Tezos (XTZ): A Self-Amending Smart Contracting Platform
14 August 2020
Survival, as they say, is for the fittest. There is arguably no better sector to apply this principle to than the crypto industry. Investors are always on the lookout for lucrative projects, but only a few withstand the test of time. The devastating bear market of 2018 showed a few of these enduring performers.
What is Tezos?
One of these resilient projects is Tezos. It describes itself as a “self-amending blockchain.” This coin is the innovation of a couple, Arthur and Kathleen Breitman, founded through the Dynamic Ledger Solutions (DLS). The project launched its beta after a successful and uncapped initial coin offering (ICO) that raised $237 million in July 2017. Tezos is today, one of the most active blockchain platforms.
On the surface, Tezos may appear to be a complex implementation. On closer examination, it is a simple concept and a realization of years of philosophical and economic reflections. Successful blockchain projects are open source. That means the underlying code is free to the public. For the network to thrive, there must be activity, and developers must actively improve the code lest it becomes obsolete and vulnerable.
The more active it is, the more its code becomes robust. However, the more the builders, the higher the chances of disagreements. Disagreements can be a threat to the longevity of a project. Tezos was specifically designed to counter such fragilities. Threats through forks, where the chain breaks into two separate blockchains with different tokens but the same source code (often with tweaks), are minimized in Tezos.
Tezos Governance & What is XTZ
The fuel that runs Tezos is the XTZ cryptocurrency. To counter forks and unnecessary blockchain splits, the creators of Tezos allowed holders of XTZ to vote for possible changes to its rules (that is proposals). Once decided, the protocol automatically updates to incorporate the changes made. The path from proposal to implementation goes through an election cycle lasting roughly six months.
[caption id="attachment_8319" align="alignnone" width="1024"] Source: Medium (Tezos)[/caption]
How they did it revolves around the question of blockchain governance and the delicate act of ensuring complete decentralization without harming the primary chain performance. Tezos successfully altered discourse around blockchain governance by dichotomizing its governance architecture. There are two modes of governance the Tezos blockchain relies on: off-chain and on-chain.
Even though on-chain governance is akin to a standard democratic process and is largely experimental. This means users can vote depending on their preference, thereby determining the project’s trajectory. This attribute makes the network self-amending since upgrades can be made easily, and future proposals can be integrated into the protocol without destabilizing the network.
XTZ owners can lock their coins through special contracts in a process called baking. Baking simply means that there is no "mining" (i.e. validating transactions through proof-of-owrk). Those who can’t directly bake can delegate their stash to other bakers and earn annual yields of freshly minted XTZ coins.
To qualify as a baker, one must stake 8,000 XTZ coins (called a roll). It is this innovation around the thorny issue of governance that won the hearts of investors and galvanized Tezos to what it is today.
Michelson and Formal Verification
It may be focused on stability through aversion of unnecessary forks, but over and above everything, Tezos is a smart contracting platform. This means developers launching projects can deploy a self-executing code called smart contracts, and decentralized applications (dApps) that are censorship-resistant and secure.
The choice programming language is Michelson, an invention of the Tezos development team. Michelson was specifically designed to facilitate a process known as Formal Verification. Formal Verification is an algorithm that rigorously tests the validity of the logic behind any smart contracts. By picking out flaws, chances of deploying flawed smart contracts with vulnerabilities are drastically slashed.
For general consensus, Tezos uses the liquid proof-of-stake (LPoS), an alternative to traditional Proof-of-Stake (PoS). The LPoS consensus is used for transaction confirmation, security, and for distribution of newly minted XTZ, a job assigned to bakers and endorsers.
Bakers are incentivized to operate honestly for fluidity since they can be punished if they are dishonest and can be voted in and out by XTZ holders. On the other hand, endorsers verify the legitimacy of blocks by signing those confirmed by bakers.
To Wrap It Up
The LPoS consensus algorithm provides more efficiency than the Bitcoin Proof-of-Work consensus. Tezos is an exciting opportunity for developers to create on a self-modifying blockchain with better scalability and efficiency.