Cryptocurrencies
14
Apr
tezos

This website has affiliate links. We may receive compensation if you visit partners we recommend. Read more about our advertising principles from the About Us page.

What is Tezos (XTZ)?

Tezos (XTZ) is a cryptocurrency platform for smart contracts and decentralized applications. Launched in 2018, it features a self-amending blockchain and on-chain governance, allowing token holders to propose and vote on upgrades. With a unique approach to staking and delegation, Tezos aims to offer a secure and efficient infrastructure for decentralized applications and continuous innovation.

What is Tezos (XTZ)?

Tezos (XTZ) is a cryptocurrency platform for smart contracts and decentralized applications. Tezos was proposed in 2014 and developed by Arthur Breitman and Kathleen Breitman. The platform officially launched its mainnet in September 2018 after a successful initial coin offering (ICO) that raised substantial funds.

The popularity of Tezos peaked in 2019-2020 because it was easy to stake the Tezos token and earn yield. Tezos staking was supported by Coinbase and Ledger, which made the cryptocurrency very popular among investors. Tezos lost its popularity when staking of other tokens became common, too, in 2021.

The native token of the Tezos platform is also called Tezos. It uses the ticker XTZ or the symbol ꜩ. XTZ is used for staking, governance, and paying transaction fees in the Tezos ecosystem.

The table below has basic information about Tezos:

FeatureInfo
Founder Arthur Breitman
Mainnet launched September 16, 2018
Category Smart contract platform
Ticker XTZ
Circulating supply 950 million XTZ
Max supply Unlimited
All-time low (date) $0.3146 (Dec 7, 2018)
All-time high (date) $9.18 (Oct 4, 2021)

You should note that there is no maximum supply set for the XTZ token. It grows every year due to inflation. View the real-time price of the XTZ token from here: Tezos price.

One of the unique features of Tezos is its self-amending blockchain. This means the platform has an on-chain governance mechanism that enables it to upgrade and evolve without hard forks. Tezos token holders can participate in decision-making by proposing and voting on protocol upgrades, making it a more flexible and adaptive blockchain system.

Tezos aims to provide a secure and efficient infrastructure for decentralized applications, smart contracts, and tokenization. Its self-amending governance mechanism seeks to address some of the challenges other blockchain projects face and promote continuous innovation and improvement.

Many football fans recognize the Tezos logo from the Manchester United training kit. Tezos landed a multi-year sponsorship deal with the legendary football club in 2022.

The History of Tezos

Tezos project was founded by Arthur Breitman, who’s educated in applied physics and maths. He moved from France to the US in the early 2000s to study quantitative finance. Breitman also worked in the well-known investment bank Morgan Stanley.

Arthur’s wife, Kathleen Breitman, has been heavily involved since the beginning. The couple (pictured below) met in 2010 at an anarcho-capitalist event. Kathleen and Arthur Breitman still give a face to the whole project.

tezos breitmans

Arthur Breitman has been involved in the crypto scene for a long time. He was visioning a way to govern Bitcoin already in the early 2010s.

Things started in 2014 when Vitalik Buterin published the Ethereum white paper. Arthur Breitman went through the Ethereum program code and noticed that Buterin’s vision was close to his own.

However, Breitman didn’t like the governance system of Ethereum. He felt that the project should be governed by its community, which would eliminate the need for hard forks. Arthur Breitman published his white and position papers with the alias L.M. Goodman in 2014.

Most importantly, Tezos supports meta upgrades: the protocols can evolve by amending their own code. To achieve this, Tezos begins with a seed protocol defining a procedure for stakeholders to approve amendments to the protocol, including amendments to the voting procedure itself.

Breitman tried to get funding for his vision from multiple sources, but his ideas didn’t receive much appreciation.

Tezos ICO and the recent drama

Arthur Breitman worked at Morgan Stanley until 2016. During this time, he also founded Dynamic Ledger Solution, which owned all the intellectual properties of Tezos.

In 2016, Breitman finally resigned from the banking world and planned an ICO for Tezos. He got 612,000 dollars of pre-ICO funding, partly used to start the Tezos Foundation in Zug, Switzerland.

Despite this funding, Tezos ran badly out of money long before the ICO. They were saved by Tim Draper, who invested 1.5 million dollars and brought a lot of credibility to the project. If you are unfamiliar with Draper, he’s been an early investor in Skype, Tesla, Coinbase, Twitch, and many other tech projects.

