We’ve already covered different aspects and use cases of distributed ledger technology on our blog. Today we are going back to its core concepts, i.e., the consensus mechanism. We’ll explain the idea and introduce you to the significant enterprise blockchain protocols.
But before that happens, let’s talk about the basics.
What is a protocol?
Humanity has a multitude of diverse languages and cultural patterns. However, humans need to speak the same language or use standard gestures to understand each other.
Analogously, computers can have different operating systems, network cards, and run various apps. To exchange information with each other, no matter their parameters, they have to follow a set of necessary rules and steps – a communication protocol.
For example, some standard Internet protocols are hypertext transfer protocol (HTTPS), TCP/IP, and DNS.
What is a protocol in blockchain?
First, let’s look at blockchain’s decentralized nature. Blockchain technology allows communication between participants without any control from a third party, such as a bank or an agent. This way, users can use financial services, vote, share medical data, and do all kinds of different activities in secure, peer-to-peer, decentralized applications.
All of this happens within a distributed network.
A blockchain network is a set of computers that work together to create and validate a new transaction within their shared system. A single computer that participates in this network is called a node. In a broader meaning, the term “blockchain network” is used not only for the devices and software but also for all people, organizations, and institutions that participate in the consensus process to build a ledger.
The blockchain network is then a ledger plus all parties who contribute. It’s the “what”.
On the other hand, a blockchain protocol is how the network builds a ledger – it’s the “how”. I.e., it covers:
- a set of rules for governing and validating transactions,
- an algorithm that defines the mechanism for all participating nodes to interact with each other, and,
- in some cases, an application programming interface (API).
Blockchain protocols can be significantly different regarding their consensus mechanism and pros and cons. In addition, they also offer other network performance and limitations. Hence, when an entrepreneur seeks to implement a blockchain protocol in their application, they should consider all its aspects as these can strongly impact the product down the line.
To understand the characteristics of the major protocols that we will showcase in the next part, we need to understand the basic terminology behind the concept of the blockchain protocol.
In a centralized application, a single authority decides about the validation of particular transactions and data correctness. On the contrary, a distributed network functions globally without a governor. Instead, the ground base for its legitimacy is the consensus mechanism. It is a set of rules that decides on the validity of contributions made by the blockchain’s various participants (i.e., nodes or transactors). There are different consensus protocols, with Proof of Work (PoW) and Proof of Stake (PoS) being the most popular.
Proof of Work
Proof of Work is the consensus algorithm behind Bitcoin and Ethereum 1.0. A computer has to put in significant effort (computing power) to solve a mathematical puzzle and mine a new block (a coin). Still, this operation is later easily verified by other nodes in the network to confirm its legitimacy.
Based on proof of work, smart contracts enable efficient transactions. First used in Bitcoin protocol but later popularised by Ethereum, smart contracts can replace standard law agreements in the future. For instance, smart contracts can drastically simplify real estate purchases. With this technology, transferring property ownership could happen in a fraction of a second, without the bureaucracy and necessity to involve lawyers. Today, smart contracts are most popular in the cryptocurrency networks and the finance sector, where they allow to avoid transaction fees that come with the traditional banking industry.
Private vs. public blockchain
Anyone can join the network in a public blockchain, such as Bitcoin, Cardano, or Ethereum platform. Thus, these networks are the best application of blockchain’s decentralized nature, ensuring that all members have equal access.
On the contrary, private blockchains can only be used by participants invited and verified by the owner. The operator also has the right to override, edit, or delete the necessary entries on the blockchain. Therefore, a private blockchain is not decentralized in its truest meaning. Instead, such a network acts more like a secure database based on cryptography concepts.
There are also permissioned blockchain protocols, which have the aspects of both private and public blockchains.
Open-source blockchain platforms and enterprise blockchain protocols. How do they relate?
Open-source solutions are much more common in enterprise apps than an ordinary internet user could expect.
Open-source collaboration supports technical progress and builds fail-proof software: the more developers work on a project, the better support net and the higher trust it has. No wonder giants such as Google or Facebook (now Meta) also employ open-source solutions in their applications.
Accordingly, open-source is also common in distributed systems and blockchain technology. It perfectly bonds with the idea of decentralization. Hence, enterprises willingly apply these open-source blockchain solutions in their commercial applications. Therefore many blockchain protocols built explicitly for enterprise and private blockchains are open-source.
5 main Enterprise Blockchain Protocols and their use cases
There are now thousands of blockchain protocols created by private people and organizations, serving different purposes. However, there are five major blockchain protocols worth knowing. All of these are widely used in business projects.
Hyperledger is an umbrella project for various protocols and frameworks, which all aim to provide businesses with an efficient, proven path for implementing Blockchain solutions. Hyperledger belongs to private blockchains: users have to be first invited to join a network based on this protocol. A significant feature of Hyperledger is that it offers a variety of plug-and-play components, which facilitate app development. In addition, it is an open-source blockchain protocol powered by the Linux Foundation, thus offering high server efficiency.
The Ethereum protocol might be most known for its token, the Ether, built on the same technology as Bitcoin. Both of these are used to pay transaction fees and computational service fees. However, the cryptocurrency is just one feature of Ethereum. As a whole, the Ethereum protocol was designed to be much more flexible and adaptable compared to the Bitcoin protocol. There is no limited set of rules or components that users can choose from, contrary to Bitcoin or Hyperdleger. Instead, Ethereum offers a virtual machine where developers can build their applications. Thanks to Ethereum’s peer-to-peer network architecture, smart contracts and decentralized applications don’t face any downtime, and the data is safe from potential changes or censorship.
Corda is another enterprise blockchain protocol. On its website, we can read that it is explicitly designed to build decentralized finance applications for regulated markets. Just like Hyperledger, it offers pluggable components. These allow business logic automation, safe digital asset exchange, and more. Corda is also an example of an open-source, private blockchain.
As one could infer from its name, MultiChain aims to solve the problem of incompatibility of diverse blockchain networks. The APIs offered in the protocol allow relatively simple integration of the previously non-related blockchain technology applications – either inside one business or across multiple enterprises. Being another private protocol, MultiChain supports such collaboration with controlled permissions, flexible security, and easy data transfer between different databases. As of today, MultiChain integrates with 1491 tokens and 30 chains. All in all, it makes sense that the protocols’ owners call it “The Ultimate Router for Web3.0”.
The unique part about this protocol is its compliance with fiat currencies, which you’ll also find on the supported token list. Thus, participants can make financial transactions inside the network not only with cryptocurrencies (like in most types of blockchain) but also with traditional means.
Being invented by JP Morgan, a multinational investment bank, Quorum is said to be the protocol with the most significant chance to decentralize the traditional finance sector. Being built on Ethereum’s code, it connects to all the tools built on that protocol, such as Truffle, MetaMask, Nethereum, and Solidity.
Quorum is a permissioned blockchain, ensuring private transactions, and uses a consortium approach, meaning it has to be authorized by a specified entity.
There are many protocols to choose from when you are about to build your enterprise app. The choice you make will significantly impact the scope of development work.
At 4soft, we have experience with over 20 different blockchain protocols. If you are looking for blockchain development services to build your dApp, get in touch with us.