Tezos raised $232 million in one of the biggest ICOs of all time — here's a breakdown of what to expect from Tezos.
What Is Tezos?
Tezos is an open-source proof-of-stake (PoS) blockchain network that offers peer-to-peer (P2P) transactions via its native XTZ cryptocurrency (called a Tezzie) through its decentralized platform by deploying smart contracts.
The Tezos blockchain also facilitates the building of decentralized applications (DApps) and is seen as a potential competitor to Ethereum. Tezos had the biggest initial coin offering (ICO) of all time, raising $232 million, but dealt with significant adversity and delays after its launch.
With a current XTZ price of $3.13 as of Jan. 20, 2020 and a market cap of over $2 billion, Tezos is one of the Top 20 biggest cryptocurrencies at the moment.
The Tezos project was launched by Arthur Breitman under the pseudonym “L.M. Goodman” in 2014 with the aim to present new solutions to a problem most blockchain platforms face today: protocol development.
The project sees four main issues plaguing popular networks, like Bitcoin, which are:
- Protocol fork problems arising from the inability of a particular network to adapt to blockchain modifications;
- Costs incurred, as well as centralization problems caused by the use of the proof-of-work (PoW) consensus mechanisms;
- Transaction language limitation of Bitcoin’s programming model causing the difficulty in implementing smart contracts; and,
- Security concerns on the adoption of digital assets.
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What Problem Does Tezos’ Self-Amending Network Solve?
Most first-generation blockchain networks such as Bitcoin and Ethereum suffer from certain limitations that developers can only fix through significant upgrades in order to address network issues, such as scaling and security. Sometimes, a hard fork may present the only solution, which can cause disruption and community division, as we’ve seen with the likes of Bitcoin Cash in 2020. The Tezos blockchain (XTZ) solves this problem by functioning as a self-amending blockchain network, which has made it one of the most promising projects in the space today.
These issues surrounding decentralized networks have been a concern for blockchain communities, since they have continued to be decisive based on different views as to how any project ought to move forward. To address that, XTZ implemented a system where users can vote on important network changes that can implement themselves without the need for hard forks. But while the project looks promising, it has its own share of controversies as well.
Bitcoin’s network, for example, is one of the biggest case studies in support of the platform’s objective. As you can see today, the lack of consensus amongst its own community as to how it should progress in addressing the problems of the blockchain has led to difference and division. Not only do developers get caught in the middle, but also coin holders, as discord affects the asset’s price.
This discord is the reason why we have Bitcoin Cash, Bitcoin SV and many other forks of the Bitcoin network today. They all try to address the transaction speed problem and block size limitations of Bitcoin ,but greatly vary in their approach.
Forking happens when a platform cannot adapt to such modifications or mesh them together all at once. Here, a separate network composed of a new community has to be created. Then, they begin rebuilding a new set of protocols on top of a different version of the parent chain with the modification that they had in mind.
According to the team behind Tezos, this can hamper the potential of a network to fully develop, since it might create a negative network effect in which any upgrade on the forked chain cannot be implemented on the parent chain. It also stifles innovation and threatens the stability of a digital asset that depends on the chain.
The solution Tezos came up with is a “self-amending crypto-ledger.” The project then became popular for its on-chain governance model.
Tezos Blockchain
Tezos is a smart contract and decentralized applications (DApps) blockchain platform. It also features a self-amending feature powered by an on-chain voting mechanism. When it launched its initial coin offering in 2017, the project successfully raised $232 million. Tezos became one of the most controversial blockchain projects ever since.
The Tezos blockchain is designed to be a decentralized, permissionless and peer-to-peer transaction network facilitated by smart contracts. Doing away with the PoW model, the platform implemented a delegated proof-of-stake (DPoS) model. This set-up grants its stakeholders the ability to participate in important protocol and governance decisions through an on-chain governance protocol.
How Does Tezos’ Self-Amending Model Work?
There are three main protocols that function as the backbone of the XTZ platform.
They are the following:
Network Protocol
The network protocol is designed to determine blocks and broadcast them through the chain. Basically, it links the “gossip” network and the whole protocol. Everything that is needed by nodes to maintain the integrity of the network, such as downloading the state of the blockchain, connecting users and broadcasting finalized blocks to the network, is covered in the network protocol.
Transaction Protocol
The transaction protocol governs the validity of transactions. It has a record of all blockchain information, especially that relevant to facilitating the transaction of peer-to-peer interactions and blockchain activities.
Consensus Protocol
The consensus protocol enables the platform to reach consensus on the state of the blockchain. This is also where the DPoS model comes into play. Through this protocol, any blockchain modification, addition or upgrade, has to be voted upon by the stakeholders of the platform.
The network shell of the platform is what links these different protocols together. The network shell also refers to the “blockchain protocol,” which puts together the transaction and consensus protocol.
