What is Tezos (XTZ)?

What is Tezos?

Tezos is a blockchain competing with  Ethereum which also allows you to run smart contracts . Tezos aims to develop decentralized applications (DApps ) , in particular in under the decentralized finance . Tezos differs from Ethereum in three major ways:

  • Tezos works by proof of stake (liquid), which gives it greater scalability.
  • Tezos’ contract system is based on a secure programming language called Michelson.
  • Tezos is a scalable blockchain that has a internal governance system allowing it to self-amend.

This project has raised more than 230 million dollars through its ICO during the summer of 2017. Due to many legal problems (collective actions by ICO participants, power struggle, etc.), the tokens were blocked for almost a year, which is a long time in the blockchain world. However, the project was finally launched on June 30, 2018. Today, its development is progressing peacefully.

The Tezos Foundation is the organization behind the project. It is the first to have been audited by one of the 4 largest audit firms in the world: PwC.

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How does Tezos and its token XTZ work?

Tezos is an autonomous contracts platform capable of performing basic operations of decentralized applications (DApps) thanks to a blockchain. Its operation uses a native digital unit, whose symbol is and the stock market symbol XTZ . This cryptocurrency is used to pay transaction fees and reward validators who secure the network.

Liquid proof of stake

Tezos consensus model is  proof of stake (PoS), and more precisely on a variant of the delegated proof of stake called liquid proof of stake (LPoS). The validators, called bakers , must lock 8000 ꜩ in order to become one. These bakers are rewarded according to the number of XTZ tokens they own and that have been delegated to them : the more there are associated tokens, the more likely they are to validate / approve a block and hit the reward.

Those who delegate their tokens receive validation rewards (while still paying fees to the baker), hence the “liquid” nature of the proof of stake. This action is called staking.

In addition to its decentralized and democratic aspect, this possibility of delegating allows a protection against inflation of the token holders, who will receive proportionally a part of the monetary creation. Thus, despite the 80 ꜩ created every minute (a monetary creation rate of 5% per year) ,the holder of XYZ would only be impacted up to the costs paid to his baker. Since these are 10% on average, this would represent, at equal demand, a loss of purchasing power of 0.5% per year.

A list of the best bakers  is available on Baking Bad website.

The programming language, Michelson

Like all distributed platforms, Tezos is based on a virtual machine which is executed on all the computers on the network: each operation of each contract is thus verified by each node. In the case of Tezos, the language interpreted by the virtual machine is the Michelson language, a language which makes it a machine (almost) Turing-complete.

Liquidity editor

Michelson is a language that lends itself to formal verification and thus guarantees better security of smart contracts than on Ethereum or other platforms of the same type. This property was designed to remedy the various hacks and bugs that Ethereum has experienced throughout its history, such as the hack of TheDAO contract in June 2016, the freezing of Parity contract funds in November 2017 or the theft of funds from certain DeFi protocols in 2020.

The formal verification can be done via the system Mi-Cho-Coq , developed by Nomadic Labs.

Of course, there are many higher level languages ​​that can be compiled in Michelson: Liquidity (a version of Solidity adapted to Tezos), LIGO , Archetype , SmartPy , etc.

Governance internal

As we said, Tezos is a protocol capable of self-amendment. For this, it has a system of internal governance which allows decision on changes to the protocol.

In this model, it is the bakers (the validators) who are responsible for voting for the amendments. Their vote is weighted by the number of tez that they own and have been delegated to them : the more tokens they have, the more influence they have on the system. Since they must have blocked a significant amount of XTZ tokens to vote, they are encouraged to make the right decisions.

The governance of Tezos goes through 4 successive stages , which each last 8 cycles (32,768 blocks), or approximately 22 days and 18 hours :

  1. The proposal period. During this period, bakers can make proposals for improving the protocol, and support them with a vote. If no proposal reaches a quorum of 5%, then the proposal phase takes place again.
  2. The exploration period. The proposal which received the most votes in the first phase is put to a new vote. Bakers can vote “yes”, “no” or vote blank. If a quorum depending on the previous participation rate is reached, and if a super-majority of 80% of voters votes “yes”, then the testing phase is triggered. Otherwise, the process restarts at the proposal phase.
  3. The testing period. The new protocol is ported to a test network where we can assess the real impact of the proposal.
  4. The promotion period. A new vote takes place on whether the proposal is adopted. If a quorum depending on the previous participation rate is reached, and if a super-majority of 80% of the voters votes “yes”, then the proposal is integrated into the protocol on the main network. Otherwise, the protocol remains the same. In either case, the proposal period takes place again thereafter.
Voting cycles in Tezos network
Voting cycles in Tezos network

The reference site for monitoring decision-making is Tezos Agora .

