What Is Tezos?
| KEY TAKEAWAYS: |
| — Tezos is a decentralized self-upgradable blockchain with a unique governance system, and protocol design. — It uses its native currency, XTZ, to allow users to vote on changes, and depending on the outcome of the vote, the network automatically upgrades itself. — Tezos has a thriving ecosystem including multiple DeFi protocols, blockchain games, and most notably, hosting NFT platforms covering multiple genres. |
Blockchain technology is always evolving — just look at the history of web3 innovations such as decentralized finance or NFTs. Many blockchains wish to evolve along with the tech, but changing how a blockchain works is no easy feat. In fact, it usually takes years, if not decades to implement changes to Web3 blockchain networks. Simply put, most blockchains are limited by their long governance processes and the sheer size of decentralized networks.
Tezos blockchain attacks this in a unique way. First proposed in 2014, it integrated governance concepts directly into its protocol. Plus, its cheap and fast transactions make it a good option for beginners.
But what is the Tezos blockchain and how does it work? Let’s explore how its ecosystem became popular for creatives.
What Is Tezos?
Tezos is a self-amending open-source blockchain that enables peer-to-peer transactions and smart contracts. Unlike other blockchains, It allows users to vote on protocol changes, and the software automatically updates the rules across the entire chain without any additional steps. This is in direct contrast to other blockchains, where users need to update their mining or staking software to remain in sync with the network.
Tezos native cryptocurrency, called Tez (XTZ), also known as “tezzie,” enables the voting mechanism. For a primer on what cryptocurrencies actually do, check out this article on what cryptocurrencies are.
Interestingly, the origin of the name “Tezos” is unclear. Some sources suggest that it might have come from the ancient Greek word “τέζος, which roughly translates to “clever contract.” Others suggest the founder simply wanted to find a name which was unique, unclaimed and memorable — Tezos fit the bill, so he just went with it.
The History of Tezos: Who Created It?
Arthur Breitman, a former engineer at Google X and Waymo and his wife Kathleen Breitman, a former employee of the Bridgewater Associates and R3, are the founders of Tezos blockchain.
In 2014, Arthur wrote the project white paper under the pseudonym “L.M. Goodman.” The paper addressed a common issue faced by Bitcoin – protocol development and upgrades.
You see, Bitcoin was getting popular in 2014, leading to development interest. However, many developers had differing views on fundamental protocol features. But blockchains like Ethereum or Bitcoin use hard forks to make any major protocol change.
To explain, each time a blockchain uses a hard fork, it creates a new chain. This means that outdated chains, like Ethereum Classic, still exist.
Arthur wanted to change that with Tezos. Born out of the desire for a more adaptable and democratic blockchain, It’s core mechanism self-evolves via community decisions without requiring disruptive hard forks.
In July 2017, Johann Gevers, a Swiss entrepreneur, along with the Breitmans set up the Tezos Foundation. The foundation raised $232 million in two weeks during its initial coin offering (ICO). However, post ICO, the project faced several management and legal issues until well into 2020. Despite these challenges, Tezos is now gaining momentum again, largely due to its unique staking mechanism.
How Does Tezos Work?
Like many other blockchains, Tezos uses a decentralized ledger and can execute smart contracts. To explain, smart contacts give it the ability to support blockchain apps and NFTs. In a basic sense, Tezos behaves like most blockchains. And if you don’t know how they work, check out the Ledger Academy article on what blockchain is.
However, Tezos was one of the first blockchains to adopt two innovations in the space: Proof of Stake and on-chain governance. Let’s look at how these core features have been crucial for Tezos’ adoption.
Understanding Liquid Proof-of-Stake
Tezos uses a consensus mechanism called liquid proof-of-stake (LPoS) to agree on valid transactions in the Tezos network. In LPoS, users “bake” (aka stake) XTZ, Tezos’ native token. These participants are called bakers. They are similar to miners on the Bitcoin network or validators on the Ethereum network. They secure the blockchain, verify transactions, and distribute block rewards. However, LPoS has some key differences.
Firstly, LPoS is inherently more flexible than typical PoS models, because there is no lockup period. Bakers can unstake their tokens anytime. What’s more: bakers can also directly vote on protocol changes by submitting proposals.
Understanding the Tezos Ecosystem
Defi
The Tezos blockchain’s quick and cheap transactions made way for a burgeoning ecosystem of DeFi apps and protocols, such as SpicySwap and Kolibri. These operate much like they do on other proof-of-stake blockchains.
