Tezos is an open-source, decentralized blockchain project that aims to provide a platform for executing smart contracts. What’s more, Tezos features a number of innovative solutions, such as its “liquid proof-of-stake”, and on-chain governance. This article takes a closer look at all the specifics of Tezos, such as its native XTZ token, and much, much more. Read on for the full breakdown of Tezos, the project’s history, and the XTZ crypto!
It’s been clear that one of the most fundamental impacts of the crypto industry has been the emergence of decentralized applications, or dApps. In turn, an essential part of dApps are smart contracts. These are self-executing contracts that enable the development of innovative, powerful, and decentralized platforms. The dominant blockchain for dApp development and smart contracts is still Ethereum. However, even though Ethereum is the most popular development platform out there, it is far from the only decentralized blockchain platform. There are several alternatives on the market, but an interesting one that we will explore further here is Tezos.
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What is Tezos?
Tezos is an open-source platform for applications and assets that a worldwide community of developers, researchers, and validators are backing. According to Tezos, their platform addresses some of the critical issues that are of utmost importance when it comes to blockchain adoption. This means that Tezos has a focus on long-term upgradability, smart contract safety, and open participation.
Long-Term Upgradability
The structure of Tezos is of a modular design. Along with this structure, the platform also has a formal upgrade mechanism. These two factors allow the platform users to decide on essential updates and implement them accordingly. This can enable the network to adopt new technological innovations as soon as they emerge.
Furthermore, another essential component that allows the network to adapt for the long-term is the Tezos´ on-chain invoicing mechanism. This allows the protocol to remain up to date even from a long-term perspective into the future while still keeping community consensus.
Secure Smart Contracts
One of the things that Tezos is emphasizing on their website is the security of their smart contracts. The platform is designed to provide developers with contracts that are secure through code correctness. This means that the contracts on the platform are suitable for assets and high-value use cases.
The contracts are written in the Michelson language, which facilitates what is known as formal verification. This is a form of methodology that is used in mission-control environments such as nuclear and aerospace industries. This is something that demonstrates the importance of and security capabilities of their smart contracts.
Open Participation
Another exciting aspect of Tezos is how the community decides on important decisions through its “liquid” delegated proof-of-stake system. All the stakeholders within the network can participate in the network's proposed upgrades. The stakeholders can propose, evaluate and approve changes to the network. One way in which this differs from Proof-of-Work (PoW) and other Proof-of-Stake (PoS) networks is that all the stakeholders can help keep the system secure through baking or delegation. This is also a mechanism to allow the stakeholders to avoid being weakened by inflation in the network.
The History of Tezos
Tezos was introduced back in 2014, in a white paper written by Arthur Breitman. Breitman was first to work on Tezos, but later on in the process introduced his wife Kathleen. Along with this, Breitman also involved Johan Gevers, who became the acting president of the Tezos Foundation.
Arthur Breitman
Three years after the original launch of the Tezos white paper, Tezos held an ICO, or initial coin offering. For those unfamiliar, this is essentially the cryptocurrency equivalent to an initial public offering, or IPO. At the time, in 2017, it was an extremely successful ICO and it raised an amount of $232 million. One of the main reasons for the success of Tezos’ ICO was that investor Tim Draper came out strongly in support of the project. As you may know, Draper is a successful och vocal venture capital investor who wields significant influence.
As such, the ICO was a notable success, but was quickly overshadowed by a related scandal. Although the ICO funds went to the Tezos Foundation, the actual source code for the Tezos project (the intellectual property) was owned by a company called Dynamic Ledger Solutions, which was controlled by the Breitmans. There was an understanding that the Tezos Foundation would go on to purchase Dynamic Ledger Solutions following the ICO.
However, due to supposed “miscommunication” and speculations of a compromised relationship between the two parties, this ultimately did not happen. This led to a string of complicated lawsuits over mismanagement of funds and Gevers' exit from the company, who had to step down in the early months of 2018. Another lawsuit was also pressed against Tezos, that was only resolved three years later in 2020. This lawsuit had troubled Tezos for some time, and once the lawsuit was settled last year, they announced that they could finally focus on improving the platform.
