A crypto protocol is a set of rules and procedures governing participants’ behavior in a decentralized network that uses cryptography
to secure its operations. Crypto protocols are usually open-source and transparent, allowing anyone to examine and verify the underlying code. Designed to be decentralized in nature, they ensure that no single entity or authority controls the network. Instead, participants contribute to its operations by validating transactions and maintaining the network’s consensus
Protocols are not exclusive to cryptocurrencies
; they exist almost everywhere. Take the Internet, for example, where protocols enable websites to function. The most common internet protocols are HTTP and HTTPS. These form the underlying code that allows all Internet applications to run. Google, Facebook, Twitter, and many other websites run on one of these internet protocols.
Crypto protocols are designed to be trustless
, meaning participants can transact without needing a trusted intermediary. This is made possible through the use of cryptography to secure transactions and ensure their integrity.
To demonstrate, look at Bitcoin
, the most prominent crypto protocol. It allows users to transact money directly, without a third party like a bank. Bitcoin’s consensus algorithm is based on Proof of Work (PoW)
, which requires participants in the network to solve complex mathematical puzzles to validate transactions and earn new bitcoins as a reward.
Crypto protocols are fundamental in the emerging field of decentralized finance (DeFi)
, which aims to create new financial systems and products
that operate on decentralized networks to rival traditional finance.