Tezos eventually had their ICO in July 2017, near the ICO boom’s peak. Tezos received 66,000 BTC and 361,000 ETH, valued at 230+ million dollars. Tezos ICO is still one of the biggest ever had.

Next, Breitman’s Dynamic Ledger Solutions company was supposed to sell all the intellectual properties to Tezos Foundation. This is when things got ugly. A massive argument broke off between Breitman’s company and Johann Geevers, the head of the Tezos Foundation at the time.

This fight was eventually settled, but more drama was around the corner. Tezos was investigated by the SEC due to the inadequate KYC/AML process. SEC forced Tezos to implement KYC for all XTZ token holders, which made many people angry.

Arthur Breitman was also fined by The Financial Industry Regulatory Authority (FINRA) in 2018. According to FINRA, the 20,000 USD fine was due to Breitman not reporting any outside business activities while working at Morgan Stanley in 2014 and 2015. This was the time he was also pitching Tezos.

Hence, one could say there have been more than enough headwinds in the early stages of this project. If you want to learn even more, check out this article by the Wired magazine.

Tezos was able to launch its beta net in June 2018. The project took off in 2019 when Coinbase and Ledger supported the staking of XTZ. Tezos gained hundreds of value percentages and moved close to the top 10 in the cryptocurrency market cap list.

Tezos’ formal verification

How does Tezos differ from Ethereum and other platforms? Two things make Tezos famous and separate it from the crowd: formal verification and governance. Let’s check the former first.

Tezos offers a bit different framework for software developers compared to other platforms. It uses a unique programming langue for writing Dapps and smart contracts called Michelson. For example, Ethereum has Solidity, while other platforms support different languages.

Formal verification is why Tezos uses Michelson as the programming langue. This is a mathematical way to verify a program code. It is a heavy method, which is why it’s normally used in real-world applications where human lives might be in danger (medical applications, nuclear power plants).

In formal verification, the program code is verified with a mathematical model. This helps to eliminate all logical errors from the code. Traditionally, program code has been checked by a human (the programmer himself), who always has a limited capacity to find errors.

Verifying the program code is critical, especially with smart contracts. The whole idea of a smart contract is that it cannot be altered once it’s deployed on the blockchain. If there is a vulnerability, you cannot just stop and change a smart contract. This is why formal verification is valuable.

The Tezos ecosystem, the framework for smart contracts, is built with the OCaml programming language.

The community governs Tezos

The governance model of Tezos is perhaps its most interesting feature. Some say that Tezos is like Ethereum and Dash put together. If you aren’t familiar with Dash, it is a cryptocurrency controlled 100% by its network (community).

As mentioned earlier, Arthur Breitman envisioned an ecosystem that wouldn’t need hard forks. This could be achieved through an on-chain governance system. In other words, XTZ token holders will decide.

Tezos community members are making proposals for new features. These include technical specs, and they can also include proposals of funding. Then it’s up to the community (= XTZ holders) to vote. If you want to know more about this process, see the following video.

XTZ token holders are also taking care of the Tezos blockchain maintenance. This is because Tezos is using the popular Proof of Stake consensus algorithm. There are debates about whether Tezos’ consensus should be called DPoS (Delegated Proof of Stake), the same that EOS and TRON are using. There is a slight difference, though.

Dan Larimer, the founder of EOS, developed DPoS. In this system, there is a small number of validators called delegates. You could see them as representatives or government officials. Each token holder can cast their votes on any of the delegates.

In Tezos, you can become a validator after holding 8000 XTZ tokens. The idea is similar to other PoS systems: validators are always required to stake a certain number of tokens, hence the name “proof of stake.”

Tezos differs slightly from its competitors. In this system, XTZ tokens are locked in, and the holder will be paid interest. It works almost like a bond. This is why the Tezos consensus is sometimes referred to as bond-PoS.

Tezos, however, calls their consensus algorithm Liquid Proof of Stake (LPoS). The video above will explain this in more detail.

Tezos staking and baking

Staking is the main reason behind the rise of Tezos’ popularity. It is connected to blockchain maintenance and the previous chapter as well. There is a catch, though. Tezos has decided to call staking baking. You’ve become a baker if you are one of the validator nodes staking XTZ tokens.

To be a baker in the Tezos ecosystem, you need to bake (= stake) 8000 XTZ tokens. This amount of Tez is called a roll. After this, you need to run the Tezos software on your server. The same basic principle applies to other PoS systems too.

