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Tezos (XTZ)

$ 0.87055143 (1 XTZ) -1.87%
Tezos is a blockchain network looking to establish itself as a smart contract platform with self-amendment and on-chain governance. They're looking to solve problems of inefficiency present in blockchain, ironing out any flaws as soon as they appear.
Market Cap Volume 24h Circulating Supply Maximum Supply
$ 574,889,192
660,373,612 XTZ
$ 5,386,476
6,187,430 XTZ
660,373,612 XTZ 801,312,599 XTZ

The Tezos project is an ecosystem encompassing a smart contract platform and its Tezos (XTZ) token. The Tezos platform is designed with the goal to become the “last cryptocurrency” in the sense that the innovations coming from competing protocols could be readily adopted by Tezos blockchain and its stakeholders. In this manner, Tezos wants to allow its users to keep up to date with technological advances in the cryptoverse, while promising the implementation of a “self-amending” system for its ledger. According to them, this means that the platform is capable of upgrading itself without resorting to hard forks once the stakeholders approve the modifications to the network.

Another major change that Tezos propositions is a new governance model based on what its founders describe as an imitation of real-life democratic models. The system is dubbed “on-chain governance” and it is supposed to work hand in hand with the self-correcting ledger of the Tezos network. What do these two can bring to the table for the users the Tezos aims to draw to its platform?

Tezos Promises Putting Community at the Heart of Governance

On-chain governance is one of the most marketed features of Tezos. Inspired by the hack which hit the Ethereum’s Decentralized Autonomous Organization (DAO), Tezos’ creators sought to avoid a similar scenario and make all stakeholders on the network participate in governing it and determining its future direction. In order to do that, Tezos implemented a voting system which allows them to vote on proposed changes to the platform in form of protocol or code modifications, or to the voting system itself. In this manner, the community would arguably avoid major disputes and the emergence of factions which could slow down the development of the network.

Any developer interested in the Tezos platform has the right to put forward their proposals for the system upgrades and demand to be compensated for what they bring to the table. This is followed by having the holders of the Tezos coin (XTZ, “tez” or “tezzie”) vote in favor or against these proposals. If the proposal gets a positive reception, the proposed change would be implemented while the developer in question would receive the appropriate compensation in Tezos coins. These devs do not need to have a formal employer or a sponsor and can work only on the segments which drew their attention to Tezos in the first place. The idea is to draw as many developers to the Tezos network, with the on-chain governance system in place to reduce friction among those who hold opposing views of the platform’s future.

The Tezos Liquid Proof of Stake Model

Tezos is envisioned as a distributed and permissionless platform for developing and enforcing smart contracts. To differentiate itself from its competitors such as Ethereum, EOS or TRON, Tezos made its on-chain governance system work alongside its own version of the delegated proof of stake (dPOS) consensus model which it named the “Liquid Proof of Stake” (LPOS). With it, Tezos hopes to keep the benefits that standard dPOS offers without compromising on security and decentralization.

In this model, XTZ coin owners can delegate the rights to validate transactions without actually transferring ownership over them. This is where Tezos’ variant on the dPOS differs from what is used by EOS, for instance. Instead of having a fixed group of delegates who produce blocks necessary for the network consensus, Tezos makes the delegation system fully optional. While the standard dPOS arguably allows for greater scalability, the liquid PoS is expected to minimize dilution of the small token holders. With it in place, Tezos hopes to strengthen its on-chain governance model with an additional focus on the accountability and coordination between the coin holders.

Earning XTZ by… Baking?

Tezos’ implementation of the Liquid Proof of Stake model is also reflected in its staking process which goes under the name of “baking.” Baking does not require the user to possess specialized mining hardware and spend a lot on electricity bills. The reason for this is the fact that there is no solving of complex cryptographic puzzles involved in the process. Instead, the block creation is handled by the stakeholders who get the right to do so by the selection of the coins they own. Tezos platform assigns the rights to baking in proportion to the owner’s stake, with the “bakers” committing token deposits (or “bonds”) and receiving rewards for the signing and creation of blocks. Those who exhibit any sort of unacceptable behavior are liable to lose their deposits.

In addition to the voting rights, the LPOS model allows any token owner to delegate their baking rights to other participants in the network. Delegate switching is an option which can be used to dissuade the users from engaging in inappropriate behavior (such as attempting double spends) while hoping to foster closer coordination within the community. Delegation of baking remains an option if the users do not want actually to participate in the process. As for the baking process itself, the requirements are the ownership of a fixed amount of Tezos tokens in addition to having a stable internet connection and at least 8GB of RAM. The barriers to entry with the Liquid Proof of Stake system is supposed to go down over time in order to promote decentralization, with the gradual reduction in the number of Tezos coins needed for baking.

Bake endorsing and rolls are another features of the Tezos’ baking system. Endorsing involves asking a stakeholder to act as a witness to the verification of a block’s validity. Rolls are sets of coins that the delegate aggregates and they show the relationship between the amount of their delegated coins and the related baking capacity.

