Tezos is a blockchain platform that shares similarities with Ethereum but boasts unique features that set it apart.
Designed with adaptability and security in mind , Tezos allows for easier upgrades and changes to its underlying code .
Tezos is a smart contract platform that lets its community vote and implement changes on-chain so that the blockchain can “upgrade itself” without the need for hard forks.
Projects that use the Tezos blockchain can execute dApps, NFTs, and other smart contracts and transactions faster than Bitcoin or Ethereum.
And because Tezos is written in smart contract language Michelson, developers can also formally verify (read: mathematically prove) the properties of their contracts.
Tezos’ consensus mechanism also allows some token holders to “delegate” their coins so that they can split rewards with block-makers without transferring token ownership.
What is Tezos?
Tezos is a blockchain network that utilizes a cryptocurrency called Tez (XTZ), sometimes referred to as “tezzie.”
Similar to other blockchains, Tezos enables users to engage in decentralized finance (DeFi), decentralized applications (dApps), and non-fungible token (NFT) projects.
The origins of Tezos can be traced back to 2014 when Kathleen and Arthur Breitman released the Tezos whitepaper.
The whitepaper outlined a vision for a self-amending blockchain platform that could evolve and improve over time without the need for disruptive hard forks. However, the project faced initial challenges and delays due to legal disputes, and the Tezos mainnet didn’t go live until September 2018.
One of the most distinctive features of Tezos is its self-amending nature. This means that the network can upgrade itself without requiring a “hard fork,” which is a split in the blockchain that can sometimes occur with other cryptocurrencies like Bitcoin or Ethereum.
This self-amending capability is made possible by a unique on-chain governance system where XTZ holders can vote on proposed changes to the protocol.
How does Tezos work?
Block-making
Tezos uses its own consensus algorithm called Emmy, which is a Liquid Proof of Stake (LPoS) mechanism. LPoS works a lot like Delegated Proof-of-Stake (DPoS) except token holders who choose to delegate their coins can also take them back from block-makers at any time (i.e., no lock-up periods).
As in other PoS systems, LPoS validators – or “bakers” in Tezos speak – are selected by the amount of XTZ they have locked in the network. Bakers at the top of the priority list propose blocks to be approved by 32 random roll owners before they’re finalized.
Bakers need at least 1 “roll” or 8,000 XTZ to participate and those who stake more rolls have higher chances to make blocks and earn rewards.
Those who have less than 8,000 XTZ or those who have them but can’t run a node can delegate their tokens and share block rewards with a baker. Though delegating does not transfer ownership, delegated coins are prone to slashing in case their baker approves invalid transactions.
On-chain governance
Tezos’ self-amendment involves bakers voting on proposed blockchain changes where 1 roll = 1 vote. The process consists of five voting periods lasting five baking cycles each. This translates to roughly 2 months and 10 days from proposal to adoption.
The proposal period is when bakers can submit proposals or “upvote” up to 20 proposals. The exploration period asks bakers to vote “Yay,” “Nay,” or “Pass” on top-ranked proposals. Proposals that get 80% of participating votes reach the testing period where they are run on a testnet fork that runs parallel to the mainchain for 48 hours.
The promotion period allows voters to evaluate the proposal’s performance during the testing period. Proposals approved by 80% of the participating voters enter the adoption period when developers get time to adapt their code before the protocol is activated.
Failure to proceed in any period restarts the process.
Key Features of Tezos
- Self-Amending: Tezos can upgrade its protocol without hard forks, allowing for smoother and more efficient updates.
- On-Chain Governance: XTZ holders can vote on proposed changes to the network, ensuring community involvement in its development. /li>
- Formal Verification: Tezos uses a programming language that allows for formal verification of smart contracts, making them more secure and reliable.
- Energy Efficiency: As a PoS blockchain, Tezos consumes significantly less energy than Proof-of-Work (PoW) blockchains like Bitcoin.
- High Transaction Speed: Tezos can handle approximately 1000 transactions per second.
Use Cases of Tezos
Tezos supports a variety of use cases, which are summarized in the table below:
| Use Case | Description |
|---|---|
| Staking and Baking | Users can stake their XTZ to secure the network and earn rewards. |
| Decentralized Applications (dApps) | Developers can build and deploy dApps on the Tezos blockchain. |
| Non-Fungible Tokens (NFTs) | Tezos can be used to create and trade NFTs. |
| Decentralized Finance (DeFi) | Tezos supports DeFi applications, enabling users to access financial services in a decentralized manner. |
| Security Token Offerings (STOs) | Tezos can be used to issue and manage security tokens, representing ownership of real-world assets |
Advantages of Tezos
- Reduced Risk of Hard Forks: The self-amending nature of Tezos minimizes disruptions caused by hard forks.ton>
- Community Governance: XTZ holders have a say in the development of the network, promoting decentralization and community involvement.ton>
- Enhanced Security: Formal verification of smart contracts helps prevent bugs and vulnerabilities. on>
- Energy Efficiency: Tezos is more environmentally friendly than PoW blockchains. ton>
- Staking Rewards: Users can earn passive income by staking their XTZ. Moreover, the staking rewards generally outpace the inflation rate, providing a net positive return. tton>
Disadvantages of Tezos
- Competition: Tezos faces competition from other smart contract platforms like Ethereum, Cardano, and Solana.
