Protocol

A protocol is a set of rules for transmitting data between entities. It is nothing more than a specification - a dry document. An engineer can take the specification and turn it into a product. A protocol is not software or hardware but can be implemented by either.

Protocols in the Crypto Ecosystem

One instance of a protocol associated with cryptocurrencies is the method by which transactions are spread globally for miners to incorporate them into a block. This particular protocol operates in a decentralised manner, facilitating the distribution of cryptocurrencies across computer networks without a central control point or authority. While this is just one example of a protocol, various types exist. Taking a broader perspective, the FATF's Travel Rule, which VASPs must adhere to, also necessitates protocols.

In the context of the Travel Rule, VASPs are obligated to exchange wallet owner information to finalise transactions. Given that this exchange occurs between different entities, a protocol becomes essential.

The Travel Rule Protocol (TRP) serves as an excellent illustration of such a protocol.

Curious to find out more about protocols, read 5 Ways To Tell if a Protocol Is Decentralised.