Crypto Insights: What is Tezos?

by | Sep 5, 2022

Tezos is a Liquid Proof-of-Stake(LPoS) blockchain network that’s based on smart contracts, in a way that’s not too dissimilar to Ethereum.

However, there is a big difference. Tezos aims to offer infrastructure that is more advanced — meaning it can evolve and improve over time without the need for a hard fork. This is something that both Bitcoin and Ethereum have suffered since they were created. People who hold XTZ can vote on proposals for protocol upgrades that have been put forward by Tezos developers.

Arthur Breitman was the man who wrote the Tezos white paper in 2014 entitled ‘Tezos — a self-amending crypto-ledger’  under the pen name L. M. Goodman. He argued that one of Bitcoin’s biggest failings was the lack of a governance process that invited contributions from the community who use the network — as well as the fact that new tokens couldn’t be issued through this blockchain.

He and his wife Kathleen founded a start-up called Dynamic Ledger Solutions which was tasked with writing the code that would be the foundation of the Tezos protocol. This company was subsequently purchased by the Tezos Foundation to ensure that it owned all of the intellectual property rights relating to the network.

Liquid Proof-of-Stake (LPoS)

Delegated Proof-of-Stake is often criticised for its lack of decentralization. Tezos has a unique solution for this, which they duped Liquid Proof-of-Stake.

In LPoS, a validator is called a “baker” or an “endorser“. As opposed to DPoS, any user can become a validator if he has enough coins. If he doesn’t, then he has the choice to delegate. The idea is to dilute even more of the activity and to increase inclusion. The focus is more on governance liquidity rather than the network’s scalability.

The two roles of delegates are simple:

  • Bakers: create blocks
  • Endorsers: agree on blocks

The needed quantity of Tezos coins to bake or endorse, is a useful parameter. Increase it to discourage Sybil attack and 51% attacks, decrease it to coordinate cartels or coalitions dissolutions.

A validator needs 6,000 to take part in the consensus, which will soon to be lowered to 2,000ꜩ. However, as in DPoS, the reward probability is still proportional to the invested amount. The baking time has cycles, and the tokens are still frozen as bonds during this process.

Tezos Adoption

Tezos has been around for some time now, but only in the past couple years have we really begun to see products built on the platform.

One of the most recent notable projects using the Tezos blockchain is the Electis voting system.

Per multiple reports, three UN organizations have adopted Tezos’s e-voting solution, Electis. Since its inception, Electis’ popularity has continued to grow. Various organizations have adopted its use to conduct fair and open-source elections. The most popular of such organizations have been government agencies and non-profit organizations. – Source

Tezos also teamed up with Redbull last year to build out Redbulls Racing NFT space. Also, French bank Societe General is using Tezos to experiment with digital state backed currencies for the Bank of France.

You can see the extensive list of projects currently being built on Tezos here

Tezos Technicals

Tezos has already had a very turbulent ride in terms of price. With an ICO buy in price of $0.47 per Tez, launch price of around $3 which soon plummeted to as low as $0.43 a year later, peaks of $9 in last year’s bull run and then, back to where we are now at a price of just $1.80, well, initial investors aren’t exactly experiencing a typical crypto return like seen with Polygon, Binance, Ethereum or Bitcoin. In fact, Initial investors are only 280% up on their investments!

That’s peanuts in crypto!

But this largely underwhelming investment does give it a little backbone. It hasn’t been as over-speculated as many cryptocurrencies out there. The coin was launched at a relatively high price in the first place, keeping many speculators away. However, overtime, as the project has developed and found adoption, price discovery has settled not a million-miles from its ICO launch price.

I suspect, at least in terms of its value against Bitcoin, the bottom is in. Ranked at number 39 on coinmarketcap at the time of writing, Tezos has plenty of room for growth as one of the leading smart-contract platforms.

Along with Polkadot & Solana, Tezos deserves to be second or third in line behind Ethereum by market capital in the first-layer smart-contract space.

Though on the topic of Solana, recent security issues may cause us to reorganize our allocations a little on the First-Layer portfolio. More on this in the next newsletter, when we may know more on what has caused the recent Solana exploit leaving millions of dollars’ worth of Solana drained from hot wallets.

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