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Editorialist

What is Tezos – The Hottest Cryptocurrency of 2020

Basics of Cryptocurrency
Last updated February 21, 2020

2019 was a revigorating year for the cryptocurrency market. And if the market finished the year with a bear, it started with a bull

Although, there is one crypto project that drew attention through its innovative and remarkable consistency, even when all cryptocurrencies plummeted – Tezos.

And, all things considered, the community expects Tezos to fight its way up and have the XTZ surpass Ripple and Ethereum.

What is Tezos?

What is Tezos

Tezos is a smart contract and dapps platform built on an up to the top original blockchain. The network uses tezzies (XTZ) to incentive bakers and runs its operations

It was released at the end of 2017, and it had one of the most successful ICOs ever, raising $232 million

While there already are similar successful projects like Ethereum or EOS, Tezos aims to be the first self-­amending blockchain solution. Also, its protocol has the ability to evolve and implement new innovations over time, without the risk of experiencing a hard fork. 

The network uses a delegated proof-of-stake mechanism. It prioritizes security through formal verification and mathematically proves the correctness of a smart contract’s code.

Even more, in the Tezos environment, developers are able to come up with propositions for protocol upgrades. The proposition is reviewed and voted by token holders. And if the proposition is implemented, the developer will be actually rewarded for his contribution.  

The idea of Tezos came to Arthur Breitman. Together with his wife, Kathleen Breitman, Arthur believed that the future of cryptocurrencies should be based on unity and commonwealth, rather than disputes, community splits, and ever-launching coins.

In 2015, the Breitmans tried to convince several banks to adopt the technology Arthur proposed and raise $10 million in two or three years. It didn’t work out for them, though. But in 2016 they managed to conduct an ICO and get $612,000 from 10 early bakers.

Arthur and Kathleen decided to hold the Tezos ICO in Zug, Switzerland. And to meet the requirements of the Swiss Civil Code, they established the Tezos Foundation, with Johan Gevers as president. 

So, in July 2017, Tezos managed to gather $232 million, but the continuation of the project and token issuance was delayed due to the falling out between the Breitmans and Gevers.

The delay drew with itself a series of lawsuits that got Tezos in legislative troubles with the U.S. Securities and Exchange Commission.  

In 2018, the internal struggles were sorted out and Gevers was dismissed. When the project was about to retake its course it unexpectedly announced the implementation of Know Your Customer/Anti-Money Laundering checks for contributors. The Tezos kyc was met with a negative reaction from the community.

But finally, the beta network was launched at the end of Q2. And even if 2018 was rather bearish, Tezos kept its value quite stable and continued improving and developing. Moreso, in the bull from the beginning of 2020, the tezzie tripled its value.

Is it mineable? Tezos staking

Tezos Staking and baking

As mentioned above, Tezos has a delegated proof-of-stake (DPOS) consensus mechanism. It means people can stake their tezzies to earn more tokens. 

In Tezos, staking is called “baking” as a metaphor for creating new blocks.

The creation of a new block requires one baker and 32 endorsers. The baker is the one that is actually chosen to create the block, the one which will receive a 16 XTZ reward for completing the task. On the other hand, the endorsers are the accounts chosen to verify if the block was baked correctly, and for completing the task, each baker gets 2 XTZ.

Either you want to bake or endorse, you need to set up a baking node. To set up a Tezos baking node you will need at least one roll which consists of 8,000 XTZ minimum stake. 

The more XTZ a baker is staking, the more chances he has to create and endorse new blocks.

If you do not want to set up a node or just don’t own enough tezzies, you can also delegate your XTZ to a baker. 

Most Tezos wallets support delegating, so to start earning more tezzies you only need to transfer your funds in a wallet and delegate to a baker. You can find a list of delegates on mytezosbaker.com.  

The first thing you need to know about delegating is that most delegates require a fee. Also, the efficiency differs from one baker to another and the annual yield is around 5-7%.

Giving my funds to some stranger so he can stake? Too risky…Not happening!”, or so you may think. The good thing about Tezos DPOS is that Delegation is non-custodial, thus the baker cannot use or steal the XTZ you delegated, and you can retract your funds safely. The downside is that the delegate has control over profits and if he’s a crook, he may, however, steal the earnings.

That’s why it’s important to do your research before choosing a baker. Additionally, on MyTezosBaker, you can find a list of blacklisted bakers.

Furthermore, you can delegate directly through some trusted exchanges (Coinbase, KuCoin, or Binance).

