Understanding the Tezos Ecosystem in Depth
Whenever the topic of blockchain and cryptocurrencies comes up, the word mining is bound to appear. This is, however, not always the case, as proven by Tezos, the unique blockchain network that does not support mining of its digital token known as Tez (XTZ) or Tezzie.
Tezos rewards it, holders, with Tez for participating in the on-chain governance of the blockchain network using the Proof of Stake (PoS) consensus protocol.
Based in San-Francisco, Tezos wants to build an ecosystem better than Bitcoin or Ethereum by creating a platform that supports the development of a blockchain network with the ability to evolve.
This way, there is no need for hardforks which tend to divide the community and spread thin resources that could better be used collaboratively.
Tezos is a futuristic project, aimed at the long-term goal of complete decentralization. This guide will explain the features that make Tezos unique and help you to determine whether it is a worthy investment.
No More “Governance by Fork”
Tezos rewards users for maintaining a clean and inclusive consensus for their distributed ledgers through a formal process of incorporating and implementing future innovative ideas.
While most cryptocurrencies are built as perfect designs, Tezos blockchain is based on the idea that a distributed ledger system should be able to evolve.
Built to formalize governance surrounding innovation in cryptocurrencies, Tezos is quite similar to Ethereum, with the exception of its on-chain governance and programming language, the Michelson.
According to its co-founders, Arthur Breitman CTO and his wife Kathleen Breitman CEO, Tezos started as a fun project that he wanted to explore by making it a reality.
He wanted to do away with the problem surrounding the evolution of cryptocurrencies, which is mostly riddled with unfair control from the few and influential. Tezo’s goal, as he stated, was to create a cryptocurrency that would benefit from the extensive research being carried out by developers.
Tezos’ source code is owned by Dynamic Ledger Solutions (DLS), the company that Breitman registered in august 2015 in Delaware, under the pseudonym L.M Goodman. At the time, he was still working at Morgan Stanley and is alleged to have opted for the pseudonym to avoid compromising his position in quantitative finance at the company.
Tezos’ First ICO Was a Huge Success
Breitman left Morgan Stanley in April 216 to focus on Tezos and create another plan to raise capital for the project. His initial plan in 2015 has failed after his failure to get four banks to adopt Tezos technology and raise approximately $10 million in the first three years.
The idea for conducting an initial coin offering (ICO) was ready by September 2016, and both he and his wife managed to raise more than $600,000 from early investors, to prepare a presale.
The ICO, which was held by the famous Crypto Valley Association in Zug Switzerland, started on June 1, 2016, and in thirteen days managed to raise 66000 BTC and 361000 ETH amounting to 232 million, which made it the second-largest ICO after Filecoin. All the funds collected were held by the Tezos Foundation.
How Does the Network Evolve?
Tezos’ focus is on contract safety, open participation, and ability to evolve. To achieve this, Tezos uses a methodical approach to network upgrades so that all stakeholders can have a say in what happens to the network in the future.
Stakeholders determine what amendments should be made to the network with one Tez token carrying one vote.
Tezos uses on-chain governance and self-amendment to mitigate controversial hardforks, which means the network can be upgraded without a hardfork. The system’s Stakeholders can vote on proposed amendments and earn rewards in XTZ.
Tezos employs self-governance and self-amending, Liquid Proof of Stake consensus protocol, and formal verification smart contracts, which are written in Michelson, the stack-based, domain-specific language.
In Michelson, instructions are run in sequence, and each consequent instruction receives a stack from the previous one as its input. This makes it impossible for smart contract execution to fail since each stack has been previously successfully executed.
Developers submit their proposed network upgrades and request to be compensated for their effort.
The proposal gets tested on the testnet, where the community gives their opinions on observable strengths and weaknesses and proposes possible enhancements.
Once the vote is decided to implement an upgrade, the network undergoes a hot-swap, which involves adding the upgrade into the mainnet.
New XTZ Are created as Rewards for Baking
Instead of mining, Tezos uses baking, a process that verifies transactions, secures the network, and distributes rewards. Stakeholders also validate blocks on the network, which allows any stakeholder the opportunity to propose a block and earn a reward.