Tezos’ “Liquid Democracy”
Tezos is oftentimes compared to Ethereum in that it is a decentralized blockchain platform that can be utilized for creating dApps. Tezos, however, unlike Ethereum, is using a Proof-of-Stake consensus mechanism, which means that miners don't need to exist.
Another significant way in which Tezos is unique when comparing it to Ethereum is that it aims to be a more “democratic platform”. This is sometimes referred to as “liquid democracy” or liquid governance, and uses Tezos “liquid” delegated proof-of-stake system. This means that all the stakeholders are part of deciding on the development of new functions and upgrades. This means that any user has the ability to provide suggestions for updates which they themselves can submit and then add a price tag. The network then decides if the platform should adopt this update through a voting system. If the update is accepted by the network, the person introducing the change will receive a payment matching the amount on the price tag.
Due to this system, the platform won’t need to undergo drastic and extensive updates, which could render applications unusable. This system can also help reduce the chance of any hard forks of the Tezos blockchain. Hard forks can, for example, occur when a company owning a blockchain is in disagreement. In Tezos’ case, the decisions are completely up to the platform users, and these disagreements within the Tezos Foundation will not have any effect. This is a process that they are calling self-amendment, and the main reason for this is that it is possible to update the blockchain more effectively without splitting the community.
Furthermore, the self-amendment process - in combination with the on-chain governance - allows the bakers to vote on important matters. This will enable Tezos holders to affect the election process itself. This means that whenever someone discovers new governance mechanisms, it is possible to implement them retroactively.
What is the XTZ Token?
XTZ is the name of the cryptocurrency that underpins and powers the Tezos blockchain. The community also sometimes refers to this currency as ”tez” and ”tezzies”. As we mentioned earlier, the system does not run on a PoW consensus mechanism, but rather uses a delegated PoS mechanism. This means that the process for creating new tezzies comes from staking tokens. The community calls this process “baking”, which can be contrasted with the more well-known crypto mining.
Anyone using the system can stake their tokens and ”bake” new "tezzies"; however, there is a minimum requirement of 8,000 XTZ tokens. If someone has 8,000 XTZ and is not interested in staking their share, it is possible to delegate another user to stake for them. The special proof-of-stake mechanism used by Tezos is a delegated proof-of-stake, known as “liquid proof-of-stake”.
Furthermore, the market cap of the XTZ token is just below $3 billion, ranking this currency at number 40 on the CoinMarketCap market cap leaderboard. And lastly, if someone were to have invested in 2017 at the time of the ICO, they would have had a return on investment (ROI) of 600%.
Tezos in 2021 - Edo and Florence
Since the beginning of 2021, there have been two major updates to the Tezos network. Earlier this year, we saw the release of Edo, one of the most ambitious and significant updates to the Tezos protocol. Just a few months later, in May, Tezos adopted the latest upgrade to the network, called Florence. These are both significant updates that we are going to take a closer look at. The Edo and Florence updates come following the original four Athens, Babylon, Carthage, and Delphi updates.
Tezos’ Edo Update
Along with being Tezo’s fifth update, Edo was also the largest and most ambitious update at the time of the release. Some of the main features added with the Edo update are Sapling, Tickets, and some alterations to the upgrade process.
Sapling is a protocol that was originally developed by Electronic Coin Company. The Edo update allows the integration of sapling into their smart contracts. The integration of sapling allows new applications such as voting or supporting asset transactions with more selective disclosure.
Tickets are another important and exciting improvement to the Tezos system. Tickets allow smart contracts to grant mobile permissions to issue tokens or other contracts. However, this is already possible with existing programming patterns, but this ticket mechanism makes the process a lot easier. This will also make it easier for developers to write composable and secure smart contracts.
