- April 26, 2020
- Posted by: admin
- Categories: Altcoins
In this article, we’re going to take a look at Tezos. A popular, yet controversial cryptocurrency. Tezos is the world’s first self-evolving blockchain. Like Ethereum, Tezos is a smart contract platform. There are quite a few reasons why to keep an eye on this particular cryptocurrency.
Tezos is a self-evolving decentralized platform for developing dApps. In many ways, it’s similar to Ethereum, as they both enable building dApps using smart contracts. However, there are some pretty cool features that differentiate Tezos from Ethereum. One of them is the on-chain governance, which enables holders of the Tezos token XTZ to vote on the future direction of the network.
The idea behind the voting feature is to unite its community. The aim is to make the Tezos token holders to work together, which should result in better decisions that will improve the Tezos protocol over time. The self-evolving nature of the protocol makes it easier to upgrade and add the latest innovations to the network. Splitting of the community often results in hard forks and depreciation of the value.
There are more unique features to Tezos, which we’ll return to very soon in this article.
Tezos is headquartered in Switzerland. They raised a lot of money, $232 million to be more precise, in just 2 weeks via ICO. Unfortunately, it wasn’t all sunshine and rainbows after that, as the founders got into a public dispute with Johann Gevers, then head of the Tezos Foundation. Tezos Foundation was the entity which collected the ICO funds. The Tezos project itself was managed by a company called DLS – Dynamic Ledger Solutions. Very briefly put, Mr Gevers didn’t distribute the funds to the project, and eventually ended up leaving after getting $400 000 as a severance.
The issue didn’t fare well with the community and the price of Tezos token XTZ plummeted. That said, these issues are in the past, and Tezos has been doing pretty well.
The two founders, Kathleen and Arthur Breitman (originator of the idea) have been working on Tezos since 2014 with a team of core developers. Arthur Breitman is the CTO of the company, and in the past has worked in such financial behemoths as Goldman Sachs and Morgan Stanley. As a mathematician and a computer scientist, Arthur followed the rise of Bitcoin and observed the split in the community due to the network’s inflexibility which ended up in several hard forks. Tezos is built to be flexible and self-evolving, hence the solution to this problem.
In August 2014, Arthur Breitman published two white papers, in which he outlined Bitcoin’s problems and introduced the first self-amending blockchain called Tezos.
The second co-founder, Kathleen, the wife of Arthur Breitman, is the CEO of the company. Similarly to her husband, Kathleen Breitman comes from the financial industry. She worked in household companies like R3 and Bridgewater Associates, where she learned about distributed database technology.
There isn’t much information about the rest of the team, though it would be great to know who is part of the core developer team. Tezos project also has some well-known investors, including Tim Draper and Polychain Capital.
On-Chain Governance & Self-Amendment
On-chain governance and self-amendment serve the purpose of avoiding hard forks. On-chain governance is nothing else than voting on the Tezos platform over proposed changes to the protocol. Voting is done by the stakeholders, which is a topic we talk about soon in this article.
Self-amendment means that proposed changes to the blockchain can be implemented without doing a hard fork. In case you’re still wondering what is a hard fork, then let’s take a quick look at what it is.
Hard Fork Explained
A fork by itself is not a bad thing. Blockchain like any technology has to evolve, and the system has to go through constant upgrades, both soft and hard forks. The problem is when the hard fork splits the community and depreciates the value of the cryptocurrency.
Bitcoin, the dominant cryptocurrency, has gone through a rather ugly hard fork as well. That’s how Bitcoin Cash was born. Bitcoin Cash split into Bitcoin Cash and Bitcoin SV with its subsequent hash wars. Here’s an explainer video for that:
Hash Wars Explained
Ok, so let’s go back to Tezos and the on-chain governance and self-amending blockchain and take a look at how it work exactly. Below is a step by step process of the usual process of upgrading the Tezos blockchain.
- Independent protocol upgrade proposals are submitted by the developers together with a request for compensation for the work.
- Compensation feature is a necessary incentive to keep the developers motivated.
- All proposals go through the scrutiny of the community. There’s a testing period and possible improvements are suggested.
- Once the testing period is over, the Tezos community votes on the approval of the proposal.
- Once the proposal is approved, then the new version of the protocol is initiated.
- The described system enables decentralized governance, collecting the relevant feedback on the proposals, and finally, any upgrade decision is done by the majority vote of the community. All this should mitigate the chances of possible hard forks happening to the network.
