What Is Tezos?
Let me tell you about Tezos—it's a blockchain network that hosts the digital token Tez, also called XTZ or tezzie. Just like other cryptocurrency blockchains, Tezos lets you participate in decentralized finance (DeFi), decentralized applications, and non-fungible token (NFT) projects.
What sets Tezos apart from other blockchains is its approach to avoiding hard forks, those splits in the chain. It uses a governance mechanism right on the blockchain where protocol upgrades get adopted and implemented based on votes proportional to users' economic stake in Tezos.
Key Takeaways
- Tezos is a blockchain network linked to a digital token known as Tez, or tezzie.
- The network's governance is based on economic stakes and precludes forks.
- Tezos uses a proof-of-stake mechanism to validate blockchain transactions, which uses less energy than Bitcoin mining.
- Following a highly successful ICO, Tezos was dogged by a power struggle and lawsuits.
- After topping $8 in October 2021, the price of a Tez declined to just under a dollar by May 2023.
History of Tezos
Tezos was conceived by Arthur Breitman, a French native and former engineer at Google X and Waymo, who later worked as a quantitative analyst at Morgan Stanley. He developed it with his wife Kathleen Breitman, who had experience at the hedge fund Bridgewater Associates and software company R3. They reportedly met at an Anarcho-Capitalist meetup in New York.
In 2014, while still at Morgan Stanley, Arthur published a white paper under a pseudonym outlining Tezos' principles. Then in July 2017, the Switzerland-based Tezos Foundation, led by Swiss entrepreneur Johann Gevers and working with the Breitmans, held an initial coin offering (ICO) for Tezos that became the most successful one at the time—by January 2021, it ranked as the seventh-largest crypto coin offering.
Over 13 days, the ICO pulled in 66,000 Bitcoins and 361,000 ethers, valued at $232 million with Bitcoin at $1,964. The Tezos Foundation reported assets of $471 million as of December 31, 2022.
Amid SEC warnings about ICOs potentially being investment securities, the Tezos ICO was framed as a fundraiser of donations, but it eventually allocated Tez based on contributions.
Coin distribution got delayed by a power struggle between the Breitmans and Johann Gevers, who stepped down as foundation president in early 2018.
Almost a year after the ICO, in June 2018, the Tezos Foundation required ICO donors to go through know-your-customer (KYC) and anti-money-laundering (AML) verification to get their Tez. By November 2020, they'd verified 94% of the ICO funds.
In March 2020, the Tezos Foundation, the Breitmans, and their company Dynamic Ledger Solutions settled a class action lawsuit for $25 million from ICO participants wanting to withdraw investments.
Tez started trading just under $3 in July 2018, dropped to $0.36 by December that year, peaked at $8.55 in October 2021, and was at $2.21 on June 9, 2022. It rose nearly 9% that day after Tether announced deploying its stablecoin on Tezos. At that time, Tez had a market cap of $1.99 billion, ranking 33rd among cryptocurrencies.
Understanding Tezos
Like Bitcoin and Ethereum, Tezos is a decentralized ledger using blockchain technology. Similar to Ethereum, it's built for smart contracts. The name 'Tezos' might come from ancient Greek for 'smart contract,' but more likely it's from an algorithm Arthur Breitman created to find unclaimed, English-pronounceable names online.
If you stake 8,000 Tez—what the network calls a roll—you can run a network node and earn a share of Tez rewards for validating transactions. If you have fewer Tez, you can delegate them to a node operator, known as a baker in Tezos terms.
When new Tez is created at the end of protocol upgrade cycles to pay developers whose upgrades get adopted, bakers' stakes increase proportionately as an inflation adjustment.
Decisions on protocol upgrades come from bakers voting based on their stake sizes, and changes implement automatically across the blockchain. Final votes need participation from owners holding at least 81% of the current coin supply.
All network activity and governance are decentralized, and the Tezos Foundation stays out of operations. Instead, it supports infrastructure development and provides grants to promote network adoption.
How Tezos Is Different
Tezos stands out with its governance protocols, unlike Bitcoin and Ethereum which don't have formal systems, and its no-fork policy is unique among cryptocurrencies. The inflation adjustment for new tokens is unusual too, designed to encourage participation.
Plus, Tezos supporters point out that its proof-of-stake model for validation uses less energy than Bitcoin's mining.
Important Note
Cryptocurrencies are highly speculative with extremely volatile prices. You should exercise due diligence and never risk more than you can afford to lose.
The Future of Tezos
It's unclear if Tezos' inflation mechanism will truly protect stakeholders long-term by issuing more tokens.
That said, the governance protocols and anti-fork protections do offer advantages.
Tezos technology was part of a recent experiment by European central banks testing a digital euro as a central bank digital currency.
It has also drawn in One Of, the NFT platform backed by music producer Quincy Jones.
Other uses, like cryptocurrency yield farming that relies on rising crypto values and strong markets, might not hold up over time.
Remember, the comments, opinions, and analyses here are for informational purposes only. Check our warranty and liability disclaimer for more details.
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