new blocks. Burning coins reduces the circulating supply, making the remaining tokens more valuable and giving miners an incentive to act honestly.

To participate in the network, miners send tokens to an address where they cannot be recovered, essentially removing them from circulation. Unlike Proof of Work (PoW), PoB doesn’t rely on computational power, making it more environmentally friendly.

Miners who burn tokens are rewarded with a chance to add a new block to the blockchain and receive rewards in the form of newly minted tokens. PoB is used by networks like Slimcoin and is considered a fairer and more sustainable alternative to PoW, though it has not gained widespread adoption.

6. Proof of History (PoH)

Proof of History (PoH) is a mechanism introduced by Solana, designed to solve the issue of time in distributed systems. PoH uses a verifiable delay function to prove that a specific event occurred at a particular moment in time.

PoH timestamps transactions, allowing nodes to verify the order of events without needing to communicate frequently with the entire network. Reducing the need for constant communication, PoH enables Solana to achieve incredibly high throughput, processing over 65,000 transactions per second (TPS).

PoH is highly energy-efficient compared to PoW, making Solana a leading blockchain for scalability and low fees. PoH, in combination with Solana’s other innovations, allows for near-instant finality and makes it one of the fastest blockchains available today.

7. Proof of Space and Time (PoST)

Proof of Space and Time (PoST) is a mechanism used by Chia Network that leverages both storage capacity and time as resources to secure the network. In PoST, participants allocate unused hard drive space to validate transactions, making it more accessible to the average user.

Instead of relying on computational power like PoW, PoST participants dedicate disk space to the network. The more space they allocate, the higher their chances of being selected to validate transactions. PoST is significantly more energy-efficient than PoW since it uses disk space rather than computational power to secure the network.

In addition to space, the network relies on verifiable time functions, ensuring that the process remains secure over time without excessive energy consumption. Chia’s innovative approach to consensus has drawn attention for its focus on sustainability, providing a green alternative to traditional blockchain protocols. 

Future Trends in Blockchain Protocols

Source: Freepik

Here are some of the future trends that could be expected in blockchain protocols and technology:

Rise of Layer 2 Solutions

As blockchain networks become congested due to increasing usage, Layer 2 solutions are emerging as essential tools for enhancing scalability and reducing transaction fees. Layer 2 protocols operate on top of the main blockchain (Layer 1), handling transactions off-chain and only recording final states back on the main chain. 

Examples include Lightning Network on Bitcoin and Optimism or Arbitrum on Ethereum. These solutions aim to improve the speed and throughput of existing blockchains without compromising security, enabling networks to support a growing number of users and applications.

Focus on Interoperability and Cross-Chain Solutions

One of the most significant challenges facing blockchain technology is interoperability, or the ability for different blockchain networks to communicate and exchange data. As multiple blockchains emerge with specialized use cases, ensuring smooth interoperability is crucial for fostering widespread blockchain adoption. 

Projects like Polkadot, Cosmos and Binance Bridge are leading the way by creating ecosystems that allow blockchains to transfer data and assets seamlessly. This focus on cross-chain solutions aims to create a more unified blockchain landscape where users can easily move between networks without sacrificing efficiency or security.

Security Features with Zero-Knowledge Proofs (ZKPs)

As privacy and security become paramount, Zero-Knowledge Proofs (ZKPs) are gaining traction as a method for enhancing security on blockchain networks. ZKPs allow one party to prove to another that a statement is true without revealing any additional information. 

This technology is being integrated into various blockchain protocols to offer privacy-preserving transactions, improve user anonymity, and enhance overall security. Projects like Zcash and StarkWare are at the forefront of implementing ZKPs, and it is expected that more blockchain platforms will adopt this technology to secure data while maintaining transparency.

Environmental Impact and Sustainable Protocols

With growing concerns about the environmental impact of energy-intensive blockchain protocols like Bitcoin’s PoW, there is increasing emphasis on developing sustainable blockchain protocols. Solutions such as Proof of Stake (PoS), Proof of Space and Proof of Burn offer more eco-friendly alternatives. 

Projects like Chia Network and Algorand focus on sustainability as a core feature. As regulators and users become more environmentally conscious, the demand for low-energy, sustainable blockchain solutions will rise, encouraging innovation and the adoption of greener consensus mechanisms across the industry.

Conclusion

The must-know blockchain protocols are critical for decentralized technology. These protocols form the foundation rules of blockchain networks, dictating how transactions are verified, security is maintained and consensus is achieved. 

Blockchain is becoming more integrated into industries like finance, supply chain and even governance. As a result, protocols are essential to enable individuals and businesses to make informed decisions about which networks to adopt based on scalability, security and efficiency.

Each protocol comes with unique benefits and limitations that affect the overall performance and suitability for specific use cases. So keep an eye on developments in sustainable and energy-efficient protocols as the world places greater emphasis on reducing the environmental impact of blockchain technology.

Frequently Asked Questions (FAQs)

What is the difference between Proof of Work (PoW) and Proof of Stake (PoS)?

Proof of Work (PoW) requires solving complex mathematical problems using computational power to validate transactions, while Proof of Stake (PoS) allows validations based on the amount of cryptocurrency staked. PoS is generally more energy-efficient and scalable compared to PoW.

Why is scalability important in blockchain protocols?

Blockchain networks need to support higher transaction volumes without experiencing slowdowns or high fees. Protocols that address scalability, such as Layer 2 solutions or sharding, are essential for the long-term viability.

Which blockchain protocols are best suited for decentralized finance (DeFi)?

Protocols like Ethereum and Binance Smart Chain (BSC) are commonly used in decentralized finance (DeFi) because of their support for smart contracts and decentralized applications (dApps). Solana is also gaining traction due to its high throughput and low fees.