Tezos is a blockchain formed with the aim of creating a digital commonwealth, a community with shared goals and interests which has finally launched after months of delays.
Tezos holders will make decisions and govern the blockchain together by voting in new protocols. It’s similar to Ethereum in that it’s a smart contract platform, but it contains key feature differences like formal verification, a built-in governance system, and the Delegated proof of Stake consensus mechanism.
Interestingly, the network doesn’t have to fork to upgrade, which is arguably unique to Tezos, something that could prevent civil war-esque situations like the one which divided the Bitcoin community recently.
People can make suggestions for protocol upgrades which can then be voted on by the entire community and then either ignored or adopted, putting more power in the hands of the community.
The idea here is to foster evolution and development without the need for a hard fork. Proposed amendments accepted by stakeholders can include payment for individuals or groups that include the protocol, which means that community developers could actually get paid for working on the network in a decentralized way, incentivizing them to make continuous improvements.
Formal Verification
This is a security measure which mathematically proves properties about programs like smart contracts, which can help avoid costly bugs and related issues.
Delegated/Liquid Proof of Stake
So, with Proof of Work we have miners solving cryptographic puzzles in order to verify new blocks of transactions and enter them into the blockchain. This is an extremely expensive and energy-hungry process, but when a network is big enough it’s also very expensive to attack. Some people argue that PoW will lead to centralization over time due to the increased difficulty of mining transforming it into a specialist field where only major operations with expensive mining hardware can compete.
Proof of stake, on the other hand, is far more environmentally friendly. To participate, validators (not miners) stake a certain amount of cryptocurrency – the higher the stake, the higher the chance of being selected, and the selection is performed pseudo-randomly.
If selected, they then validate blocks, with the understanding that their stake and their transaction rewards will be lost if they attempt bad practice. Arguably this is more centralized than a PoW network in its infancy, but less centralized than an advanced PoW network ran by high-end mining operations.
Delegated Proof of Stake, on the other hand, takes this concept a step further.
It’s similar to proof of stake – however, instead of randomized selection based on stake size and other factors, bakers are voted in by the community. In fact, Tezos’ form of consensus is an even more bespoke form of DPoS called ‘Liquid Proof of Stake”.
Token holders stake their tokens and approve transactions (this time they’re called bakers!). With Tezos, the bakers must have a 10,000 token stake as well as a bond (a security deposit). Again, dishonest action will result in the deposit being lost, while the reward is 5% of the stake a year.
So, it’s a smart contract/DApp platform with on-chain governance and self-amending capabilities that bypass contentious hard forks.
Sounds good, right? So why the long wait?
Lawsuits and Controversies
Ah.
Founders Kathleen and Arthur Breitman had a major falling out with Johannes Gevers, the head of the Tezos Foundation, regarding who would be in control of the project. Supposedly it was legally necessary to appoint an independent party as foundation head under Swiss law, but when they appointed their former acquaintance Gevers the Breitmans found that he was more interested in a power grab than playing ball, according to them.
Tezos then experienced significant delays over legal disputes between the founders and various parties. it was claimed that Tezos was violating US securities law by selling unregistered securities, for example.
Distributed Ledger Systems (DLS) sued over the intellectual property rights after receiving seed capital from Tim Draper in exchange for a 10% stake. DLS retained property rights over the source code, with the plan being that the Breitmans would set up an official foundation and buy out DLS along with the IP rights.
Part of the ICO contract stated that the Breitmans and Draper were due 8.5% of all ICO funds and 10% of circulating currency, but this became a source of conflict between the project and DLS.
KYC
Remember the lawsuit over securities? Yeah, so did the SEC and Tezos, the latter of which either opted or was forced to suddenly introduce KYC measures, something which never goes down well in any community, especially in Tezos’ case when the ICO was already a year old.
“During the Tezos Foundation’s donation period in July 2017, there was no blockchain ecosystem or industry consensus on this subject. As the blockchain ecosystem and industry has matured over the past ten months, it has become a best practice to verify that contributors meet basic KYC/AML criteria.”
Sleeping Giant
Here’s the thing about Tezos – it actually has a really strong use case. That’s not to say that it’s guaranteed to be a success in the highly volatile and unpredictable world of cryptocurrencies, but it certainly has a lot of the groundwork laid out and was actually due to launch months ago before all the legal issues set things back. The mainnet launched on September 20, and now the question on everyone’s minds is, can Tezos actually compete with Ethereum? Is the low profile of the project actually a blessing in disguise for investors who missed the boat on the world’s first DApp development platform?
It could well be the case that Tezos is about to explode onto the crypto scene and start developing new applications along with a financially incentivized community of developers who will work tirelessly to constantly update the network as per the wishes of the userbase without ever needing to fork, something that could revolutionize blockchain networks as well as DApp development.
Of course, as always, it’s also possible that nothing will come of it and Cardano or EOS will take its place, or that Ethereum will scale before any of the newcomers make it out of the gate and reign supreme over DApp development for a thousand years.
You never know with crypto/blockchain projects, but one thing is for certain – with the genuinely innovative and groundbreaking features Tezos has implemented, building and potentially even improving upon predecessors like Ethereum, the project could well be one of crypto’s sleeping giants, and is definitely worth keeping an eye on.
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