(This is part I of a new series I will be writing up daily on this platform)

Proof-of-stake currencies have always been of great interest to a lot of people. Tezos, which uses a somewhat similar model on paper, may become one of the most lucrative coins to bake.

Understanding the Tezos Issuance Model

Unlike Bitcoin or Ethereum, Tezos is not a currency one can obtain through mining. This move away from proof-of-work has been deliberately introduced by the project's creators. Proof-of-stake, or in this case, liquid proof-of-stake, is vastly different, yet still provides ample network security.

Through liquid proof-of-stake, consensus is reached on the network. Nodes are chosen at random to validate network blocks. Blocks are not mined, but forged. Validators cannot double-sign blocks, as they need to put up coins as a safety deposit. A failure to play by the rules results in forfeiting the deposit. 

Through liquid proof-of-stake, XTZ holders can vote on new policies. More importantly, they can delegate voting rights, as well as the actual baking process. Allowing every individual to participate in the network is crucial to achieve decentralization.

There does not appear to be a "hard cap" on the amount of XTZ to be created. That is not a bad thing either, as the supply will remain fairly low for the foreseeable future. With a low yearly emission rate, that situation will remain unchanged. 

Baking Explained

Normal proof-of-stake currencies rely on staking. Tezos, while approaching a similar model, dubs its system as "baking". The process is virtually the same on paper, but works slightly differently. Users are still incentivized to keep a certain amount of coins in their wallet at all times to earn network rewards. 

To gain the privilege of creating a network block, there are several possible scenarios. Either a user is "lucky" and has their coin chosen by the network. Another option is to delegate one's baking rights and pool resources together to increase the odds. 

It is worth noting that delegation doesn't change ownership of the XTZ balance. The owner remains in control of the coin. Whoever it is delegated to cannot spend the currency under any circumstance. All they can do is act as the baker if the coin is selected randomly.