Tezos’ creators hope that the entire infrastructure behind its baking system will prevent the domination of large voting coalitions and big-time stakeholders. While their emergence is a possible option, the platform hopes to make it easier for the coin holders to join their efforts if redistribution is needed in case the power becomes too concentrated in few hands.

A Modular Network

The Tezos platform uses a generic network shell protocol which offers compatibility with various transaction and consensus models its blockchain may require. The modular nature of this system is supposed to reinforce the “self-amending” potential of the network. The source code of the platform is written in OCaml programming language which allowed for the creation of modules that can directly amend the existing protocols.

Tezos’ network shell can identify three objects: blocks, transactions and protocols. In this case, the network protocol handles the broadcasting of transactions between the network nodes and blocks, blockchain download and peer discovery. In fact, this is where the majority of innovative efforts are supposed to take place.

Tezos’ network shell allows for the combination of consensus and transaction protocols for the creation of what is described a “blockchain protocol.” This protocol, in turn, is to become the home to a group of amendments to the Tezos blockchain in general. Its blocks are designated as the operators which can change the protocol (or chain) itself. As such, this blockchain protocol achieves what is described as the state of “introspection,” with the users of the platform given the opportunity to vote on upgrades and changes to the system.

Formal Verification System

Another feature Tezos promotes heavily is its implementation of software-based formal verifications of the functionality of programs, smart contracts and decentralized applications (dapps) which are run on its platform. The goal here is to evaluate their security and get rid of the bugs which can have serious consequences, particularly with smart contracts.

In addition to ironing out the bugs, Tezos platform hopes to prevent the third parties from meddling with the verification procedure while maintaining the security and decentralized quality of its code and information on it. At the same time, Tezos aims for the prevention of incidents in which the unauthorized parties can attempt to censor or stop any of its blockchain-based applications.

The Team behind Tezos

The Tezos project started out as the brainchild of Arthur Breitman and his wife and business partner Kathleen Breitman. Arthur Breitman is a computer scientist and mathematician whose experience in the financial sector was earned by working with companies such as Goldman Sachs and Morgan Stanley. Upon leaving the world of corporations in 2016, Breitman started working on the Tezos project. The idea for the platform came after Breitman showed long-term interest for the development of Bitcoin. What interested him the most was what he perceived as Bitcoin’s shortcomings when it comes to this cryptocurrency’s capacity to evolve. His initial ideas on the concept of a “self-amending” currency were put in two papers which were published in 2014 and served as an early blueprint for Tezos.

Kathleen Breitman has a background in the financial sector as well, with her earlier work references including companies such as R3 and Bridgewater Associates. The Tezos Foundation is an organization dedicated to spreading the Tezos’ vision to various stakeholders across the globe. It is run by the Council comprising experts with varied backgrounds, with an HQ located in Zug, Switzerland.

History & Controversies

Tezos mainnet went live in September 2018 following the launch of its beta network in June 2018 and the successful completion of an initial coin offering (ICO) which raised USD 232 million. Throughout its history, Tezos project was followed by numerous controversies which threatened to damage its reputation even before its official launch. After the ICO that took place in 2017, Arthur and Kathleen Breitman founded the Tezos Foundation, aiming for the appointment of Johann Gevers as the president of this organization. He was supposed to handle the easy transfer of intellectual rights to the Tezos source code. Gevers soon came into conflict with the Breitmans over the control of the funds raised as part of the ICO. Another point of contention was the personnel he introduced at the helm of the Foundation.

Initially, the coins from the ICO were expected to be transferred to the contributors, with the plans to release the blockchain under a free software license. The problems arose after repeatedly delayed release which caused concern among the members of the emerging Tezos community. Disagreements between the key personnel heading the project and the Foundation soon spilled over to the community itself. The crisis supposedly ended after Gevers resigned from his post with the Foundation in early 2018.

The Tezos project was also plagued with various class action lawsuits which were brought on the grounds of unresolved issues between Arthur Breitman’s Dynamic Ledger Solutions (DLS) company and the Tezos Foundation. Under the ICO arrangement, Breitman’s Foundation was supposed to buy out the DLS in order to get the rights to the source code. As part of the deal, Breitman was supposed to get 8.5% of what was raised as part of the ICO and 10% of all Tezos coins in circulation. Soon afterwards, several lawsuits were brought against the DLS on the grounds that Tezos coins were supposed to be treated as securities.

Fears among the Tezos community were made worse by the long periods of silence and the absence of information coming from the Tezos Foundation. Prior to the launch of the platform, Foundation broke this silence by announcing the implementation of Know Your Customer/Anti-Money Laundering checks for the contributors. Responses from the investors and the members of the community to this announcement have been mixed.

Availability of Tezos Coins

As of November 2018, Tezos had a market cap of USD 809. Upon its launch in mid-2018, the currency has achieved its all-time high, with the cap value standing at just short of USD 1.5 billion. The total supply of Tezos coins is capped at 763,306,930 XTZ, with 607,489,041 XTZ being in circulation in November 2018.

Tezos coins are available for trading on crypto exchanges such as HitBTC and Kraken.