Tezos dapps and smart contracts

Tezos dapps and smart contracts

Before everything else, Tezos is a platform for dapps and smart contracts, which can be compared in several aspects to Ethereum. It is meant to host assets and applications backed by a global community of validators, researchers, and builders.

Tezos comes to satisfy the demand for a blockchain platform that is suitable for security tokens based on real-world assets such as real estate, equity or bonds. Through automation, it is supposed to bring improved cross border settlements with reduced counterparty risks and liquefy assets in real-time.

Some of the most successful STOs deployed on Tezos are tZero, Alliance Investments, Elevated Returns, Securitize.

The smart contracts on Tezos can be written in two native smart contracts language: Michelson or LIGO

Michelson is stack-based, with high-level data types and primitives and strict static type checking. It allows users to confirm the properties of a smart contract through a formal verification process.

LIGO is a simpler smart contract language developed for creating more complex contracts than those written with Michelson. Initially, it was meant to be a language for developing Marigold on top of a hacky framework called Meta-Michelson. However, due to the attention received by the Tezos community, LIGO is now a standalone language being developed to support Tezos directly. Because it’s implemented for the Tezos blockchain, LIGO compiles to Michelson. 

Tezos vs Ethereum

Tezos vs Ethereum

When it comes to smart contracts and dapps, Ethereum is the market leader. But the Dao incident and the millions of dollars lost in transactions because of faulty programming inside ERC smart contracts inspired Arthur Breitman to push forward with Tezos. 

Updating Ethereum also takes a hard fork, which puts a strain on the community by making the switch from the old version to the new version. So Breitman proposes a platform with on-chain governance via the self-amending mechanism. 

Also, mining for ether became extraordinarily difficult with a cost for energy consumption that surpasses the possible profits. Therefore the proof of work mining is mainly monopolized by big ethereum pools. That’s why the delegated proof of stake baking system was essential to Tezos.

Ethereum vs Tezos – Comparison Table

Ethereum Tezos
Token (at the time the article was written) ETH = $260 XTZ = $3.65
Market Cap $28,615,498,223 $2,561,821,613
Max supply Not fixed 797,534,902
Objective Decentralized super-computer for dapps Self-amending smart contracts platform
Consensus Mechanism Mostly POW DPOS
Transactions per seconds 15-20 tps 40-50 tps

On the other hand, Ethereum is preparing to roll out a substantial update in 2020 – Ethereum 2.0. And between many new features, Ethereum 2.0 will switch exclusively to POS and will be able to process tens of thousands of transactions per second.

Tezos vs Ripple

Tezos vs Ripple

But before challenging Ethereum’s token, Tezos would first tackle Ripple’s XRP.

Ripple is an unusual case in the cryptocurrency community. The company’s objective is to solve the issue of expensive and long-lasting cross-border payments, especially for the enterprise sector.

XRP doesn’t use blockchain but a distributed consensus ledger operated by a network of validating servers called Gateways.

Sidenote. XRP Ledger Gateways are businesses that provide a way for money and other forms of value to move in and out of the XRP Ledger network. Gateways can be banks, money service businesses, currency exchanges, or any other financial institution.

Ripple vs Tezos – Comparison Table

Ripple Tezos
Token (at the time the article was written) XRP = $0.27 XTZ = $3.65
Market Cap $11,993,688,550 $2,561,821,613
Max supply 100,000,000,000 XRP 797,534,902
Objective Efficient settlement option for financial institutions and liquidity providers Self-amending smart contracts platform
Consensus Mechanism XRP Ledger Consensus Protocol DPOS
Transactions per seconds 1500 or more tps 40-50 tps

Looking at numbers, it’s easy to deduce that Ripple holds quite a consistent payment solution, far superior to what Tezos has. It only remains to see what updates Tezos will roll out in the payments area.

Key Takeaways

Tezos is a smart contract and dapps platform. It uses the delegated proof of stake mechanism and incentivizes its miners with tezzies (XTZ).

In Tezos, miners are called bakers, and they can be chosen to either create new blocks or endorse created blocks. 

Baking requires at least one roll that consists of 8000 XTZ minimum stake. People that don’t want to open a node can delegate their XTZs to existing bakers.

Tezos comes to satisfy the demand for a blockchain platform that is suitable for STOs based on assets like real estate, equity, or bonds. 

Users can write smart contracts in the Tezos environment by using the Michelson and LIGO smart contract languages.

Tezos makes up for the shortcomings of the current version of Ethereum, but Ethereum 2.0 might be out of its reach.

As a payment solution, Ripple holds a superior position to Tezos, and it’s hard to say if the XTZ will surpass XRP.

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