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Understanding Tezos (XTZ)

By iTrustCapitalMay 05, 20223 minutes read
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Tezos is a blockchain network and cryptocurrency. The Tezos native coin, XTZ, enables coin holders to vote on platform updates and propose changes. Tezos was launched by a husband-and-wife couple and uses a proof-of-stake consensus mechanism.

Want to learn more about Tezos and XTZ? Well, read on!

What is Tezos (XTZ)?

Tezos is an open-source blockchain network and XTZ is the blockchain’s native cryptocurrency. The Tezos blockchain can support peer-to-peer XTZ transactions in addition to an ecosystem of blockchain-based projects. Tezos supports smart contracts—electronic contracts that use blockchain technology to automatically execute.

XTZ is a governance token, allowing XTZ holders to guide the development of the Tezos blockchain. The Tezos blockchain is self-amending, meaning that all changes to the blockchain are driven entirely by XTZ holders. 

Tezos uses a formal verification process for smart contracts, boosting the security of the Tezos ecosystem. The blockchain network uses a consensus mechanism known as liquid proof of stake.

How does Tezos (XTZ) work?

Tezos uses liquid proof of stake, a variant of delegated proof of stake, to operate the blockchain. Proof-of-stake consensus mechanisms generally require coin ownership to participate in validating transactions and minting new currency, while delegated proof of stake assigns validation authority to a limited number of pre-selected blockchain participants. Participants in a liquid-proof-of-stake blockchain, such as Tezos, can validate transactions as long as they hold the required minimum amount of coins—no pre-approval required. Having a greater number of validators—known as “bakers” in the Tezos network—can increase the liquidity of the staking network.

Participants who help to operate the Tezos blockchain fall into three main categories:

  • Bakers: Tezos bakers produce, sign, and validate blocks to add them to the Tezos blockchain. Bakers are required to stake—agree to not trade or sell—at least 8,000 XTZ. Bakers can earn XTZ in exchange for their participation.

  • Endorsers: Tezos endorsers validate—endorse—the activity of bakers. Endorsers are also required to stake at least 8,000 XTZ and can earn XTZ in exchange for their participation.

  • Delegators: Tezos coin holders with less than 8,000 XTZ can participate in operating the Tezos blockchain by delegating their XTZ to a baker. The baker produces new blocks to earn XTZ rewards, which are typically distributed in part to delegators.

The Tezos blockchain, by using a proof-of-stake consensus mechanism rather than proof of work, is generally energy efficient. Proof-of-stake network participants require only an internet connection and internet-connected device, rather than the extensive computing hardware required for proof of work. 

Projects hosted on Tezos

Wondering what kinds of projects are supported by the Tezos blockchain? Here are a few examples:

  • Tezfin: Short for Tezos Finance, Tezfin is a decentralized finance project that enables participants to borrow and lend XTZ.

  • Harbinger:Harbinger is a blockchain-powered data provider that delivers signed price feeds to the Tezos network.

  • Wrap Protocol: The Wrap Protocol enables the migration of Ethereum-compatible coins to the Tezos blockchain.

A brief history of Tezos

Tezos was proposed by the Breitmans, a husband and wife duo, in a 2014 whitepaper. Arthur and Kathleen Breitman raised capital for the project in 2017 by sponsoring an initial coin offering (ICO). With a capital raise of $232 million, XTZ officially launched in 2018.

The Tezos Foundation launched in 2017 to support the long-term success of the Tezos blockchain and XTZ cryptocurrency. But before XTZ began trading, a public dispute erupted between the Tezos Foundation’s president and the Breitmans. The Tezos Foundation and the Breitmans were also named as defendants in several lawsuits alleging that the 2017 initial coin offering (ICO) was an unregistered securities offering. A $25 million settlement in 2020 was awarded to Tezos’ ICO investors who participated in the class-action lawsuit.

Despite the controversy, the Tezos blockchain continues to operate, with more than 75 projects currently supported by the Tezos ecosystem.

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