Each week, Private Client Advisor Brian Belden highlights a new digital currency you’ll want to pay attention to.
What is Tezos?
Tezos is a new, decentralized blockchain that governs itself by establishing a true digital commonwealth. They aim to have their token holders make decisions together to govern the platform and improve it over time.
Tezos operates as a smart contracts platform like Ethereum, however, the main differentiating factors can be boiled down to two things: Self-Amendment and On-Chain Governance.
Self-Amendment + On-Chain Governance
Per Tezos’ website, self-amendment allows Tezos to upgrade itself without having to split (“fork”) the network into two different blockchains. This governance system is designed to allow for a smooth evolution of the blockchain rather than having to hard fork (which is a split of the blockchain into two separate versions.)
The Tezos team believes that hard forks, which both the Bitcoin and Ethereum blockchains have been subject to in the past, shouldn’t be the standard way to upgrade over time. Imagine if every time your iPhone needed a new software update you would have to get a new phone instead of just updating the one you already have to a newer version. It is a similar concept to what Tezos’ blockchain is accomplishing.
In Tezos, all stakeholders can participate in governing the protocol where the election cycle provides a formal and systematic procedure for stakeholders to reach agreement on proposed protocol amendments. By combining this on-chain mechanism with self-amendment, Tezos can change this initial election process to adopt better governance mechanisms when they are discovered.
Proof of Stake and Delegation
Unlike bitcoin, Tezos operates in a Proof of Stake (PoS) protocol (if you are unfamiliar with the differences, here is a great video to check out from BlockGeeks.) Where Tezos differs from other PoS protocols, any stakeholder can participate in the consensus process in Tezos and be rewarded by the protocol itself for contributing to the security and stability of the network.
To participate in the consensus process for PoS, a deposit is needed. Just like proof-of-work, the consensus protocol relies on a reliable majority for its security which is incentivized directly by the Tezos protocol by penalizing dishonest behavior and compensating correct behavior. If a participant behaves dishonestly, they can forfeit their deposit. If a user does not want to involve themselves in the consensus, have the opportunity to entrust their rights to other users to participate on their behalf.
In Tezos, developers are able to independently submit proposals for protocol upgrades wherein they include a request for compensation for their work. Tezos token holders can then vote on whether the proposal should be approved.
Adding this compensation structure called proof of steak, provides incentives for developers to continue improving upon Tezos rather than having to work for free, relying on donations, or being sponsored by a centralized entity.
Why We Believe in Tezos
There are thousands of different cryptocurrencies on the market but Tezos we believe is leading the development for the future of digital assets. All cryptocurrencies have their individual purpose in the ecosystem but only a few will undoubtedly adapt to the blockchains ever-growing demands.
This is why Tezos is on our radar for companies that will expand the use and utility of blockchain and crypto for years to come.
Find out more about Tezos here.