Hey guys :) Today I’ve got a really great article for you. A comprehensive list of questions and answers that lay everything out on the line about everyone’s favorite staking coin – Tezos (XTZ).
If you don’t know much about Tezos and want to understand it better, this piece is for you. Oh, and if you haven’t already seen my latest articles on Monero (XMR), Litecoin (LTC), and Ripple & XRP, be sure to check those out as well.
Hope you enjoy!
The list of Q&A is pretty long so first comes the list of questions that I have prepared the answers to:
- What is Tezos?
- Who and When created Tezos?
- Is Tezos an ERC-20 token?
- What are 3 Key Differences between Tezos and Ethereum?
- Can you mine Tezos?
- What is Tezos Baking?
- How to become Tezos Baker?
- What consensus mechanism does Tezos use?
- How long is a Tezos cycle?
- What is Tezos' amendment process?
- How many Tezos will be there?
- Where to store Tezos?
- Where to buy Tezos?
1. What is Tezos?
Tezos is a self-governing blockchain platform for decentralized assets (cryptos) and applications (dapps) backed by a global community of validators, researchers, and builders. The Tezos blockchain network is linked to a digital token, called Tez or a Tezzie with ticker symbol XTZ.
XTZ is the native token of Tezos and it plays a critical role in securing and governing the Tezos blockchain network through a sophisticated proof-of-stake (PoS) consensus mechanism and on-chain governance.
The open-source Tezos blockchain network is decentralized, secure, upgradeable, and built to last. It’s purpose, to date, is to address key barriers facing the adoption of blockchain technology through:
- Smart Contract Safety
- Long-Term Upgradability
- Open Participation
Key Tezos Features:
Secure, Institutional Grade Smart Contracts
Tezos has its own proprietary smart contract language, Michelson, which facilitates secure, institutional-grade smart contracts that are provably correct.
Tezos has a modular architecture and formal upgrade mechanism that allows the network to propose and adopt new technological innovations as they emerge. Combine this with Tezos’ on-chain governance mechanism, and the protocol will stay relevant long into the future.
Open Participation and Incentive Alignment
Tezos has an on-chain governance mechanism that enables XTZ stakeholders to participate in network upgrades by evaluating, proposing, or approving amendments by staking XTZ. This ensures that every participant in the Tezos network can help to secure the network and shape its future.
2. Who and When created Tezos?
Tezos founders - Arthur Breitman and Kathleen Breitman
Arthur Breitman, founder, and CTO of Tezos is a computer scientist and mathematician who has extensive experience working for well-known financial institutions such as Morgan Stanley and Goldman Sachs as a quantitative analyst. Arthur was led to creating Tezos after following the historic rise of Bitcoin and observing the network’s inability to evolve quickly, if at all. Therefore, Tezos was Arthur’s solution to Bitcoin’s inflexibility.
Kathleen Breitman, founder, and CEO of Tezos, also has extensive experience in the finance industry as she previously worked for notable companies, including Bridgewater Associates and R3. During her time at these companies, Kathleen gained deep insights into distributed database technology.
Now going back to Tezos, the Tezos whitepaper was released in September 2014, where its founders and core team of developers spent more than 3 years developing the project before its launch in 2017.
The Tezos (XTZ) cryptocurrency held an uncapped initial coin offering (ICO) on July 1, 2017, where the project raised a whopping $252 million worth of Bitcoin and Ether in just two weeks, making it one of the biggest ICOs at the time.
In addition to the ICO money raised, Tezos also secured an investment from the billionaire venture capitalist, Tim Draper, who contributed $1.5 million to help the network pay for the operating fees and now holds a 10% stake in Dynamic Ledger Solutions (DLS), a company that owns the rights to Tezos’ code. On top of that, Polychain Capital has also allocated some of its $10 million cryptocurrency fund to the project.
As for the official launch and initial release of Tezos, the network went live on June 30, 2018.
