One of the great innovations of the blockchain boils down to it being a protocol to transfer value. Andreas Antonopoulos calls Bitcoin “a language to communicate value”, which feels like a very accurate description.
The Internet - A Protocol to Transfer Information
When numerous people want to cooperate, a set of standards is always needed to specify exactly how each person should collaborate. The need for a set of standards is the same whether they want to exchange information via the internet or cryptocurrency via the blockchain. The internet protocol - TCP/IP - defines standards for how data is split up and transferred from a server to your computer, e.g., when you access this website. A blockchain is defined by a protocol that determines how its participants exchange value.
The Mail - A “Protocol” to Transfer Physical Goods
A straightforward analogy would be comparing blockchain to the mail - a “protocol” to transfer physical goods. Let’s forget about the post as an entity operating the mail service for a minute and think about it this way:
The mail is permissionless because anyone who wants to send a letter can access the service by putting the letter in a postbox near them. It will arrive at its destination a few days later. You don’t need to ask for anybody’s permission to do so. The “protocol” for sending a letter comprises two things: you must put a stamp of sufficient value on it, and you must provide the recipient’s address. The standard address format is a name, address, and country if you want to send the letter abroad.
When you are sending some cryptocurrency, the decentralized network transfers your money to the recipient. The protocol requires you to add a small transaction fee - similar to a stamp - and provide the necessary information in a standardized way: the recipient’s address, the amount to transfer, and your signature.
Wallets make it easy to receive and send transactions. They also create your signature for you, without you even noticing, so don’t worry if this sounds complex at first. Addresses on a blockchain are, of course, a little different to addresses that you are used to - they look like this: znWPHuCGsgnJ5nsdu9AJdDcxDPWdrESoMNT. Signatures are also different from what you know. We will talk more about addresses and signatures in the next chapter on how a blockchain works.
We can consider the mail to be a “protocol” to transfer physical goods and the internet with its underlying TCP/IP protocol as a protocol to transfer information. Blockchain technology and cryptocurrencies provide a protocol to transfer value - from one person to another, without any intermediaries. The protocol of a blockchain defines a set of standards. It determines what a block or transaction must look like to be considered valid.