Tezos is a smart contract platform that lets its community vote and implement changes on-chain so that the blockchain can “upgrade itself” without the need for hard forks.
And because Tezos is written in smart contract language Michelson, developers can also formally verify (read: mathematically prove) the properties of their contracts.
Tezos’ consensus mechanism also allows some token holders to “delegate” their coins so that they can split rewards with block-makers without transferring token ownership.
How does Tezos work?
Tezos uses its own consensus algorithm called Emmy, which is a Liquid Proof of Stake (LPoS) mechanism. LPoS works a lot like Delegated Proof-of-Stake (DPoS) except token holders who choose to delegate their coins can also take them back from block-makers at any time (i.e., no lock-up periods).
As in other PoS systems, LPoS validators – or “bakers” in Tezos speak – are selected by the amount of XTZ they have locked in the network. Bakers at the top of the priority list propose blocks to be approved by 32 random roll owners before they’re finalized.
Bakers need at least 1 “roll” or 8,000 XTZ to participate and those who stake more rolls have higher chances to make blocks and earn rewards.
Those who have less than 8,000 XTZ or those who have them but can’t run a node can delegate their tokens and share block rewards with a baker. Though delegating does not transfer ownership, delegated coins are prone to slashing in case their baker approves invalid transactions.
Tezos’ self-amendment involves bakers voting on proposed blockchain changes where 1 roll = 1 vote. The process consists of five voting periods lasting five baking cycles each. This translates to roughly 2 months and 10 days from proposal to adoption.
The proposal period is when bakers can submit proposals or “upvote” up to 20 proposals. The exploration period asks bakers to vote “Yay,” “Nay,” or “Pass” on top-ranked proposals. Proposals that get 80% of participating votes reach the testing period where they are run on a testnet fork that runs parallel to the mainchain for 48 hours.
The promotion period allows voters to evaluate the proposal’s performance during the testing period. Proposals approved by 80% of the participating voters enter the adoption period when developers get time to adapt their code before the protocol is activated.
Failure to proceed in any period restarts the process.
Tezos was conceptualized by Arthur Breitman, a mathematician and computer scientist with experience in the financial sector. He wrote the whitepaper under “L.M. Goodman” in 2014 to address Bitcoin’s lack of on-chain governance process and token creation capabilities.
Breitman and his wife Kathleen established Dynamic Ledger Solutions (DLS) in 2015 to develop Tezos’ code.
After some drama with the foundation president in Switzerland and an “Is it an asset or a donation?” ICO brouhaha with the U.S. SEC, the Breitmans have regained some control of the foundation and have restarted project development in 2018.
Switzerland-based Tezos Foundation currently oversees the promotion of the Tezos protocol. Arthur Breitman remains a member of the Foundation Council though not the Executive Committee that has operational duties.
- Boost VC
- Blocktree Capital
- Draper Associates
- Polychain Capital
- Winkelvoss Capital Management, LLC
What is the XTZ token?
Tezos’ native token XTZ (ꜩ) is widely called “tez” or “tezzy” in Tezos’ community.
Tez is mainly used as a utility token. Bakers stake their tez to approve blocks and protocol changes. Other tez holders can also delegate their XTZ to participate in securing and improving Tezos’ protocol.
XTZ can be traded in major crypto exchanges like Binance, Coinbase, and Huobi and can be stored in major wallets like Ledger, Trezor, MetaMask, and others.
- Current # of “bakers”: 416
- No max token supply
- Liquid (unfrozen, unclaimed) supply: 920.8M XTZ
- Total supply: 913.5M XTZ
- Inflation rate: ~4.02%