3. Is Tezos an ERC-20 token?
No, Tezos (XTZ) is not an ERC-20 token.
The Tezos (XTZ) cryptocurrency is the native token of the open-source Tezos blockchain network. Tezos never launched as an ERC-20 token, meaning the project had to create a functioning product before the network could go live.
That said, Tezos ICO participants invested into Tezos (XTZ) before the token was even launched. They had to wait nearly 1 year after the ICO to receive their XTZ when the Tezos network went live.
This route that Tezos took was quite different from the slew of other ICOs conducted in 2017 who raised millions of dollars with nothing but a website and false promises. Most ICOs in 2017 simply launched a basic ERC-20 token with promises to migrate to their own blockchain network’s or develop some deeper purpose.
Tezos on the other hand actually developed and built out its own blockchain network before going live and launching its very own XTZ cryptocurrency.
4. What are 3 Key Differences between Tezos and Ethereum?
XTZ logo & ETH logo
The 3 key differences between Tezos and Ethereum are their:
1. Governance - the way in which changes are made to a protocol
2. Consensus Mechanism - how a blockchain network comes to an agreement on the state of the network
3. Programming Language - the programming language developers use to construct smart contracts
One of the biggest differences between Tezos and Ethereum is how they approach the issue of governance.
In Ethereum, network upgrades and changes are largely dictated by the Ethereum foundation/core developers. While stakeholders in Ethereum are aware of the direction the protocol is poised to go in, they are very limited in how they can influence the Ethereum protocol.
Tezos takes an entirely different approach to governance from that of Ethereum.
Tezos utilizes a method known as “on-chain governance”, which allows developers to submit proposal upgrades to the Tezos network and allows XTZ token holders to vote on whether these proposals should be implemented or not. This system provides a greater level of decentralization in deciding which direction the protocol should take and includes an incentive system wherein developers are rewarded for implementing approved upgrades to the network.
2. Consensus Mechanism
The Ethereum protocol uses a proof-of-work (PoW) consensus mechanism to come to an agreement on the state of the network. PoW requires lots of computing power to solve mathematical equations from the use of miners. While PoW is proven to be a very secure consensus mechanism, it presents drawbacks with scalability and is energy-intensive, which is why the Ethereum protocol is transitioning to proof-of-stake (PoS).
The Tezos protocol employs a delegated proof-of-stake (DPoS) consensus mechanism wherein XTZ token holders can delegate others to come to an agreement on the state of the network for them. The DPoS consensus mechanism is less energy-intensive than both PoW and PoS and is possibly more scalable than PoS as well. However, it is said to be less secure than both PoW and PoS.
3. Programming Language
Both Ethereum and Tezos utilize their own high-level programming languages developed by their founders.
Ethereum utilizes Solidity, a Turing complete smart contract programming language while Tezos utilizes Michelson, also a Turing complete smart contract programming language but also with formal verification.
Smart contracts built on the Tezos platform can be proved to be mathematically correct according to certain properties. This is done through formal verification which helps developers to program better quality and more secure smart contracts.
Formal verification for smart contracts is also being developed for Ethereum’s Solidity programming language but is not yet added. Therefore, Ethereum smart contracts cannot be mathematically guaranteed like Tezos smart contracts.
However, Ethereum’s Solidity programming language is understood and used by many more developers than Michelson. This is because Ethereum has greater network effects and was launched earlier than Tezos.
5. Can you mine Tezos?
No, you cannot mine Tezos (XTZ).
Tezos does not use a proof-of-work (PoW) mining algorithm, it uses a delegated proof-of-stake (DPoS) consensus mechanism. Therefore, instead of miners forming consensus on the blockchain, consensus is formed by using validators who lock up some of their coins as stake.
6. What is Tezos Baking?
Tezos baking is the process of staking Tezos tokens (XTZ) to sign and publish new blocks on the Tezos blockchain. The reward for creating a new block is 16 XTZ.