In baking, a stakeholder gains validation rights anytime they volunteer to validate blocks and a security deposit for their honest contribution. New Tez tokens are then created and used to reward baking participants after successful, including a new block or endorsing one.
Stakeholders have the option to either delegate their tokens in implicit accounts or delegate their validations rights to a different baker. More participation in the network results in more representation.
To further encourage baking, Tezos is designed to reward bakers more if the participation in validation decreases. For developers, the reward incentives create the perfect environment for innovative additions without having to contend with approval from centralized governance entities. They can pitch directly to the Tezos community without going through a third party or having a predetermined amount of Tez tokens.
Tezos Offers Two Account Options
To become part of Tezos community, you can create one of the two types of accounts available:
- An Implicit account is a simple account that has an owner and a balance. It starts with tz1 and is generated from a public key for the public address and a private key for each account. The account doesn’t also have a delegate, which must be set in order to delegate funds by transferring funds to the next type of account, and originated account.
- An Originated account doesn’t have a private key, but it is managed by the implicit account. It holds smart contract accounts, also referred to Originated accounts and starts with KT1.
Tezos’ Market Capital
Tezos ranks at #10 on CoinMarketCap with a price of $3.58, a marketing capital of $2.5 Billion, a 24hour trade volume of $2.9 million, and a circulating supply of 701399161 XTZ.
XTZ reached an all-time low of $0.3 on Dec 07, 2018, and a high of $4.46 on July 1, 2018.
Buying XTZ and Storage Wallet Choices
Tezos can be stored in both cold and hot wallets on the phone or desktop. The most secure hardware wallets include Ledger, Nano X, Ledger Nano S, and Trezor Model T.
- Desktop and mobile wallets include Galleon, Tezbox, Atomic and Exodus
- Hot wallets include Binance TezBox and Kukai.
Buying Tezos is easy as it is listed on several major crypto exchanges, including Binance, CoinbasePro, Bitfinex, Kraken, and gate.io.
To buy Tez, register with one of the above exchanges, preferably Kraken, and deposit fiat money in US dollars and exchange this for XTZ.
To buy XTZ using another cryptocurrency, register with Gate.io, Deposit BTC and use it to buy XTZ
Major Setbacks in Tezos Ecosystem
Blockchain technology developers are always facing challenges like capital, security breaches, hardforks, and run-ins with the law, due to the heavily unregulated nature of the young industry.
In this sense, Tezos wasn’t spared, despite being one of the projects to conduct a very successful initial coin offering amounting to $232 million. Shortly afterward, Legal issues and management disputes ensued, which caused investors and developers to abandon the network.
Disputes began between the Breitmans and the Tezos Foundation’s President at the time, Johann Gevers, which caused him to step down in February 2018, at which point Tezos board underwent a major reshuffling. Gevers is alleged to have refused to disburse ICO funds, and the dispute affected the ecosystem, causing decisions to be delayed.
In the same year, Breitman was fined $20,000 by FINRA for failing to report his involvement in other business activities while registering DLS. FINRA also barred Breitman from financial exchange activities until 2020.
Tezos’ Bounce back Moments and Achievements
After the rocky first quarter of 2018, Tezos later started to gain momentum and achieved some milestones including:
- Launching Betanet on June 30, 2018, as an inflection point, with baking open to its members and reward after the first three weeks.
- Tezos recently partnered with Dalma Capital and Banco BTG Pactual, the biggest investment bank in Brazil, in a $1 Billion deal for Security Token Offerings. (STOs).
- Tezos Foundation offers ecosystem grants of up to $100000 and is currently taking proposals for its third cohort.
Tezos Future, Should You Invest in Tezos?
Before you consider buying Tezos, understand that they are not stablecoins and, in that case, are not backed up by cryptocurrency, fiat currency, or any other store of value.
It is subject to the highly volatile nature of cryptocurrencies, which while it can be very lucrative, it also poses a huge risk on investment.
With that said, the current growth rate of Tezos tokens is estimated at 5.5% annually, which is supported by the start of 2020, which has seen an XTZ price increase by 6.6%.
Tezos has definitely started the year on a good high point. With such developer incentives and promise of an evolving blockchain, the network has the potential to attract more participants and innovations.
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