Tezos Blockchain Code Transformation
The source code is done with OCaml, which is a functional and flexible programming language and is suitable for big and ambitious projects. Usually, blockchain has three protocols – 1) Network protocol, which broadcasts transactions and has the block discovery function 2) Consensus protocol, which determines how each chain achieves the consensus and 3) Transaction protocol, which establishes the rule of what makes a transaction valid.
Tezos uses a generic network shell which is adaptable with diverse consensus and transaction protocols, and this makes it different. Consensus and transaction protocols are combined together and are referred to as blockchain protocol. The Network Shell manages the communication between the network protocol and the blockchain protocol.
To talk about proof of stake we’ll need to start from proof of work, which is the consensus mechanism Satoshi Nakamoto integrated into bitcoin blockchain. Proof of Work or POW mechanism is a simple concept:
1. The miners solve hard cryptographic curriculums using their computational power
2. Miners, who succeed, will get rewarded (block reward) in bitcoin (or any other native cryptocurrency of a given blockchain using PoW mechanism)
The problem with this concept is the effort it takes to solve these puzzles. You’ll need a lot of computational power and electricity. And more difficult the puzzles get, the more power you need, resulting in big industrial mining farms. As a consequence, individual miners won’t be able to make the economics work, and we’ll end up only with the industrial mining farms. This means that mining is controlled by fewer and fewer entities, which can end up in centralization.
Once something is centralized, it can be shut down. Why bitcoin has succeeded is the fact that there is no central controlling body whose governments can control or close down.
Proof of stake is a different way to “mine” coins, i.e it serves the same function as proof of work, but it’s completely virtual and thus doesn’t have the same requirements on energy & computer hardware.
What is Proof Of Stake?
To explain what is proof of stake we first have to use a different term for miners. Instead, miners are called validators. Validators validate blocks. Let’s go through step by step process of how it works.
- Staking can be done by locking up (some) coins the validator has. Different blockchains have different thresholds of how many coins you need to lock up in order to be able to take part of staking, and this changes in time.
- After coins are locked, the validators will start validating the blocks. Essentially, it’s discovering a block that in their opinion can be added to the existing chain, and they will make a bet on it. It’s usually an automated process.
- If the bet justifies itself and the block gets added to the chain, the validator gets a reward.
As the whole community with sufficient amount of coins can take part in staking, scalability issues are likely to occur. Like choosing your delegates when electing people to the parliament, different blockchains have integrated similar method called a delegated protocol. This means that a certain amount of delegates get elected in advance, and these delegates are liable for consensus and the sustainability of the network.
Tezos, however, is a bit different and uses something that’s called liquid proof of stake.
What is Liquid Proof of Stake?
Let’s first take a look at this short explainer video, and then we’ll go over the basics of liquid proof of stake below.
You need to stake a certain amount of your Tezos (XTZ) tokens in order to take part of staking. With Tezos blockchain this process is called baking.
The big thing about the liquid proof-of-stake and why it’s better than delegated staking protocol is control. There is no concrete rule that delegates have to be selected. It’s up to the network participants what they want to do. Participants of the network will remain in control of their tokens.
When the Tezos token holders delegate their tokens to the bakers, they get rewards in return. As a trade-off, the token holders delegate their voting rights for future proposals. However, the token holders can always switch the bakers, and they never give up control or ownership of their tokens.
What Are Baking Blocks?
Now that we’ve established what baking is, let’s go through the step-by-step process of how baking on Tezos blockchain works:
- Based on their stake the bakers get the block publishing rights.
- Every block that is baked by one participant is then notarized by 32 bakers. These bakers are completely random.
- Once the block is approved and notarized, it’s added to the Tezos blockchain.
- The block reward is given to the successful baker. This baker can also charge transaction fees inside the baked block.
- The baker shares their block rewards with the delegates.
If you’ve made your mind about getting your hands on some XTZ, you’re probably wondering what would be the best way to store your Tezos. Below, we’re going to give you a simple list of 6 different wallets which you can use to securely store your coins. People prefer different wallets, and we tend to be pretty wallet-agnostic , as long as our cryptos are safe and easily accessible.
We’re also going to give you a link to a video where you can learn how to stake Tezos directly in your Ledger Nano hardware wallet. Ledger Nano is probably the most popular hardware wallet out there, so you many want to check it out.