In Tezos, the process of creating blocks on the blockchain is done by token holders aka “bakers” who choose to delegate their validation rights to other token holders without transferring ownership.
In other words, Tezos baking is Tezos’ delegated proof-of-stake (DPoS) consensus mechanism at work.
Here’s how it works:
- Bakers obtain the right to publish a block (which is filled with transactions and operations) to the Tezos blockchain when they are randomly selected.
- Bakers get block publishing rights that are proportional to the number of tokens delegated to them.
- Each block is baked by a random baker and then endorsed by other random bakers. If the block is good to go, then the block gets added to the blockchain.
- The successful baker who was randomly selected gets a block reward and can charge transaction fees for all the transactions inside the block. Additionally, they also receive 2 XTZ for each endorsement made from other bakers.
Bakers/Endorsers earn rewards for participating in Tezos’ DPoS system through baking and endorsing blocks. Baking/Endorsing rewards are calibrated so that the number of Tezos tokens grows at roughly 5.5% per year, although this rate does fluctuate.
Bakers are rewarded with 16 XTZ for each block produced and 2 XTZ for each endorsement made. It is possible for a baker to receive multiple endorsement rewards and they also receive XTZ through transaction fees.
7. How to become Tezos Baker?
You can become a Tezos baker if you meet certain requirements and follow all of the steps. See the basic steps below:
- To become a Tezos baker, you must run your own Tezos node and register as a delegate. The financial requirement to run as a delegate is 8,000 XTZ, although this requirement may be lowered or raised in the future. Delegates can have additional delegated stake to increase their chances of being selected as a baker or endorser.
- The next requirement is to have sufficient hardware. For instance, you should have a good, stable Internet connection and high-availability servers with lots of disk space and preferably an SSD disk (Tezos is quite disk I/O intensive). An alternative to using your own hardware and servers is to setup a cloud server to run your node and baker 24/7 with no downtime.
- For more detailed steps and resources, be sure to check out official information on the Tezos Baking resources page.
8. What consensus mechanism does Tezos use?
Tezos uses a delegated proof-of-stake (DPoS) consensus mechanism where Tezos (XTZ) token holders can delegate their staking power to validators securing the network and earn rewards generated from fees for doing so.
To understand the inner workings of Tezos’ DPoS consensus mechanism, see question 6 and 7 above. As for the advantages and disadvantages of Tezos’ DPoS consensus mechanism, see them below:
Advantages of a DPoS Consensus Mechanism
- More scalable than PoW and PoS based blockchains
- More energy-efficient and environmentally friendly than PoW based blockchains
- Faster than PoW and PoS based blockchains
- More democratic and inclusive than PoW and PoS coins
- Strong protection against double-spend attacks
Disadvantages of a DPoS Consensus Mechanism
- Vulnerable to centralization
- Not as secure as PoW and PoS
- Requires network participation from genuinely interested network participants
9. How long is a Tezos cycle?
A Tezos cycle is a collection of 4096 blocks and it takes about 3 days to complete a cycle.
To be more specific, the time between Tezos blocks is at least 1 minute, so at best, a cycle will last 4096 minutes (2 days, 20 hours and 16 minutes).
Tezos cycles are important to keep in mind for delegates and bakers because the distribution of their staking rewards are based on cycles.
For example, when you delegate your Tezos tokens to a baker, the baker won’t get any profits for it until 7 or 8 cycles later (21-24 days). Once the baker does get profits (after 7 or 8 cycles), these profits are then locked for another 5 cycles (15 days).
So after a delegation is made, you can expect the profits to come in after 12-13 cycles (36-39 days).
10. What is Tezos' amendment process?
Tezos is a self amending blockchain protocol that can upgrade itself without having to split (“fork”) the network into two different blockchains.
