Introduction to Blockchain Protocols

Blockchain protocols are networks that host a variety of applications in the so-called “Web3” ecosystem. These can also be referred to as distributed digital ledger protocols as data of transactions stored in them are spread across the network, unlike centralized server rooms or cloud servers from the Web2 generation.

Even though the concept has been around academic circles for more than two decades, the first blockchain protocol launched in 2008, and it was none other than the protocol of the now-legendary Bitcoin. Progress was initially slow, as the world was still understanding the potential these protocols held. Multiple variants of the protocols came up over time that popularized the concept of “Semantic Web” or “Web3,” which has been ruling the world today.

Top Blockchains in the Web3 World

Ethereum
Polygon
BNB Chain
Solana
Avalanche
Harmony
Cardano
Tron
Polkadot
Tezos

“The Blockchain is Going to Change Everything More than the Internet has.” – Brook Pierce

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Cryptocurrency Protocols

The creator of the blockchain protocol concept is a cryptocurrency. Yes, you guessed it right, Bitcoin’s blockchain is the first-ever blockchain protocol ever to function fully, and it has been working across the years. Cryptocurrency protocols allow digital fungible tokens to be created, which can be treated similarly to fiat currencies. They can be utilized for general usage and financial operations in the virtual world. Popular cryptocurrency protocols include Bitcoin ($BTC), Ether ($ETH), BNB ($BNB), Polygon ($MATIC), Avalanche ($AVAX), Cardano ($ADA), and Solana ($SOL). Important applications of these protocols are briefed below:

Stablecoins

Cryptocurrencies which are pegged to fiat currencies or precious resources, which enables their values to stay constant without fluctuating extremely.

Cryptocurrency Exchanges

Platforms where people can exchange cryptocurrencies for fiat currencies and stablecoins, and vice versa, similar to real-world Forex exchanges.

Cryptocurrency Wallets

Applications that hold the private keys for a person’s crypto holdings. They store a user’s virtual currencies and asset holdings.

Payment Gateways

Platforms that facilitate cryptocurrency payment in Web3 business applications, which enables users and ventures to have better virtual usage experiences.

Initial Offerings

These are tokens that can be used by crypto project owners to raise funds from investors with/without third-party help.

Non-fungible Token (NFT) Protocols

Non-fungible token (NFT) protocols are entries on the blockchain ledger that serve as proof of ownership and authentication for assets that they support. The first NFTs appeared way back in 2014, but their popularity increased only after 2017, and 2021 was their time in the Web3 space. Now, NFTs constitute a billion-dollar market, which is expected to grow in the coming years due to increasing interest and adoption rates among the global population. Prominent applications of NFT protocols are explained below:

Marketplaces

Web3 platforms where people can buy and trade NFT assets. These can be based on horizontal or secondary-selling business models. Examples: OpenSea, LookRare, and Rarible.

PFP Communities

Platforms that allow profile picture collections to be traded and utilized by users for exclusive access to special community events. Examples: CryptoPunks, BAYC, and MAYC.

Art Platforms

Curated marketplaces that sell artwork from renowned artists for avid collectors. They have special teams to ensure the authenticity of artworks. Examples: Foundation, SuperRare, and Makersplace.

Sports Platforms

Special applications that sell NFT video highlights from sporting competitions and host games based on those collectibles. Examples: NBA Top Shot, FanCraze, Rario, and AirNFTs.

Gaming Platforms

Applications based on virtual gameplay that rewards players with cashable tokens through P2E and M2E mechanisms. Examples: Axie Infinity, CryptoKitties, Sorare, StepN, and Step App.

Decentralized Finance (DeFi) Protocols

The phenomenal rise of blockchain protocols has led to a string of changes in the physical world, with finance being a big name. Decentralized Finance (DeFi) aims to change the centralized nature of traditional finance by employing smart contracts (code with preset conditions that will execute only if both ends satisfy the requirements). Users can maximize their crypto holdings using applications based on the protocol, which is necessary given the volatile nature of crypto markets. Today, DeFi protocols have applications for almost all the traditional financial operations, which are provided below.

Staking

Here, users can invest their holdings in liquidity pools and contribute to their flow to receive rewards. These are typically part of other Web3 platforms.

DEX

Decentralized crypto exchanges allow peer-to-peer exchange transactions through smart contracts and automated matching engines, which enable quick operations.

Lending

Here, users can become crypto lenders who can contribute to investor pools from where borrowers can get funds through matching mechanisms and smart contracts.

Flash Loans

Mechanism where borrowers can borrow and repay loans within the same transaction without any collateral, which can be beneficial for seasoned crypto traders.

Insurance

Protocols that ensure that there is some monetary support for individuals or businesses if their holdings are lost due to software fault or stolen by hackers.

DEX Offerings

Crowdfunding mechanism that uses DEXs for listing and trading project tokens through one-stop platforms known as launchpads that instill trust in people.

Synthetic Assets

Tokens that track the prices of other crypto assets, fiat currencies, or precious metals using special mechanisms to allow people to access the Web3 world easily.

Yield Farming

Platforms that allow crypto traders to carry out financial operations simultaneously to maximize their holdings without having to navigate across the web.

Decentralized Autonomous Organization (DAO) Protocols

Decentralized Autonomous Organization (DAO) protocols are smart contract-based solutions that offer opportunities for community participation inside Web3 platforms. DAOs are possible for any protocol mentioned above – Cryptos, NFTs, and DeFi. These are essentially add-ons that can benefit a platform’s user base by empowering them to make decisions and changes to the application. The different types of DAO protocols are explained below:

Protocol DAOs

These DAOs focus on the governance aspects of Web3 platforms, contributing to application development and changes in mechanisms through voting.

Philanthropy DAOs

These solutions support social causes by enabling community participation for charity donations through cryptocurrencies to help both worlds grow.

Collector DAOs

Collector DAOs can be part of NFT marketplaces that can take decisions on fractionalizing collectibles and other relevant operations.

Investment DAOs

These are used in DeFi platforms to determine the application’s next moves and vote on proposed changes to their mechanisms.

Grants DAOs

These are used in initial offering platforms to support new projects, where investors can decide which projects can get funded.

Social DAOs

Decentralized social media networks can use these to decide censorship and creator compensations, along with other earning mechanisms for users.

“The blockchain symbolizes a shift in power from the centers to the edges of the networks.”
– William Mougayar

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Benefits of Protocol Implementation

Protocol implementation provides a lot of benefits to the Web3 community as it exploits all the corners of the virtual world to offer exquisite experiences to the users. Firstly, these offer users a sense of security in how their data is handled as their information is under their control. Also, transaction times become minimal as third parties are eliminated, which gets rid of associated costs as well. This can be beneficial for people who work with cross-border transactions occasionally.

All these protocols together also bring in a special case called the metaverse. This virtual world can utilize all the above protocols to enable humans to live digital lives. Users can use cryptocurrencies to buy in-platform land, NFTs take the form of avatars and other assets, DeFi for investments, and DAOs for governance. While metaverses based on blockchain protocol implementation are interesting on their own, the combination of other Web3 elements such as VR and AR offer immersive experiences.

Blockchain App Factory – An Innovator in Protocol Implementation!

Blockchain App Factory has been a global leader in creating extraordinary Web3 applications through our protocol implementation services. Our experts can implement the above protocols for your business and build platforms that utilize those from scratch and ready-made solutions. Our customer-centric approach has led us to take part in the success of hundreds of brilliant business ideas, resulting in a diverse clientele. Approach us if you think that our protocol implementation services might help you realize your innovative business thoughts!

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