This system of governance also makes it possible to reward developers: they can indeed include an invoice in the proposal to be remunerated with newly created XTZs. This avoids the related tragedy of the commons related to the remuneration of free protocol developers like Tezos.

Teams and partners

Tezos stems from the vision of Arthur Breitman, who co-founded the project with his wife, Kathleen Breitman.

Arthur is a former computer engineer and mathematician who worked in the financial industry (Morgan Stanley, Goldman Sachs). He carefully followed the evolution of Bitcoin, and in 2014, decided to develop Tezos by publishing his white paper under the pseudonym LM Goodman.

Kathleen also comes from the financial industry and has worked for renowned companies like Bridgewater Associates and R3. She is currently in charge of a playing and collecting card game called Emergents , which is developed on Tezos.

Both occupied for a long time the respective positions of technical director and general director of the project.

Beyond the two founders, the Tezos ecosystem is very diverse. On the development side, there are three independent teams:

  • Nomadic Labs , a team of developers based in Paris, France.
  • Cryptium Labs , a company of staking based in Switzerland which contributes, among other things, to the development of Tezos.
  • Development Team of programming language  LIGO

For its public relations, Tezos has a foundation, the Tezos Foundation , based in Switzerland which works with funds obtained during the ICO. This foundation makes it possible to forge many partnerships, especially in France, but not only. Among the collaborators of Tezos, we find:

  • Chainlink , the decentralized oracles project.
  • INRIA , a French research institute.
  • BTG Pactual , the largest investment bank independent from Latin America.
  • Dalma Capital, a Dubai-based asset manager.
  • Andra Capital , a San Francisco venture capital firm.

It should be noted that several French organizations have chosen Tezos to experiment with applications:

  •  Gendarmerie Nationale , to make payments in relation to Europol.
  • The Société Générale , with the aim of developing a central bank digital currency prototype (MNBC).
  • The town hall of Verneuil-sur-Seine , in order to experiment with electronic voting (the experiment was nonetheless unsuccessful).

Conferences (in person and online) and other events are organized by Tocqueville Group .

The evolution of Tezos

Tezos is a registry capable of self-amendment through its system of governance. During its existence, it has thus undergone a number of upgrades which have made it more efficient. Here is the list of Tezos upgrades:

Version of the protocolMajor changesApplication dateBlock height
Alpha I (001)Original protocol.30/06/20181
Alpha II (002)Fixing bugs.21/07/201828 083
Alpha III (003)Fixing bugs.27/11/2018204 762
Athens A (004)Increased gas limits and decreased wad size.30/05/2019458 753
Babylon 2.0.1 (005)Algortihme Emmy, improvement of Michelson, the account system and the quorum formula.+18/10/2019655 361
Carthage 2.0 (006)Increased gas limits, various adjustments.05/03/2020851 969
Delphi (006)Various optimizations.12/11/20201 212 417
EDO 2.0Various improvements13/02/20211 343 489

Further improvements to the protocol are planned for the future. 

Advantages of Tezos

  • A contract programming language (Michelson) that lends itself to formal verification and which reduces the risk of bugs.
  • A proof of liquid stake model which, in addition to its contribution to scalability to the network, which allows small carriers to intervene indirectly in validation and to receive in exchange a part of the monetary creation.
  • An internal governance system which makes Tezos a DAO and which reduces the risk of a litigation fork.

Disadvantages of Tezos

  • A lower network effect than its competitor Ethereum, whether in terms of use, application development or public recognition.
  • A proof of stake system that can lead to a concentration of power of selection of transactions and governance decision, especially because of exchange platforms which are the biggest bakers .
  • Internal governance which, like any system of the same type, could be subject to external pressure in the future.

How to buy the Tezos tez (XTZ)?

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Get Tezos with Coinbase

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Since its inception in 2012, Coinbase has built a reputation as a solid and securecrypto-stock exchange. It quickly became the most popular U.S. cryptocurrency offering the purchase and trading of cryptocurrencies against EUR by bank card or SEPA transfer.

Coinbase is often the preferred choice of crypto-investors who want to buy Tezos or other cryptocurrencies for the first time. The interface is intuitive and easy to use.

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How to store your XTZ?

The safest way to store your Tezos project tokens is to use a hardware wallet . The easiest way is to use a wallet like the Ledger Nano S or the Ledger Nano X : these natively support the tez (XTZ) and allow to receive and send from the official app, Ledger Live.

Alternatively, you can also store your XTZs on a software wallet. A list of available and up-to-date wallets can be found on the tezos site .com .

Review of Tezos and  XTZ token

Tezos is a promising blockchain project which tries to solve the problems encountered by projects of the same type like Ethereum, in particular by its programming language allowing to write secure smart contracts, by its system of liquid proof of stake or through its governance model.

However, for the moment, the project is still small compared to some of its competitors, whether in terms of its community or the development of decentralized applications.

 

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