The form of the blockchain protocol is also the outcome of all modifications and upgrades on the network. To support the platform’s ability to “self-amend,” the blocks that stakeholders add to the chain — which may contain transaction information or protocol upgrades — are allowed to implement changes to the whole network.
From a more technical perspective, the coding language used to build Tezos, OCaml, is capable of identifying three main elements on the chain: blocks, protocols and transactions. Any module written in OCaml and implemented on the chain can update its overall state.
How Many Transactions per Second (TPS) Can Tezos Perform?
Tezos is capable of facilitating as much as 40 transactions per second (TPS). This is much higher than the TPS achieved by Bitcoin and Ethereum, which is at 4.6 TPS and 15 TPS, respectively.
Another feature that Tezos is known for — which differentiates it from first and second-generation blockchains — is its ability to implement real-time modifications on the chain as needed. In other chains, protocol changes can result in hard forks, and consequently, community fragmentation. XTZ’s model addresses that.
Block Time
Block production in Tezos is set to at least 1 minute per block. However, this duration may vary depending on network conditions. After that, a “cycle” is concluded in the Tezos blockchain as soon as there have been 4,096 blocks produced. The best-case scenario for each cycle is that they will be finalized in two days, 20 hours and 16 minutes. But then again, this is entirely dependent on how quick each block is finalized.
Tezos Overview
Despite its lofty promise of creating a protocol that is community-centric, the Tezos project has been very controversial in the cryptocurrency space. Many believed that the project already has the fundamentals needed to establish a truly decentralized protocol without the risk of hard forks and division.
And looking at where the project is today, it hasn’t failed on its promise to create a protocol that can develop on its own without hard forks. However, the events that transpired after its ICO has proven that it was Tezos’ own team that was not completely safe from the problem they were trying to address — division.
As many may remember, the founders Arthur and Kathleen Breitman created a Swiss Foundation back when Tezos was created in order to have greater autonomy over the assets of the platform. However, because of Swiss regulations that they apparently did not fully think through when they made that decision, their own board of directors gained the same capacity to control the assets of the foundation as its founders.
Then-foundation president Johann Gevers dominated Tezos-related news at that time, as he locked Tezos’ assets away from the Breitmans. Several legal actions have been filed since then, aiming to oust Johann Gevers from the foundation. It was only when the Breitmans recovered control of the project’s source code that they were able to get back to working on Tezos.
There were other events that followed that added to the controversy of Tezos development, among them Tezos’ sudden implementation of Know-Your-Client/Anti-Money Laundering (KYC/AML) requirements to token holders.
However, even if bad press clouded Tezos’ reputation towards its own community, it remained steadfast on its promise to create a unique blockchain platform.
Tezos vs Regulators
Tezos drew the ire of investors and regulators for its (at the time) record-breaking initial coin offering which raised a staggering $232 million.
The Securities and Exchange Commission (SEC) considered Tezos’ ICO to be an unlicensed securities offering (the same charge they’re bringing against Ripple in 2021) and began investigating the project for possible regulatory prosecution.
However, a class action lawsuit from law firm Block & Leviton in 2020 that resulted in a $25 million settlement with Tezos is likely to have appeased the SEC enough for the time being.
Tezos DApps
The protocol also supports the deployment of decentralized applications (DApps) that perform specific functions on the platform. These applications run autonomously, which means that they do not require any third-party permission or intervention to facilitate any of their functions. Basically, DApps expand the use cases of the Tezos network.
There are many DApps on the Tezos protocol such as CricTez, a non-fungible token-based (NFT) fantasy sports dapp for Cricket; Kalamint, a community-governed NFT marketplace; Stably, a USD-backed stablecoin; Wrap Protocol, Ethereum and Tezos bridge, and many others. You may see the complete list of all DApps on the protocol here.
Tezos Smart Contracts
Tezos smart contracts are self-executing agreements that run autonomously. Any party to a smart contract can set specific conditions that have to be met before any action is made in fulfillment of a contract obligation.
This makes the platform permissionless and serves as the backbone of all DApps on the protocol.
XTZ Token
XTZ Token is Tezos’ native utility token and cryptocurrency. It can be used as a medium of exchange or to participate in the platform’s on-chain governance functions.
What’s worth highlighting here is the governance model that functions through the holders of the token. Every other upgrade made by developers that have to be implemented on the chain is subject to a vote amongst the stakeholders. Developers earn XTZ if their upgrade or modification proposals are accepted.
Tezos Roadmap
There is no official roadmap for Tezos, but it has developers continuously working with the Tezos community for necessary network upgrades. The most recent update that was rolled out on the chain is Carthage 2.0, implemented in March 2020.