Gaming
The tezos network also provides the support for blockchain games. Ubisoft decided to launch their own blockchain branch on it. Plus, one of the most popular blockchain games of all time is hosted on this chain: DOGAMÍ. This virtual pet game is still growing, as is the wider gaming community.
NFTs
Tezos is most well known for its thriving NFT art ecosystem. While the blockchain’s first NFT platform, Hic et Nunc, doesn’t exist any longer, there are now countless popular NFT marketplaces on the chain. For example, Objkt offers Tezos NFTs from a variety of different art genres. Then NFT marketplace fxhash has a cult following of generative art enthusiasts too.
Beyond that, the network also hosts NFTs from existing brands, such as MacLaren, RedBull Racing and GAP. Plus, it also has its own naming service; Tezos Domains.
You can also find Tezos NFTs on Rarible, one of the oldest NFT marketplaces in existence.
What Is the Tezos Crypto Coin? XTZ Explained
Tezos Crypto Coin, XTZ, is the native token of the Tezos blockchain and an integral part of the entire ecosystem. Network participants use XTZ to pay transaction fees, participate in the governance process and as a store of value.
Tezos (XTZ) Utility
One of the core use cases of the XTZ token is to become the network validator or “baker” in the Tezos protocol.
To become a baker, you currently need 8,000 XTZ tokens. However, users with less than 8,000 XTZ can also contribute by becoming delegates. Essentially, they give their baking rights to a baker to increase their chances of earning rewards.
Bakers can submit proposals for the community to vote on. Each proposal goes through a 4-phase voting cycle, about 23 days apart.
The first stage allows any baker to submit proposals. They can also propose multiple proposals, up to 20 each. In the second phase, the most popular proposals go through an exploration vote, with other bakers’ voting for or against the proposal.
If the proposal passes with a 80% vote, the next step is to create a test chain for 48 hours. In that time, the network stress tests the change and verifies that everything works.
Once the testing period is over, bakers vote again in the last phase to decide whether the community should implement the proposal.
If the proposal passes, bakers also have the option to include “invoices” — which are basically rewards for proposing a successful idea.
Apart from acting as a governance token, XTZ is also for paying protocol fees. These fees are necessary for any transaction on the Tezos blockchain; such as buying NFTs or interacting with dApps.
XTZ Tokenomics
The current total supply for Tez (XTZ) tokens is 956 million units, with a circulating supply of about 934 million.
Plus, XTZ is fully inflationary, with a 18% per annum inflation rate. To counter the effects on token price. $XTZ has certain burning mechanisms.
Here’s the complete breakdown of the current token allocation for $XTZ:
- ICO participants receive 79.59%
- Early backers and contractors receive 0.41%
- Tezos foundation receives 10%
- Dynamic Ledger Solutions receives 10%
Note: Bakers in the network can vote on these numbers and change allocation percentages if their proposal passes.
How To Buy XTZ
Looking to buy XTZ and become a part of the Tezos ecosystem? You can do so in just three straightforward steps:
- First, you’ll need a compatible and secure crypto wallet for your XTZ. Buy a Ledger device to store your XTZ securely & ensure that your private keys are never exposed to the internet.
- Next, you need to install an XTZ account on your Ledger device.
- Navigate to your Ledger Live app and Buy Tezos through the “Buy” Feature. This way, your XTZ is protected by your ledger device immediately and without forfeiting the custody of your private keys..
You can also buy Tezos through centralized and decentralized exchanges and then send it directly to your Ledger.
Access the Tezos Ecosystem via Ledger
Ledger’s devices integrate natively with the entire Tezos ecosystem, providing special support for NFTs and staking. You’ll have a Tezos wallet on your device, which connects with decentralized applications and other protocols easily.
Adding the network is quick and easy. You can download and install Ledger Live and search for Tezos in the app catalog.
Ledger also has integrations with the largest Tezos NFT marketplace, Objkt. You can easily and securely view your entire NFT collection via the Ledger Live app.
Apart from NFTs, you can also earn passive income on your XTZ holdings within Ledger. Ledger Live supports direct staking, where you can securely delegate your holdings to a validator on the network. By staking XTZ, you help support the network while growing your bag.
Explore Tezos securely with your trusted Ledger device!