What is Tezos?
Tezos is a blockchain network founded in 2014 by Arthur and Kathleen Breitman through their startup Dynamic Ledger Solutions.
The network describes itself as a “self-amending blockchain” due to the importance that self-governance has in its constant upgradability, as only changes that are approved through voting are implemented.
Tezos is powered by a token by the name of Tez(XTZ), which provides holders with voting rights and allows them to earn rewards by staking and validating transactions in the network, a mechanism that makes the network more efficient than others using proof-of-work (POW).
The team behind the network held an Initial Coin Offering (ICO) back in July of 2017 in which they raised over $230 million in BTC and ETH, higher than any other funding round at the time.
With the funding obtained through the ICO, the Tezos Foundation was founded in Switzerland to allow the creation of the protocol and the initial development of the network.
The most important aspect of the network is its voting features which were created specifically to prevent the need for hard forks over time, which has been a common issue with other blockchain networks.
What is the Purpose of Tezos?
Tezos was created as a response to the issues experienced by traditional alt currencies and their cryptocurrencies, as they were historically unable to quickly and easily adapt themselves to new innovations due to their governance model.
This lack of flexibility was the result of the governance model widely used at the time: “off-chain governance”.
By handling the governance of the network in-chain, Tezos developers expected to completely democratize the network by allowing its users to approve amendments to the totality of the ecosystem, including the amendment process itself.
Not only can stakeholders vote to approve or deny changes to the network, but they are also able to track the changes in the testing environment before they are deployed and recall any potential amendment before its deployment.
As governance is not the only issue preventing the continued evolution and scalability of a network, Tezos also aimed to further increase the efficiency of the network by creating a blockchain protocol that operated in the most generic way possible.
By combining this on-chain decentralized governance with the efficiency of its proof-of-stake consensus algorithm, Tezosaims to provide a highly scalable open-source platform for the creation of digital assets and applications powered by blockchain technology.
How Does Tezos Work?
Tezos works by making use of 6 principles that have been implemented on a technical level: Self-Amendment, On-Chain Governance, Decentralized Innovation, Smar Contracts & Formal Verification, Proof-of-Stake (POS) Consensus Algorithm, and Delegation.
Self-Amendment allows the network to upgrade itself without the need for splitting itself by using hard forks, maintaining the community focused on improving the platform, and preventing disruptions. This is done by automating the execution of updates to the protocol upon approval by the stake holders.
On-Chain governance means that there is no arbiter out of the network filtering or recollecting proposals to improve the protocol before passing them on to have stakeholders vote for them. Without this checks and balance system, Tezos can be truly democratized to provide the community with control over the network.
Any proposed amendment to the protocol can include a payment order to an individual or group which will be developing it, allowing the network to boost innovation by incentivizing participation from the community in a decentralized manner.
Just as most blockchain networks, Tezos makes use of smart contracts to automate and decentralize transactions, but it takes them a step further by facilitating formal verification to increase security and reduce bugs.
The network relies on a PoS consensus algorithm to validate transactions and create new blocks, providing rewards to the node runners in the process. Users who own XTZ tokens and want to stake without running a node can delegate their holdings to a node runner to passively earn rewards. The staking process in Tezos is called “baking”.
All of these processes are powered by the XTZ token, which is used to pay for transactions in the network, reward bakers, and provide voting powers to its holders.