- Limited Adoption: Despite its advantages, Tezos has not yet achieved widespread adoption.
- Centralization Concerns: A significant portion of XTZ is held by a small number of users, which could potentially lead to centralization. >
Future Outlook of Tezos
The future of Tezos appears promising, with experts predicting continued growth in the coming years. Its self-amending nature, focus on security, and growing ecosystem is expected to drive its adoption and value.
However, the price of XTZ is subject to market fluctuations and competition from other cryptocurrencies. Factors such as market sentiment, technological advancements, and regulatory developments will play a significant role in shaping the future of Tezos.
Tezos vs. Other Cryptocurrencies
Tezos shares similarities with other cryptocurrencies, particularly Ethereum, but it has some key differences:
| Feature | Tezos | Ethereum |
|---|---|---|
| Consensus Mechanism | Liquid Proof-of-Stake (LPoS) | Proof-of-Work (PoW) (transitioning to Proof-of-Stake) |
| Governance | On-chain governance with XTZ holder voting | Off-chain governance with community proposals and developer decisions |
| Upgradability | Self-amending, no hard forks | Hard forks are required for major upgrades |
| Smart Contracts | Formal verification, enhanced security | More prone to bugs and vulnerabilities |
Tezos’s self-amending nature and on-chain governance give it an advantage in terms of adaptability and community involvement.
Its on-chain governance allows all XTZ holders to directly participate in the decision-making process regarding protocol upgrades, making it more democratic and responsive to the needs of its users.
In contrast, Ethereum relies on off-chain governance, where core developers and community members propose and discuss changes, but the final decision often rests with a smaller group of developers.
However, Ethereum has a larger developer community and a more established ecosystem. This means that there are more dApps, tools, and resources available for Ethereum, making it a more mature platform for developers and users.
Team background
Tezos was conceptualized by Arthur Breitman, a mathematician and computer scientist with experience in the financial sector.
He wrote the whitepaper under “L.M. Goodman” in 2014 to address Bitcoin’s lack of on-chain governance process and token creation capabilities.
Breitman and his wife Kathleen established Dynamic Ledger Solutions (DLS) in 2015 to develop Tezos’ code.
After some drama with the foundation president in Switzerland and an “Is it an asset or a donation?” ICO brouhaha with the U.S. SEC, the Breitmans have regained some control of the foundation and have restarted project development in 2018.
Switzerland-based Tezos Foundation was established to support the Tezos protocol and ecosystem, has seen various leadership roles over time. Roman Schnider, with a background as a financial auditor, has served as the President of the Tezos Foundation. Chris Pinnock, who holds a PhD in pure mathematics and has extensive experience in IT and telecommunications, serves as the Head of IT and Chief Baker at the Tezos Foundation.
The Tezos ecosystem also includes contributors like Jev Björsell, founder and CEO of ECAD Labs, a team that builds tools for developers in the Tezos ecosystem.
Additionally, the Foundation has appointed professionals such as Ulrich Sauter as General Counsel and Eelco Fiole as Chief Financial Officer to strengthen its leadership team.
Notable Investors
Tezos has attracted investments from several notable entities, including:
- Draper Associates: Led by venture capitalist Tim Draper, Draper Associates invested $1.5 million in Tezos during its early development stages.
- Polychain Capital: A prominent cryptocurrency investment firm, Polychain Capital participated in Tezos’s seed funding round in February 2017.
- Enabling Future: A venture capital firm that also invested in Tezos’s seed funding round in February 2017.
- Atopia Capital: A venture capital firm listed among Tezos’s investors.
- Bitscale Capital: Another venture capital firm that has invested in Tezos.
- Cyber.Fund: A venture capital firm included in Tezos’s list of investors.
What is the XTZ token?
Tezos’ native token XTZ (ꜩ) is widely called “tez” or “tezzy” in Tezos’ community.
Tez is mainly used as a utility token. Bakers stake their tez to approve blocks and protocol changes. Other tez holders can also delegate their XTZ to participate in securing and improving Tezos’ protocol.
XTZ can be traded in major crypto exchanges like Binance, Coinbase, and Huobi and can be stored in major wallets like Ledger, Trezor, MetaMask, and others.
Token Metrics:
- Current Number of Bakers: 416 active bakers are participating in the network’s consensus process.
- Maximum Token Supply: Tezos does not have a capped maximum supply for its native token, XTZ.
- Liquid Supply: Approximately 920.8 million XTZ tokens are currently in circulation.
- Total Supply: The total supply of XTZ tokens is around 913.5 million.
- Inflation Rate: The current inflation rate for XTZ is approximately 4.02%.
These metrics provide a snapshot of Tezos’ current network and token distribution status.