The last significant change is the alteration of the upgrade process. The Edo update adds an additional step to the process, which is the Adoption Period. Before the update, once the voting was done, an update was activated on-chain about 60 seconds after. This caused some problems for the bakers, indexers, and other network users since there was no time to transition to the updated version of the protocol smoothly. This means that the new process consists of five steps of five cycles, and the last one is the adoption period which will last for about two weeks. These two weeks will be a grace period allowing the users of the network to take necessary precautions.
Tezos’ Florence Update
The latest update to Tezos is Florence, named after the Italian city. Just like Edo, the Florence update has brought some exciting and vital upgrades to Tezos. One of the most significant changes is the change in maximum operation size. With Florence, the maximum operation size doubled. This means that the maximum size of smart contracts more than doubled as well. This update is excellent since it will allow developers to increase the size of their contracts and develop even more advanced applications.
Along with extending the operation size, Florence also brought gas optimization to Tezos. This means that it is possible to run more advanced smart contracts at a much lower cost.
Furthermore, the gas arithmetic has sped up by a factor of ten, allowing the system to perform at a higher rate.
Moreover, Florence also makes it easier for developers to write complicated systems of smart contracts. This is because they opted for a depth-first execution order that can be more intuitive to most developers.
And lastly, the Florence update eliminated the testing period in the amendment process and replaced it with a cool-down period instead. The reason for doing this is that the period was not used as intended and caused problems to the nodes in the network. During this new period, the proposals are tested but on other test chains outside of the mainnet. The next planned protocol update after Florence is going to be called Granada.
Tezos Update Process
The update process on the Tezos system consists of five different steps - also known as the five baking cycles. As we mentioned in the previous section, each of these steps is five cycles long, which is a reduction from eight cycles prior to the Edo upgrade. 4,069 blocks represent a cycle, and the time between two blocks is 60 seconds. This means that one cycle lasts for 4,069 minutes or about two days and 20 hours. Furthermore, these are the following steps in the Tezos upgrade process:
- Proposal Period
Any of the system's bakers have the ability to submit a proposal consisting of changes to the Tezos system. The proposals that receive the most votes move on to the next period in the update process. - Exploration Vote Period
The next step is a voting period. In this step, the proposals that receive a super-majority move on to the next step in the process. A supermajority can differ in some cases, but to pass this threshold in the Tezos system, the majority must consist of 80%.
Cool-down Period
If a proposal receives 80% votes and moves on from the second step in the process, it moves on to the cool-down period. During this period, the proposals are tested on test chains outside of the main net.
- Promotion Vote Period
In this step, the network of bakers votes once again. If a proposal reaches supermajority in favor of the changes, they are implemented. - Adoption Period
The last step, as we mention in the previous section, is the grace period. This is a time delay of two weeks from when the previous step is finalized. The reason for this is to allow the users of the network to adapt to the changes.
Tezos Summary
Tezos has a fascinating history with its fair share of both ups and downs. This goes all the way from an impressive ICO at the time where the company accumulated $232 million, to the miscommunication and dispute between the Breitmans’ and Gevers. The lawsuits from these actions understandably left the company with some scars, but they now finally seem to be leaving them behind.
Tezos is a decentralized blockchain platform that, in some ways, is quite similar to the Ethereum blockchain - but there are also significant differences. According to Tezos themselves, they focus on long-term upgradability, secure smart contracts, and open participation. What’s more, Tezos also features its unique delegated “liquid proof-of-stake” mechanism. The long-term upgradability features with the open participation mechanisms allow the blockchain to have a great competitive advantage over some of its competition. One of Tezos greatest advantages might be the ability for continuous upgrades without the need to create forks in the system.
This was demonstrated only in the two latest updates which brought some exciting changes to the network, but also the upgrade process itself. Adding the fifth step to the amendment process to ensure that users have time to adapt seems like a logical move. So does the Tezos Florence upgrade, which intend to increase maximum operation size and optimize gas prices. Moreover, it will be interesting to follow Tezos in the future and the developments through their upgrade process.
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