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Crypto Terms:  Letter P
Jun 19, 2023 |
updated Apr 02, 2024

What is Protocol Layer?

Protocol Layer Meaning:
Protocol Layer - is a foundational layer within the blockchain network.
3 minutes

Let's find out Protocol Layer meaning, definition in crypto, what is Protocol Layer, and all other detailed facts.

A Protocol Layer is a key component of the blockchain network. It’s a type of layer that acts as a foundation for the entire network. Developers can also utilize it within their blockchain networks. For example, in order to create transactions or develop smart contracts that operate by their established rules.

There are many layers within the blockchain. Below are a few examples:

Application Layer. This layer focuses on the interactions with the user. For example, Metamask, Ethereum Wallet, or any other dApps within a specific blockchain. 

Contract Layer. The key element within this layer is smart contract protocols. For example, Ethereum’s Solidity or Neo’s Neo Contract. These smart contracts facilitate processes like the state change while also completing transactions.

Protocol Layer. This layer calls attention to the public ledger. Specifically, how to create a way for new transactions to be added to it. Additionally, the protocol layer defines ways for new nodes to join an existing blockchain and then sync with it. 

Moreover, consensus algorithms such as Proof-of-Work (PoW) are stored within the protocol layer. This algorithm makes it possible for each and every network participant to come to an agreement regarding the type of information and time it is to be added.

Consensus algorithms have a variety of uses such as making sure that every transaction is legitimate. Also, consensus algorithms like Proof-of-Work (PoW) prevent double-spending by making it so the attackers need control over half of the computing power throughout the network. Thus making it an expensive venture for cybercriminals. 

Let’s have a look at Bitcoin in order to understand this term better. The Proof-of-Work consensus algorithm is used by one of the most popular cryptocurrencies. 

What does Proof-of-Work do? Its most basic function is to allow anyone who has the necessary computing power to add blocks of transactions to the blockchain. 

The protocol layer outlines the basic requirements for creating and adding new blocks and transactions to the blockchain.

Additionally, it has a mechanism that enables network participants to reach a consensus in regards to which transactions are legitimate and what orders they should go in.

Besides, the type of information that can be added to the blockchain is determined by the protocol layer. The key rule is that all network participants must reach a consensus in regards to what information can be added as well as what order it should be added.

There is a wide range of rules within the protocol layer in regards to:

  • Taking a certain value from one address and transferring it to another address;
  • Tracking and recording transactions within a public ledger;
  • The mining process;
  • Creating new blocks;
  • Adding new nodes.