The Tezos’ amendment process includes Tezos stakeholder participation through an on-chain governance mechanism that can be broken down into four distinct governance stages:
- Proposal Period
- Exploration Period
- Testing Period
- Promotion Period
Each of the above listed periods lasts eight baking cycles (i.e. 32,768 blocks or roughly 22 days, 18 hours). All four periods comprised together equate to almost exactly three months from proposal to activation.
Four Stages of the Tezos Governance Amendment Process:
1. Proposal Period
The Proposal period takes place during cycles 1-8, during which time bakers can submit and/or upvote proposals on-chain using the proposal's operation. Bakers can submit up to 20 proposals in each proposal period. At the end of the proposal period, the network counts the proposal votes and the proposal with at least a 5% quorum proceeds to the exploration period.
2. Exploration Period
The Exploration period takes place during cycles 9-16, during which time bakers can vote “yay”, or “nay”, or “pass” to test the most upvoted proposal. At the end of the exploration period, the network counts the votes. The proposal must achieve the quorum and an 80% supermajority to move on to the Testing period.
3. Testing Period
The Testing period takes place during cycles 17-24, during which time a testnet fork runs parallel to the mainnet chain for 48 hours. This period is used to determine whether or not a proposal is a worthy amendment to the protocol and to ensure the upgrade does not corrupt the blockchain network.
4. Promotion Period
The Promotion period takes place during cycles 25-32, during which time bakers can vote to promote the testnet chain to the mainnet chain. Just like in the exploration period, bakers vote “yay”, or “nay”, or “pass” and the proposal must meet quorum and achieve an 80% supermajority to be activated on the new mainnet.
11. How many Tezos will there be?
Tezos (XTZ) has an uncapped supply, meaning it’s an inflationary cryptocurrency, like fiat. There are no plans to put a cap on Tezos, so theoretically, there can be an infinite number of Tezos (XTZ).
Tezos inflation is as follows:
- Bakers receive 1.25 newly minted XTZ for every endorsement received (endorsements vary)
- Bakers receive 40 XTZ for every block baked (~ 1 block/minute = 40 XTZ/minute)
Tezos’ inflation helps to fund protocol amendments and encourages participation in the on-chain governance of the Tezos protocol.
Perhaps in the future, there could be an amendment to implement a max supply of Tezos, but right now that seems unlikely.
In fact, as more value accumulates on Tezos, the number of XTZ issued might even be increased in order to:
- Incentivize builders and bakers
- Keep the Tezos on-ramp from becoming too steep
At the time of writing (April 13, 2020), the total and circulating supply of Tezos is 706,890,017 XTZ.
12. Where to store Tezos?
Tezos (XTZ) can be stored on a wide array of safe, secure, and reputable cryptocurrency wallets. The best wallets to store Tezos include:
- Ledger Nano S (hardware)
- Tezbox (web, desktop, mobile)
- Galleon Tezos Wallet (web)
- Atomic Wallet (desktop, mobile)
- Trust Wallet (mobile)
- Exodus (desktop, mobile)
- CorTez (mobile)
In addition to the wallets above, Tezos (XTZ) can be stored on many other cryptocurrency wallets as well because it’s a very popular open-source cryptocurrency with a large global community of developers and contributors.
13. Where to buy Tezos?
Tezos (XTZ) can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade Tezos is through cryptocurrency exchanges.
You can buy XTZ with cryptocurrency or fiat at the following top exchanges. In most cases, you will have to fund your account with fiat, buy Bitcoin or Ethereum, and then use BTC or ETH to buy Tezos (symbol XTZ).
- Bitfinex - BTC, USD
- HitBTC - BTC, ETH, USDT
- Kraken - BTC, ETH, EUR, USD
- Binance - BTC, USDT, BUSD, BNB
- Huobi Global - BTC, ETH, USDT
- OKEX - BTC, USDT
- KuCoin - BTC, USDT
In addition to the exchanges listed above, Tezos (XTZ) is also traded on a wide array of other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.
Hope you enjoyed that read :) Let me know if I have missed something in the comments.