Tezos: its cryptocurrency and blockchain

Tezos is a native cryptocurrency of a blockchain designed to be more secure, participatory and upgradeable than others. It started back in 2014 when it became clear that the blockchains that had existed until then did not allow coordinated decisions for improvements and upgrades, since the experience in other blockchains was that miners and developers argued and disagree on the necessary changes and the community and networks were heavily divided making innovation and improvement slower.

Tezos' blockchain sought to solve problems of dissension and discrepancy within other blockchains’ communities by introducing a formal process of organizing its blockchain. Nowadays Tezos users (both developers and any other users of the network) are part of a real digital community in a more collaborative environment in the decision making process. To achieve this, Tezos has pioneered innovations in several areas such as smart contract security, open and dynamic participation, and upgrade scalability. 

But, what are "Smart Contracts"? (Etherium´s Smart Contracts )

They are programs or algorithms that are installed and executed in a certain blockchain and that automate and decentralize processes that would normally require an intermediary. For example, an user can easily schedule an intelligent contract to pay another user at a certain time and when a specific condition is met. That amount would be consigned and sent at the time scheduled for it. Tezos would work as programmable payments following that scheme and would handle that transaction automatically.

Smart contracts can manage large sums of money, so that security is very important. But it can happen that hackers access the smart contract and can take advantage of it to access the contract funds. Or the contract may contain code errors and cannot be recovered. These are problems that have occurred before in other blockchains and that are still a handicap for the massive adoption of cryptocurrencies.

To help prevent this, Tezos enhances the security of smart contracts which can be formally verified, verification that allows developers to mathematically check the accuracy of the code out, and ensure that it will execute what is intended. This is increasingly useful in mission-critical areas such as aerospace, nuclear and logistics. These are contracts that have been formally tested and are therefore less prone to code errors that could cause loss of funds due to errors or cyberattacks.

This emphasis on security and formal testing makes Tezos' blockchain especially suitable for payments and other high-value transactions or applications.

How is Tezos generated and what is Tezos "baking"?

Baking is another metaphor to refer to the mining of Tezos' native cryptocurrency.

Actually Tezos coin is called Tez and this crypto is also bought, kept, spent or sent, and like the bitcoins that are minable, the Tez are "bakeable", but unlike the mining of bitcoins, this baking process does not require expensive equipment and a significant consumption of electricity. All that is required is to have Tez crypto-coins initially, because it uses an unique consensus process called the "Liquid Proof of Stake Test" that rewards token holders based on the number of tokens baked and not on the capacity of the mining equipment. This way those who have tokens or Tez coins are the ones who manage this network and receive the reward. All you need is a computer, an internet connection and Tez funds to bake.

On the other hand, if an user does not want to bake or does not have enough funds, he can still participate by delegating his Tez funds to be baked for him. The process of delegating Tez funds is simple and secure. Everyone keeps their percentage of baking rewards as though it were a commission that is taken by the delegate and the owner of the funds. After a period of 35 days the owner starts receiving baking rewards, and then in periods of a few days they continue to receive rewards as long as the delegate is active in the network to continue the process. This encourages the delegate as a baking user. The better they work, the more people will delegate their Tez funds and the more commissions they will receive.

This way, baking Tezos encourages open participation. This system also encourages token holders to participate no matter how many tokens they have. And the more they participate the more valuable resources are brought to the network. There are also votes on updates and improvements to the network.

There are hundreds of people baking Tezos these days. There is a public list of users and companies that carry out this activity and share the rewards. It is currently estimated that 80% of the Tezos tokens that exist are being baked to generate more using the consensus Proof of Stake (PoS). There is a ranking of 122 baking users with different degrees of efficiency and different participation fees.

How does Tezos update itself automatically?

As it is said previously, Tezos is a blockchain designed to provide security, open participation and automatic updating. In relation to the latter, the update is managed in a methodical way in which the Tezos token holders have a voice or vote on the future of the network. Other blockchains have many problems with updates as too many discrepancies and disagreements are generated, which slows down innovation and forks are produced, creating new cryptos and dividing communities that produce a network reduction.

A formal governance process to coordinate updates and inflation funding is needed. The formal governance process consists of three different voting periods. Each period lasts about 23 days. During these periods the Bakers vote on behalf of their own Tez Tokens as well as any that have been delegated to them. Delegators can change to a new Baker at any tome too, to better align with their voting preferences.

  • During the first period, the proposal period, any Tezos Baker can submit a proposal to update or modify the blockchain. Other bakers can vote on their favourite
  • The most voted proposal advances to the next voting period which is called the exploration vote period in which if the proposal receives enough support from Bakers, then it advances to the testing period.
  • During the testing period, a temporary test chain is created to help ensure that the proposed upgrade works, that improvement is safe to be adopted for the network.
  • Following, the upgrade advances to the promotion vote period. In this final voting period, Bakers vote to determine if the proposal will be implemented. If it receives enough support, then it’s approved and Tezos upgrades itself automatically with a new code and it becomes a part of the main Tezos chain.

Thanks to this update protocol using this voting system, Tezos became in 2019 the first blockchain to upgrade itself without the need of a fork. Even the update process itself can be also upgraded over time.

Another feature of this blockchain is the Inflation Funding created to encourage users to create proposals so that the system authorizes the creation of invoices for each proposal and the successful one is paid, so that in the governance process, the specified tokens are automatically mined to pay the invoice for the winning proposal. Thus the reward for innovation does not depend on altruism or external organizations. Developers are financially encouraged by the network itself to improve the Tezos Blockchain.

“Together, the formal governance process and the inflation funding allow Tezos to evolve openly and methodically, without forks or community division, and every token holder can participate in this process. It is really a true digital commonwealth and this is just the start.“

Respecting the Tezos' prices as a cryptocurrency, it has a current value of 3.18 US dollars, placing the 13th position in the CoinMarketCap Index with a capitalization of more than 2,344 billion dollars and a circulation provision of 737 million monetary units. The maximum recorded value was 4.46 USD on July 1, 2018 and the lowest value was 0.31 USD in December of the same year.

                                                    Source: CoinMarketCap

It has very remarkable markers with an FCAS (Fundamental Crypto Asset Score) of 759 out of 1000 with outstanding aspects such as: its underlying technology, its token economy and performance and its technical team.

                                      Source: CoinMarketcap and Flipside Crypto

This is a cryptocurrency and blockchain to be considered if we look for consistent projects with a high added value and with differential elements that show a very outstanding improvement respecting other blockchains in the industry.

Comments