What is Tezos? Your ultimate guide

The Tezos blockchain and its associated cryptocurrency, XTZ, differ from the norm in several ways

Tezos                                 
Tezos is getting a lot of people talking, but what is it? – Photo: Shutterstock
                                

The tezos coin, XTC, is the cryptocurrency that is based on Tezos, a so-called self-amending blockchain.  What is Tezos, and how do it and XTC work? 

Tezos blockchain

Tezos is the blockchain that, ultimately, supports the tezos cryptocurrency. This means that tezos (XTZ) is the native token of the system and is therefore, technically speaking, a crypto coin, rather than a crypto token. While in some ways all blockchains are similar, they all have their own individual features that, at the end of the day, make them unique. Tezos, with its "self-amending" solution to one of the perennial problems that can dog cryptocurrencies, is no exception. 

One thing that any founders of a new blockchain or a new cryptocurrency will have to bear in mind is the possibility of a hard fork being supported by members.

A hard fork is a process whereby a blockchain makes all the transactions it had previously considered valid invalid, and all the transactions it had previously considered invalid valid. It is, in effect, a permanent modification on the blockchain. 

When a hard fork is put into place, users have to download and install an updated version of the software. That does mean, though, that the old version of the blockchain still exists, which can potentially lead to a new cryptocurrency. This makes it different from a soft fork, where a new protocol is established and the old one is deleted.

Hard forks as security measures

Hard forks can be implemented as a security measure to stop hackers stealing crypto, to fight bugs, or simply to make things more efficient. They can be controversial, though, because there will often be a significant number of holders of the crypto that do not want to hard fork. These people may then set up a new crypto based on the old way of doing things.

It seems the people behind Tezos were aware of this possibility, so they built something into their system which would help prevent a hard fork being put in place.

The programming behind the blockchain means that people who hold its native token, XTZ, have a vote on what happens to the system, and the results of votes are automatically implemented. The thinking behind this is that, since all changes are put in place automatically, hard forks will never happen – at least in theory.

This is partly down to how Tezos works. But it is also partly because, since people know what they are signing up for, they should be less likely to become disgruntled when things change and opt to stay on the old blockchain – in effect, set up their own new post-tezos cryptocurrency. 

Innovation in the tezos ecosystem

As the chain's white paper says: “Tezos can upgrade itself through an in-protocol amendment process without the need for a hard fork. Performing upgrades in this fashion accelerates innovation, reduces the likelihood of contentious splits and coordinates stakeholders within the Tezos ecosystem over a long period of time.

“For developers building on Tezos, upgradability provides a strong assurance that the protocol will operate smoothly long into the future. Tezos was built to stand the test of time.” 

One thing to note about hard forks is that, by definition, they usually come at a time of destability for the protocol that is making the hard fork. The fact that things have got to a stage where the protocol has to, in effect, become completely different is also an indicator of division within the system.

Boost for price of native tokens

If Tezos, as a blockchain, can avoid hard forks as much as possible and have system changes which are, as we will soon see, supported by at least 80% of the network's community there should, in theory, be more stability within the system. This would, theoretically, be good for the price of any native tokens. 

But it is not just the automatic putting in place of protocol changes that makes Tezos notable. There are other things that it does, too.

For instance, there are two parts of the blockchain. These are the shell, which is the part of the programming which changes itself based on user voting and works with transactions and administrating the network, and the protocol, which sends information to the shell. 

Those are the Tezos basics explained, but what of the tezos cryptocurrency?

Tezos (XTZ) crypto

 Most, but not all, blockchains use one of two methods of getting hold of coins.

The first one is Proof of Work, which involves a process called crypto mining. This uses computers to solve increasingly complex mathematical equations. This process has attracted some controversy because as the problems get ever more complicated, more computer processing power is needed, which uses more electricity and so, in most instances, produces more environmentally unfriendly carbon emissions.

The second process many blockchains use as an alternative to Proof of Work is called Proof of Stake. The idea here is that a blockchain’s users can lock the crypto coins they already have in a special wallet and, in return, they are able to add a block to the blockchain at some point. Staking in crypto is, again in theory, quite a bit faster than mining, meaning there are fewer roadblocks and bottlenecks. Perhaps more importantly, transactions are cheaper, too.

Liquid Proof of Stake

What is notable about Tezos is that the way users get tezos (XTZ) is through a modified version of Proof of Stake called Liquid Proof of Stake. The way this works is that users have to hold 8,000 XTZ cryptocurrency in order to establish themselves as a node on the system (or become a “baker”, in the terminology used by Tezos) which, in turn, allows them to take part in the governance of the blockchain.

 However, it is still possible for users who do not have sufficient tezos (XTZ) to become a baker to participate in voting. They can do this by delegating what tezos cryptocurrency they have to a baker who can cast votes on their behalf. Users can change which bakers they delegate their coins to, meaning the nodes have to remain honest and straightforward about what they are proposing.

The voting system involves four stages, separated by about 23 days each. These are;

  • The Proposal Period. Proposals are submitted by bakers and the ones with the most votes move forward.
  • The Exploration Vote Period. The previous proposals are voted on and suggestions that get 80% of votes in favour move forward.
  • The Testing Period. Successful proposals are tested for 48 hours to see if they work safely. If they do, then they move forward.
  • The Promotion Vote Period. Proposals that make it this far are put to a vote, and if 80% of users are in favour, they are implemented.
Tezos infographic
How changes to Tezos are voted on – Photo: Currency.com

People who invest in tezos may well do so because they find the idea of a blockchain which in effect protects itself against hard forks attractive. There are also a number of decentralised applications (or dApps) which use the chain, such as the decentralised insurance company Tezsure, which would also make the coin potentially attractive to investors. 

The role of Arthur Breitman

As far as the system’s history goes, Tezos was originally proposed by Arthur Breitman, who wrote the blockchain’s white paper under the name LM Goodman. Breitman, who had previously worked for Google and Waymo as a research engineer, chose the pseudonym apparently as a reference to the author of an article in Newsweek magazine which claimed to have tracked down Bitcoin founder Satoshi Nakamoto.

Breitman and his wife Kathleen set up a company called Dynamic Ledger Solutions to support the project’s development. The tezos (XTZ) crypto first went onto the open market in 2017. As of 22 November 2021, there were 867,900,067.59 XTZ circulating, or 96.79% of a total supply of 896,694,798, .

That is tezos explained. Before you rush to invest in the crypto, though, remember that cryptocurrencies can be highly volatile, that prices can go down as well as up, and that you should never invest more money than you can afford to lose. 

FAQs

As of 22 November 2021, there were 867,900,067.59 XTZ in circulation, out of a total supply of 896,694,798.

Tezos can be used as a stake to influence proposals to implement on the Tezos blockchain. It can also be bought, sold, and traded on exchanges.

You can buy tezos at a variety of crypto exchanges. We don’t have it at Currency.com yet, but we will let you know when we do. 

Further reading:

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