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What Is Tezos (XTZ) Protocol?

UTC by Oluwapelumi Adejumo · 5 min read
What Is Tezos (XTZ) Protocol?
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The guide provides all you need to know about Tezos – an open-source, self-amending cryptographic ledger platform allowing smart contracts and developing dApps on its advanced platform.

Tezos (XTZ) is an open-source platform for assets and applications that can evolve by upgrading itself. Stakeholders govern upgrades to the core protocol, including upgrades to the amendment process itself. Tezos provides a formal and systematic procedure for the platform participants to vote and reach an agreement on the proposed protocol amendment, with the help of the duo on-chain mechanism and self-amendment. In addition, Tezos offers a platform to create smart contracts and build decentralized applications that cannot be censored or shut down by third parties.

Tezos’ Launch

Tezos set out in 2014 with a view to create a “self-amending blockchain”. It came on the initiative of a couple, Arthur and Kathleen Breitman, on the Dynamic Ledger Solutions, a startup they founded to develop Tezos.

In July 2017, the Tezos team generated to the tune of $232 million, an equivalent of 66,000 BTC and 361,000 ETH in its first ICO, the largest at the time. Consequent to the initial coin offering, the Tezos Foundation appeared to launch the protocol.

The Tezos Foundation was responsible for the procurement of Dynamic Ledger Solutions, such as intellectual property rights forming the basis for Tezos blockchain, and it is per the ICO agreement.

Tezos’ arrival was groundbreaking, with its novel model separating cryptocurrencies into “on-chain governance” and those with “off-chain governance”. This new and unique idea brought Tezos a lot of public interest, which was proven by its more-than-successful funding series in 2017. Tezos officially went live in 2018.

Tezos LPoS Blockchain

In contrast to other cryptocurrencies such as EOS (EOS), Lisk (LSK), Tron (TRX), and BitShares (BTS) using Delegated Proof-of-Stake, Tezos uses a liquidity Proof-of-Stake (LPoS) algorithm. It allows Tezos software to secure the network, validate transactions, and distribute newly minted XTZ.

Its delegation purpose is optional, as it minimizes the dilution of small token holders. The barrier to entry is 8,000 XTZ, with 8.25% of total baked tokens frozen as bonds. For governance participation (“nodes”), participants need to stake XTZ in a process Tezos calls “baking”. Participants need 8,000 XTZ (“roll”) to become a baker.

Further, modest computing power and reliable internet connection characterize Tezos. Tezos validator Set is dynamic, with about 80,000 bakers. Users can also delegate their tokens to other bakers, allocating votes to other users so they can earn XTZ rewards on its live blockchain. Tezos’ LPoS design priorities are decentralization, accountability, governance, and security.

Tezos Network Shell and Protocol

Network Shell, or interface, plays a key role in the platform. It takes over the blocks sent by the peers and verifies them against the present protocol. The network shell is arguably the most delicate part of the node. Network shell is the code that handles transactions, administrative operations and amends itself based on how users vote.

Meanwhile, network protocol grabs the source of a new protocol (a “protocol upgrade”), compiles them on the fly, and replaces the testnet with this new protocol. After a certain period of time, it may promote the test protocol to replace the primary protocol, completing the default, two-phase protocol upgrade mechanism. It is the part of the code that sends proposals to the shell for review.

Governance on Tezos

In Tezos, all stakeholders can participate in governing the protocol. The election cycle provides a formal and systematic procedure for stakeholders to agree on proposed protocol amendments. By combining this on-chain mechanism with self-amendment, Tezos can change this initial election process to adopt better governance mechanisms when they are discovered.

Tezos (XTZ) Token

Tezos (XTZ) token is the cryptocurrency of the Tezos platform, a decentralized computing ecosystem with liquidity proof-of-stake consensus, allowing holders who stake their token to get a reward. The total available supply of Tezos is 850.78 million XTZ. The circulating supply was 756,203,598 XTZ as of January 2021.

Further, as of May 2021, approximately 78.8% of Tezos tokens have been delegated. This includes the 10% owned by the Tezos Foundation, so the annualized yield is roughly 5.8%.

Tezos’ Advantages

Firstly, Tezos provides affordable staking. In particular, Tezos affordability offers users the opportunity to stake or delegate their tokens and receive rewards. There is no minimum amount of tokens that a user must delegate, although some bakers may set their limits. Users who delegate their tokens receive payouts every seven cycles (approximately 20 days).

Secondly, the governance on Tezos is accessible. Tezos proof-of-stake and delegated proof-of-stake give it an edge. Its liquid proof-of-stake gives most participants a chance to influence the network directly or indirectly to generate a reward.

Furthermore, Tezos ensures seamless upgrades. In other words, Tezos’ self-amending ledger can avoid issues of downtime or price fluctuations around the time of routine hard fork upgrades experienced by blockchains.

Moreover, Tezos’ verifiable smart contracts may improve security and resistance against attackers. Admittedly, the absence of attacks on Tezos is partial because the platform hosts very few dApps at the moment.

Finally, Tezos has offered generous grants to encourage developers to study the platform. So far, Tezos has given away at least $30 million worth of grants and is working with Kingsland University to provide online training.

Conclusion

Tezos is an open-source, self-amending cryptographic ledger platform allowing smart contracts and developing dApps on its advanced network. Its on-chain governance mechanism prevents hard forks and links the community. Thus, Tezos is unique.

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FAQ

What is Tezos?

Tezos is an open-source platform for assets and applications that can evolve by upgrading itself. Stakeholders govern upgrades to the core protocol, including upgrades to the amendment process itself. 

Who founded Tezos?

Tezos was developed by Arthur Breitman, whose wife, Kathleen Breitman, supported in developing this project.

How does Tezos work?

While Tezos offers similar features to other cryptocurrencies, its system of operations is much different. Tezos’ blockchain can be split into two distinct parts: Network Shell and Network protocol.

Network shell is the code that handles transactions, administrative operations and amends itself based on how users vote.

The network protocol is the part of the code that sends proposals to the shell for review.

What is Tezos LPoS blockchain?

A liquidity Proof-of-Stake (LPoS), an algorithm used by computers running the Tezos software to secure the network, validate transactions, and distribute newly minted XTZ.

What gives Tezos value?

Tezos derives its value from two things, its XTZ token and use cases of Tezos to tokenize their assets.

How to use Tezos?

Mainly, Tezos major use now is as a staking currency. However, its smart contract feature makes it useful for developers interested in building a decentralized application. 

What are the benefits of Tezos?

Affordable staking, accessible governance, seamless upgrades, verifiable smart contracts, and education initiatives are among Tezos’ major benefits.

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