Tezos: Everything to Know

By  Beluga Research July 10, 2023

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Summary

  • Tezos is a decentralized blockchain platform designed to be "self-amending"
  • This means the network can upgrade itself without the need for a blockchain hard fork
  • Tezos is self-governed, meaning it is controlled by its own community of users
  • Users can participate in the validation of transactions and creation of new blocks by staking tez (XTZ), the native Tezos cryptocurrency

Overview

Tezos is a decentralized blockchain platform that was designed to be self-amending and self-governed that can evolve over time. It has the ability to support smart contracts, defined as self-executing contracts with the terms of the agreement between buyer and seller directly written into lines of code. Self-executing contracts allow for the creation of decentralized applications (Dapps) on the Tezos blockchain. The Dapps can be used for a variety of purposes, like decentralized finance (DeFi), gaming, and digital identity.

A Brief History

Arthur and Kathleen Breitman founded Tezos in 2014. The pair had a vision for a self-governed blockchain that could evolve over time. By 2017, the Tezos project had raised $232 million, in one of the largest initial coin offering (ICO) fundraises in history. However, the project was mired in controversy because of a legal dispute between the Breitmans and the Tezos Foundation. The Foundation had been set up to oversee the development of the platform.

Despite the setbacks, the Tezos Foundation launched the platform in 2018. Since that time, Tezos has gained a reputation for being a secure, flexible, and innovative blockchain platform. It has been used for a number of high-profile projects, including the development of a digital euro for the European Central Bank (ECB).

What is Tezos?

At its core, Tezos is a blockchain platform designed to be self-governed and self-amending. The platform can evolve over time without the need for hard forks or contentious upgrades. Tezos is built on a proof-of-stake consensus algorithm. Users can participate in the validation of transactions and the creation of new blocks by staking Tezos tokens.

Tezos is designed to be highly flexible and customizable. This is achieved through the use of formal verification, a mathematical technique which ensures that smart contracts are free from bugs and vulnerabilities. Formal verification is a rigorous process that involves mathematically proving the correctness of a smart contract. This makes Tezos a highly secure platform, as the verification process reduces the risk of hacks and exploits.

A key feature of Tezos is its ability to support multiple programming languages. This makes it easy for developers to build Dapps on the Tezos blockchain using their preferred programming languages. As a result, developers have created a vibrant ecosystem of Dapps on the platform. These include DeFi protocols, gaming platforms, and digital identity solutions.

Getting Started

  • Download a wallet. Users should download a wallet that supports the XTZ token, the native cryptocurrency of the Tezos network.
  • Choose a wallet. Tezos offers several wallets, including Galleon, TezBox and Ledger Live.
  • Acquire XTZ tokens . With a wallet, a user can acquire XTZ tokens on a cryptocurrency exchange like Binance or Kraken.
  • Participate in the Tezos network. Participation occurs through staking tokens, meaning holding XTZ tokens in a wallet and delegating them to a validator. The validator is responsible for adding new blocks to the blockchain.
  • Earn rewards. Validators are rewarded with newly minted XTZ tokens for their work. Delegators receive a portion of the rewards based on the amount of XTZ they have staked.

Unique Aspects

  • Self-Amending Mechanism. The mechanism allows stakeholders to propose and vote on changes to the protocol, including changes to the consensus algorithm. As a result, the Tezos network can evolve over time without creating separate chains and disrupting the ecosystem.
  • Liquid Proof of Stake Consensus Algorithm (LPos). The LPoS aims to provide a balance between security and decentralization. It allows users to delegate staking power to validators without giving up control of tokens. Validators are randomly selected to create new blocks.
  • Focus on Governance and Community Involvement. The Tezos Foundation, a non-profit organization based in Switzerland, is responsible for funding development and promoting the growth of the Tezos ecosystem. The foundation works closely with the Tezos community to ensure that the network meets the needs of its users.

Advantages

  • Governance. One of the main advantages of Tezos is its governance model. Tezos allows token holders to vote on proposals for upgrades to the protocol. The community has a say in the direction of the platform and can make decisions about its future.
  • Self-Amending. The Tezos platform has a built-in mechanism for proposing and implementing upgrades to the protocol. As a result, the platform can evolve over time without the need for hard forks, which can be disruptive to the network.
  • Formal Verification. Tezos uses formal verification to ensure the correctness of its smart contracts.
  • On-Chain Governance. The Tezos network has an on-chain governance system that allows token holders to vote on proposals. Decisions about the platform can be made in a transparent and democratic way without the need for off-chain discussions or negotiations.
  • Low Transaction Fees. Tezos has relatively low transaction fees compared to other blockchain platforms. This can make it more affordable for users to interact with the platform. It also makes it more attractive for developers to build applications on top of the platform.

Disadvantages

  • Centralization. Tezos is relatively centralized. The platform is controlled by a small group of stakeholders who have a significant amount of influence over the direction of the platform. This can make it difficult for the community to have a say in the future of the platform.
  • Slow Adoption. Tezos has been slow to gain adoption compared to other blockchain platforms. This may be due in part to the relatively high barrier of entry for developers. It may also be due to the platform's relatively small user base.
  • Legal Issues. Tezos has had a number of legal issues in the past, including a class-action lawsuit alleging that the ICO constituted an unregistered securities offering. As of 2023, these issues have largely been resolved. Yet there may have been damage to the reputation of the platform, making it less attractive to potential users and developers.
  • Limited Ecosystem. Tezos has a relatively small ecosystem compared to other blockchain platforms. There may be fewer applications and use cases for the platform. That could limit its potential for growth and adoption.