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What is Tezos? Baking Tezzies to Secure Smart Contracts

what is tezos

What is Tezos?

Tezos is an open-source blockchain network and decentralized computing platform running smart contracts that launched on mainnet in 2018. Unlike much of the competition, Tezos aims to solve contentious disagreements and prevent hard forks through a self-evolving, on-chain governance model.

It also uses its own version of the proof-of-stake consensus, called Liquid Proof of Stake (DPoS). This allows holders of the network’s native coin, called tez or tezzies (XTZ), to vote on protocol upgrade proposals. Anyone may become a validator and contribute to the network’s operation by making a security deposit of XTZ coins.

Tezos’ initial coin offering was, at the time, the largest in the history of the cryptocurrency industry. Held in July 2017, the high-profile ICO raised 65,681 BTC and 361,122 ETH — worth $232 million at the time — from a large number of participants, who received 80% of the initial XTZ supply. The other 20% was split into equal shares between the Tezos Foundation and Dynamic Ledger Solutions, the company formed by Tezos’ co-founders.

Following its initial coin offering, Tezos became a somewhat contentious project after it suffered legal issues, resulting in delays to the platform launch. By the time it did launch, crypto was deep into a prolonged bear market. However, unlike many other projects launched via an ICO, Tezos has successfully weathered its early difficulties and remains a popular staking platform, albeit a less popular development platform.

Liquid Proof of Stake Consensus

Proof of stake has been around in various forms since it was pioneered by Peercoin’s founders in 2012. However, it’s only really become a popular consensus model over the last year or two, with high-profile platforms including Ethereum 2.0, Polkadot, and Cardano all launching their own variations.

However, Tezos was one of the earlier adopters of the proof-of-stake model, developing its own variation called Liquid Proof of Stake. It’s often confused with the delegated proof of stake (DPoS) used by EOS and Tron, but as we will see, although there are some similarities, the two are not identical.

In the Liquid Proof of Stake (LPOS) model, anyone can become a validator or “baker” on the Tezos network, which can support a maximum of 80,000 bakers. There are minimum requirements – bakers must stake 10,000 XTZ tokens, but they can participate as a baker without investing in significant computing equipment. In contrast, EOS has a small fixed number of 21 validators, and Tron 27. In each case, they’re required to run fairly complex technical setups. In this respect, Tezos can rightly claim to be more decentralized than DPoS platforms, as its low barrier to entry and high upper limit on the number of bakers ensures a fairly dynamic validator set.

Holders of XTZ who want to participate in governance but don’t want to become a baker themselves can delegate their stake to a baker, who can use it as part of their 10,000 XTZ. A delegator doesn’t have to relinquish custody of their XTZ to participate in delegation.

This voluntary delegation process is different from DPoS, where delegation is a requirement to elect validators.

Tezos is popular among stakers, with around $2.7 billion worth of XTZ staked at the time of writing and ranking #7 on the list of staking platforms. This puts it ahead of EOS but it is still outranked by newer PoS chains, including Ethereum 2.0, Polkadot, and Cardano.

On-chain Governance

Blockchain governance is a complex and hotly debated topic. While the operational side of running a blockchain is laid out in the consensus methodology, the process of upgrading the network and implementing changes to the core software is often performed off-chain.

For instance, Bitcoin and Ethereum both use off-chain mechanisms to implement changes. However, if a group of miners on Bitcoin or Ethereum doesn’t like the upgrade, they can continue mining the old version. This process is known as “forking,” and it has led to several significant forks resulting in new platforms and currencies such as Bitcoin Cash, and Ethereum Classic.

Tezos was conceived under the principle that “code is law,” and it’s one of the few platforms that utilizes 100% on-chain governance. Delegators who delegate their XTZ stake to a baker also delegate their voting rights. Any baker can make a proposal for protocol changes and if it achieves agreement by a supermajority, it’s automatically implemented on a Tezos testnet for 48 hours before being implemented on the Tezos mainnet, subject to a further vote.

This system has, thus far, done remarkably well in solidifying the security of the Tezos network by reducing the amount of bugs in the contract code. However, on-chain governance does come with some risk of voters forming cartels to influence the outcome of any particular decision. Therefore, the debate regarding on-chain versus off-chain governance continues.

Who founded Tezos?

Tezos was founded by husband and wife team Arthur and Kathleen Breitman. Arthur Breitman is a computer scientist and mathematician, while Kathleen has a background in finance.

Arthur Breitman wrote the initial Tezos white paper under the pseudonym L. M. Goodman. At the time, Breitman claimed that Bitcoin lacked a proper form of community governance and excluded the vast majority of participants from having a say in the dominant cryptocurrency’s development. At the same time, he also found the inability to issue new tokens through the Bitcoin protocol to be problematic.

After founding Dynamic Ledger Solutions with Kathleen Breitman, the duo began coding the Tezos protocol. Afterward, the Tezos Foundation purchased the startup — securing the intellectual property previously owned by the latter.

The project fell into jeopardy after the Breitmans appointed one of their previous acquaintances, Johan Gevers, to the position of President of the Tezos Foundation. Relations turned sour, and Gevers took control of the Foundation and refused to disburse funds, causing significant upset among investors. Eventually, Gevers left the Tezos Foundation, and the project was able to restart working on its roadmap to launch.

How is Tezos used in the real world?

According to the Tezos Project website, there are currently over 120 projects affiliated with Tezos. Some of the more high-profile ones, such as Coinbase Custody and the Swiss Sygnum bank, provide XTZ staking services to institutional clients. There are also several projects for listing security tokens offerings using Tezos, including BTG Pactual, the largest investment bank in Latin America, which plans to conduct an STO deal pipeline worth $1 billion.

Tezos is also home to apps using its platform for several familiar blockchain use cases, such as DeFi, gaming, NFTs, and more.

Where can you buy and store Tezos?

Tezos is available on most major cryptocurrency exchanges, such as Phemex.

There are also a variety of wallets supporting the storage of XTZ, including hardware wallets like Trezor and Ledger, mobile wallets like TezBox and Atomic, and desktop wallets like Tezos.blue.

Conclusion

Tezos has had quite the rollercoaster ride over its lifetime. However, in the fast-moving world of blockchain and cryptocurrencies, it’s a testament to the project and its community that it has endured and continues to rank relatively highly compared to the competition. Currently, the biggest challenge is for it to gain traction among dApp developers and users in the same way it’s caught the attention of stakers. If it can overcome this challenge, it’s likely to hold a solid position in the blockchain ecosystem of the future.



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