Carthage 2.0 is a project by Nomadic Labs and Cryptium Labs, aimed at increasing the gas limit for each block and operation by as much as 30%. This allows developers to operate more sophisticated dapps on the platform. The upgrade also sought to improve the calculations for baking rewards.
How to Stake Tezos
Since the platform runs under the DPoS model, it does not have any mining requirements. Instead, it implements “staking.” To do so, an XTZ holder must stake their coins in a smart contract, which lets them delegate their tokens to a specific “baker.”
Bakers function similarly with “validators” and “miners.” They are tasked with maintaining the integrity and health of the chain by approving transactions that are considered valid. They also earn rewards for their work, which they share in proportion to the amount that they locked in the smart contract.
To ensure that malicious actors do not approve invalid transactions, they are penalized if they vote for transactions that are incorrect. In a method called “slashing,” bakers’ tokens are confiscated if they are found to approve transactions that aren’t valid. Stakers who delegate their XTZ to a baker must keep this in mind since this can also affect their investments as well.
Delegated Proof-of-Stake (DPoS)
The old proof-of-work method in confirming transactions on-chain consumes too much energy and sometimes contributes to the continued centralization of the network, according to Tezos’ founding ideas. Miners are required to power high-quality mining rigs in order to compete with other network miners. The biggest mining pools also contribute to centralization as they drown out other small miners in the network. DPoS is a good alternative to these concerns.
In the DPoS model, the task of maintaining the integrity of the blockchain is on the stakeholders, who are also XTZ token holders. While there is a minimum requirement of holding a certain amount of XTZ before anyone can be nominated as a network validator, anyone can delegate their XTZ to a chosen validator to take part in the efforts to secure the network.
The minimum requirement for anyone who wants to set up a Tezos node and become a baker must have at least 8 XTZ, also called “1 roll.”
DPoS also enables the community to nominate bakers who will vote on their behalf for protocol proposals. Stakers just have to choose which bakers align with their values, which allows them to still cast their votes on important governance decisions even if they do not have enough XTZ to be considered a baker.
Where to Stake Tezos
There are many wallets that offer access to staking on Tezos, such as Ledger Wallet, Binance, Coinbase and Atomic Wallet, among others. They offer different ROIs and charge different fees.
For a list of the possible staking wallets to use for XTZ, you may visit this link.
Tezos Review
Tezos vs Cardano
Cardano is one of Tezos’ biggest PoS competitors. Both platforms seek to create a decentralized chain where its own stakeholders have a bigger influence on how the network is run. Both are also smart contract and DApp platforms.
However, in terms of the adaptability of their chains, Tezos appears to have the upper hand. Most upgrades in Cardano take too long before they are implemented, since Cardano also has to undergo several rigorous reviews before its actual roll-out. This is also why network upgrades happen less often on Cardano.
Upgrades on Tezos can happen regularly, or whenever the community deems it necessary. This makes it possible for developers to continue working on additional blockchain features for Tezos whenever they want to.
Tezos vs Ethereum
Ethereum has the first-mover advantage against Tezos. Hence, it also has a bigger community. But from where they stand today, Ethereum lags behind Tezos in terms of transaction throughput and has faced many problems with gas fees and network congestion. As already mentioned, Tezos’s 40 TPS is much faster than Ethereum’s 15 TPS.
But in terms of developer interest, Ethereum stands at a greater advantage than Tezos thanks to the size of its community. And considering the launch of Ethereum 2.0, developers will find a much greater incentive to continue working on its chain since it already addresses the problems faced by other networks.
What Is the Best Tezos Wallet?
The best wallet for Tezos is the native XTZ Wallet or Trust Wallet. Both wallets allow users to send and receive XTZ, purchase XTZ, swap cryptocurrencies and monitor their portfolios. Other available wallets where one can store their XTZ are Ledger Nano, Atomic Wallet, TezBox Wallet and Guarda, among others.
Where to Buy Tezos
Tezos is already available on several cryptocurrency exchanges. The best Tezos exchanges are:
Other exchanges to buy XTZ include Gate.io and HitBTC, among others. It can be bought with either fiat or another cryptocurrency as long as it is supported by the exchange of your choice.
How to Buy Tezos
Step 1 - Set-up your XTZ Wallet or another crypto-wallet
You may use the XTZ wallet or any other wallet to purchase XTZ tokens and use them for your transactions. Then, you may start selecting which exchange you wish to buy XTZ’s from.
Step 2 - Purchase XTZ either with Fiat or Crypto
Use the exchange to purchase XTZ with your digital assets such as BTC or ETH. There are also fiat pairs for XTZ, which means that you can purchase it with your local currency using a linked debit or credit card.
Step 3 - Finalize your purchase
As soon as you have purchased XTZ, you can then already use it as a medium of exchange or to participate in network activities.
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