These validator nodes, or bakers, take care of blockchain maintenance. It means they accept and validate new transactions and create new blocks to the Tezos blockchain. As a reward, they get XTZ tokens. You can find active Tezos bakers at mytezosbaker.com.

tezos bakers

As you can see from the image, bakers receive about 5.5 to 6.2 nominal yields for their staked coins. The more tokens you stake, the more rewards you get.

Now we must also talk about delegation. Even if you’d own just 10 Tez, you can still receive block rewards. This is possible by delegating your XTZ tokens to one of the active bakers. The validator takes about a 10-15% cut for himself and gives you the rest of the rewards.

A baker (validator) for each block is chosen randomly. The reward is 16 Tez + 2 Tez for 32 verifying block bakers. This means 80 new XTZ tokens are born every minute when a new block is baked.

Delegating XTZ tokens has become very popular. This is also because some popular exchanges and wallets started to support Tezos’ delegating in 2019. For example, you can delegate your tokens in Coinbase, Ledger Nano X, or TrustWallet.

The best part of delegating is that your tokens never leave your wallet. You don’t have to trust a third party to hold your precious XTZ while delegating. However, your tokens will be locked, so you can’t move them anywhere during this process.

Tezos is an inflammatory cryptocurrency, like Ethereum as well. The yearly inflation is currently a bit over five percent. Therefore mytezosbaker.com shows two yields: nominal and real yield. The latter shows the actual yield after inflation is deducted.

Tezos Scaling with Marigold

Every blockchain project has its positive and negative sides. Tezos offers many interesting features, but the system also has one clear weakness. That is the TPS number, meaning Transactions Per Second.

If you want to move your Tez from Ledger Nano to Coinbase, you must wait for a full confirmation for about an hour. This is due to two factors: Tezos has a relatively long block time (1 minute), and Coinbase requires up to 60 confirmations from the network.

One-minute blocks are slow compared to Ethereum, which has about 12-15 second blocks. Tezos achieves about 40 TPS right now. This is much better than Ethereum, but it’s poor compared to other 3rd generation platforms. Tezos is also intentionally limiting the network capacity, but even without limitations, it couldn’t go past 80-100 TPS with a current setup.

Tezos plans to solve this issue with a Layer 2 solution called Marigold. It is based on Plasma, a solution presented by Ethereum founder Vitalik Buterin in 2017. If you want to know more about Plasma, see the following video.

Plasma makes it possible to split the computing power and capacity that smart contracts and Dapps need to multiple sidechains. Hence, they won’t clog the main chain and eat all the transaction capacity.

You are not far off if this sounds like the Lightning Network for Bitcoin. LN is a payment protocol, though, but the purpose is similar. All microtransactions are moved from the main Bitcoin blockchain to another layer, which can be processed almost in real-time.

Marigold requires a lot of resources, and Tezos needs to develop a whole new programming language for that. This is called Ligo. Cryptium Labs currently do the work, and the project is titled Babylon.

An Overview of Tezos

Tezos is an interesting project with a long history. You could say it’s a child of Arthur and Kathleen Breitman. Tezos had many issues in 2017 and 2018, but the project is moving forward and gaining popularity very fast.

Tezos also offers something different. It hasn’t threatened Ethereum yet, but many believe it could be a big player in the STO market.

STO is nothing new; there has been discussion about it for several years. In practice, STOs can be real-life instruments tokenized onto the blockchain. This could be stocks, real estate, art, or anything of value.

When a financial instrument is tokenized, you could think of it as converting a piece of real estate to millions of tokens. This would allow any small investor to buy one or ten tokens and own a small fraction of the property.

The previous video explains what advantages Tezos could have in this field compared to EOS and other competitors.

As mentioned, Tezos has become very popular through its staking, baking, and especially delegating. Since Coinbase and Ledger Nano added delegation features, XTZ price has more than tripled. The more people you have staking and delegating, the fewer tokens available in the market, which helps to create scarcity.

We should also remember that Tezos has a huge war chest from their successful ICO.

AboutBitcoin Team

Hey! We're the AboutBitcoin squad, a team of crypto lovers who've been all about cryptocurrency since 2017. Every week, we drop the latest news and cool insights from the crypto world. Come hang with us as we dive into the crazy, ever-changing scene of cryptocurrencies – it's gonna be an awesome adventure!