In the year 2021, there has been a lot of criticism of proof of work due to environmental concerns. One particular blockchain project that emphasizes being a green alternative that is not using too much energy is Tezos. It started in 2017 as an ICO and while the start of Tezos was delayed because of legal issues it became quite popular a few years after.
What makes Tezos special and why is it not just another smart contract platform but a completely new idea in terms of governance? In this article, we are going to discover the basic features of one of the most ambitious blockchain platforms.
What is Tezos?
Tezos is a blockchain that is based on a proof of stake algorithm. The native token of the Tezos blockchain is called Tez but the official exchange ticker is XTZ. Therefore, most publications refer to Tezos or XTZ rather than Tez or “Tezzies”.
Tezos began as a largely successful ICO in the year 2017 and managed to gather over 228 million US-Dollars during its ICO. However, the project ended up with legal issues between the founders and the start had to be postponed. That caused another wave of lawsuits since a part of ICO investors demanded to get their funds back. While the legal disputes were settled later, Tezos managed to start in 2018.
The idea behind Tezos is all about governance. Many other platforms allow users to govern certain decisions in the network. Tezos offers the community the option to literally govern every aspect of the blockchain and not only the terms of smart contracts. Don’t like proof of stake? Try to make a proposal and see if everybody agrees to switch to mining. This makes Tezos really special. In effect, everything could be changed or addressed if the community agrees that there is demand for a change even if it’s drastic.
Welcome to the bakery
Unlike other projects, Tezos is using the term baking instead of staking. The network is secured by liquid proof of stake or LPoS. There are two types of stakers. The first group needs to hold 8.000 XTZ in order to run a node. These stakers are called “bakers” and their stake is called a “roll”. The second group can delegate Tez to a baker of their choice and earn rewards in return. This is a system that is very similar to other proof of stake solutions.
The advantage is that even retail investors can participate in staking their XTZ by simply delegating their funds to a baker. It also allows everyone to participate in governance since bakers can vote on proposals that are going through different stages:
- The proposal period
- The exploration vote period
- The testing period
- The promotion vote period
Please note that bakers need to have free capacity to accept new members and one is well-advised to choose a baker carefully before delegating funds.
Is Tezos more friendly to the environment?
Proof of stake is considered to reduce the effect of blockchain technology on the environment. This is because PoS based blockchains use a lot less energy than PoW based blockchains. Tezos has emphasized this effect throughout the year 2021.
While it is true that Tezos is consuming a lot less energy than let’s say Bitcoin this is not a merit of this particular blockchain project but proof of stake itself. Therefore, any other technology that is based on a similar consensus mechanism can be considered as a green alternative as well.
What is Tezos offering?
Aside from the aspect of governance Tezos has built a thriving ecosystem of its own in the past two years. There are typical uses-cases that include NFTs and marketplaces for digital art and collectables. There are also stablecoins available and it is possible to make use of certain DeFi protocols. Some of them are still early in their development. Here are a few examples:
As always: Please note that these are just a few examples and the projects mentioned are in no way endorsed by LiteBit.
With other layer-one solutions like Ethereum, Solana, or Avalanche already having a broad ecosystem running, Tezos is indeed a little bit behind in terms of development. While this was hampering its growth in 2021 this can also be viewed as an opportunity for more growth in the years to come. With more protocols becoming available, Tezos can try to snatch more market share from its competitors.
The Tezos Foundation
The Foundation watches over the development of Tezos and also supports its growth. It is worth mentioning that the Tezos Foundation has massive funds at its disposal. This stems from the fact that a large part of the money that was collected during the ICO has been invested into cryptocurrencies which grew in price over time.
While the Tezos Foundation is not the driving factor behind the development it plays an important role by subsidizing future development by handing out grants to promising projects that are based on Tezos. It publishes reports on a regular basis that allow getting a good overview of its activities and the results of the foundation’s work and the development of supported projects.