What is Tezos?
Hey Crypto Swami fans. Who remembers the ICO boom? This is when thousands of other crypto alt coins appeared and began raising money like wildfire. Tezos was no exception, raising a whopping $232M in July 2017. Tezos went on to persevere the bear market and had a strong year in 2019 which saw the Tezos price breakout to all-time highs of $3.
80 in February 2020.
Let’s dig into the hype. What is Tezos? and how does Tezos work? Tezos is a smart contract and decentralized application platform. A smart contract is a self-executing contract with the agreement terms written directly into the line of code. Once the terms of the agreement are met, the smart contract can execute based on what is already included in the code.
Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Tezos has its own native smart contract language called Michelson. Michelson facilitates formal code verification by mathematically proving the properties of a program such as smart contracts. This sounds a bit circular, but the security improvement helps avoid costly bugs and contentious debates.
Before we take a look at the differences between Tezos and other blockchain networks, Share Crypto Swami on Social Media for weekly videos and crypto news. One major difference between Tezos and other smart contract platforms, such as the popular Ethereum network, is that it is secured and ultimately managed by Tezos bakers. Bakers are like miners in the Bitcoin or Ethereum network. They secure the network, verify transactions, and distribute block rewards.
Instead of physically mining the blocks with expensive hardware, this process is done virtually on Tezos through a mechanism called DPOS or Delegated-Proof-of-Stake. According to stakingrewards.com, Bakers earn about 6.37% annually. XTZ holders can qualify to be a baker as soon as they have 8,000 XTZ, otherwise known as a roll in the Tezos lexicon.
If you don’t have 8000 XTZ or don’t want to deal with the complexity of baking, don’t worry. You can still benefit from Tezos staking. Tezos cryptocurrency holders can also delegate their coins to a baker and earn between 5-6% per year through Tezos staking, making it one of the highest returns on investment amongst staking coins in crypto. But Tezos is more than your typical Proof-of-Stake blockchain.
Tezos aims to be completely modular and upgradeable without needing hard forks. That means the Tezos blockchain can implement new changes to the network without forking, or splitting into separate chains. To add some context, let’s take a look at one of the most popular networks that’s had many forks. The Bitcoin community has had differing perspectives on certain aspects of the network. These differences have in some cases led to the forking, or spitting, of the original Bitcoin code.
And what we have now are bitcoin forks such as Bitcoin Cash, Bitcoin Diamond, Bitcoin Gold and well, there’s others as anyone can fork Bitcoin since the code is public.
The point is, disagreements can divide communities & miners. Tezos attempts to solve for disagreements that lead to splits by letting network participants, the bakers, decide on protocol changes via four different voting periods.
Only the bakers can cast a vote, so if you delegate XTZ to a baker and don’t agree with their stance, you can delegate to a different baker who aligns more with your values. In other words, bakers who don’t vote in alignment with the views of those who have delegated their tokens to them, get punished with reduced delegation power as stakeholders delegate elsewhere. This is why Tezos’ governance is called Delegated-Proof-of-Stake.
In traditional proof-of-stake systems, each individual token holder can participate in the governance process. However, with Tezos, bakers cast votes on behalf of the delegated XTZ. Bakers are also the only Tezos network participants who can propose a protocol upgrade. So how does the Tezos upgrade process work? The first phase of voting is the proposal period.
Any baker can submit a proposal to upgrade or alter the Tezos network. The most well-received proposal then moves onto the exploration period. If the proposal gets enough votes there, it moves to the testing period. A testnet is created for each proposal in the testing period to ensure that the proposal is safe, secure and functions properly. A testnet is essentially a sandbox to see the proposed features in action before deciding if they’re worth making a part of the protocol.
The fourth and final stage is the promotion period, where if the proposal receives enough votes in the testing period, it is then deployed to the tezos mainnet. This period requires participation from at least 81.39% of XTZ rolls, which ensures that a majority of network participants are both participating and in favor of the proposed upgrade. As you can see, decentralized decision making is a fundamental part of the tezos network. You may be asking yourself, this sounds really complicated, does it even work?
YES! As an example, in 2019, A Tezos developer group by the name of Nomadic Labs proposed that holders should only need 8,000 XTZ to become a baker as opposed to the initial requirement of 10,000 XTZ.
This proposal, dubbed Athens A, initially surfaced in February 2019 and took over 3 months of onchain voting before the community ultimately decided to push this proposal to mainnet, a monumental moment for both Tezos and the crypto community at large. If you want to take part in Tezos and are looking for a Tezos wallet, Exodus has you covered. Click the link above to download an easy to use Tezos wallet. You can even exchange other cryptocurrencies for Tezos directly inside of Exodus.
What do you all think about Tezos?
Do you believe a blockchain can be modular and upgradeable while being governed exclusively by its stakeholders? Share your thoughts in the comments below. And if you want to see more videos about Tezos or other cryptocurrencies, like this video and subscribe to the channel. Until next time, Hodl on..