- Ledger Nano X – https://shop.ledger.com/pages/ledger-nano-x
- Magnum Wallet – https://magnumwallet.co/ (best wallet to earn additional income)
- Atomic Wallet – https://atomicwallet.io/ (most beginner-friendly Tezos wallet)
- Gaurda – https://guarda.co/
- Tezos.blue – http://tezos.blue/ (as you can see they’re not using SSL security protocol on their website, which is somewhat odd and concerning, but it’s also an open-source wallet)
- TezBox Wallet – https://tezbox.com/
Staking Tezos In Your Ledger Nano Wallet
STOs & Tezos?
STO stands for “security token offering“, and it’s believed to be the next big wave of digitalization of assets. Additionally, many crypto folks believe that Tezos will be the best blockchain to power these token offerings. If that’s the case, then it’s huge for the adoption of Tezos.
STOs are usually executed by platforms which are built for token offerings. These platforms, at least the ones that are getting the majority of the business, will be huge players in the market. For example, TokenSoft is one of the best known tokenization platforms, and their CEO believes that 25%-35% of all security token issuances on TokenSoft will soon be on Tezos blockchain.
There are signs that it may very well be the case as companies like BTG Pactual, tZERO and Vertalo have recently announced token offerings on Tezos. Vertalo is a digital transfer agent (a token issuance platform like TokenSoft) and they’re helping to tokenize $300 million in real estate.
It has to be noted that in current market conditions, the STO platforms are very influential in deciding which blockchain will be used for tokenization. Real estate companies usually have no clue and they trust the expert opinion of the issuance agents. If there are a number of STO platforms going for Tezos blockchain, it’s clear that there will be strong adoption in this space, and it’s a clear sign for other companies planning on issuing security tokens that Tezos is the one to go with.
It’s kind of a network effect – more STOs there are on one blockchain, more attention it gets and safer it seems, and more new issuers will choose it. It’s like going to a supermarket in a foreign place – if one is Walmart and the second one is an unknown name, you’ll go to the one you know.
Is Tezos A Good Investment?
It’s rumoured that Tezos Foundation is sitting on $600 million, which means they have a pretty strong war chest to keep going and keep pushing the adoption of XTZ. Any company with great funding in general has a better chance of succeeding.
You can also stake XTZ on Coinbase. As Coinbase is one of the best known and trusted crypto exchanges, and historically has been very selective of cryptos they list on their platform, it’s a great driver for adoption. Many new crypto users make their first crypto purchases via Coinbase, and being exposed to Tezos on that stage is a great thing for the project.
People are growing more interested in cryptos which enable them to earn income. Yield generating tokens and products will continue to attract interest (lending out assets, staking, etc). It’s likely to be an upward trend for years to come, as it’s a smart choice for any crypto enthusiast to put their coins to work.
Tezos seems to be getting back on track after all the controversy and questions that have surrounded Tezos foundation. The superior-tech has always been there, and if we’re seeing adoption by the STOs and major exchanges supporting XTZ staking, the good outweighs the controversy of the past and the future of Tezos looks pretty positive.
Once you learn enough about the crypto market, you’ll start to understand how little there are actual progress and proof of execution of the grandiose plans which most projects advertise themselves with. Knowing that and looking at the information we have today, Tezos seems to be a solid purchase to make (NB! not financial advice, do your own due diligence).
Tezos FAQ 2020
What is Tezos?
Tezos is a self-evolving decentralized platform for developing dApps. It’s a cryptographic ledger.
What is the ticker of Tezos cryptocurrency?
Tezos is listed under ticker “XTZ”
Where can you buy Tezos?
You can Tezos from many crypto exchanges, with some of the options listed below:
- Coinbase – https://www.coinbase.com/
- Binance – https://www.binance.com/en
- Crypto.com – https://crypto.com/exchange/
- Coinmama – https://www.coinmama.com/
Where can I store my XTZ?
There are several secure ways to store your XTZ:
- Ledger Nano X – https://shop.ledger.com/pages/ledger-nano-x
- Magnum Wallet – https://magnumwallet.co/
- Atomic Wallet – https://atomicwallet.io/
- Gaurda – https://guarda.co/
- Tezos.blue – http://tezos.blue/
- TezBox Wallet – https://tezbox.com/
What is staking Tezos?
Staking means that you can validate blocks on Tezos blockchain and earn a reward for doing that. It’s completely virtual and exchanges have made the process very easy – you can stake (bake) XTZ on Coinbase, Crypto.com, Binance, or even using your Nano Ledger hardware wallet.
Can I lose my XTZ while staking?
No, that is the beauty of Tezos. Even when staking, you will always have control over your tokens.