What is Tezos Coin (XTZ) – Tezos Token (XTZ) Review

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Officially launched in September 2018, following an ICO in July 2017, Tezos is a cryptocurrency ecosystem that utilizes an Ethereum-style blockchain. The native digital token of Tezos is the XTZ coin, of which the total supply is 763,306,930.

Founded by Arthur and Kathleen Breitman, the Tezos project is based in Switzerland. The aim of the project was to create the “last cryptocurrency”: a digital token that avoided problems such as the hard fork issues encountered by Bitcoin, by implementing a self amending blockchain with on-chain governance. By correcting internal flaws as soon as they are identified and adopting proven innovations from other cryptos, Tezos believes it is possible to enjoy a smooth running, self-upgrading platform in the long term.

Tezos employs a proof-of-stake protocol that is similar to Bitcoin’s proof-of-work protocol but each block in the Tezos blockchain is ‘baked’ rather than mined and your ability to bake is based on your stake rather than on the power of the hardware you are running.

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The Tezos Team

Arthur Breitman has many years of experience in the financial sector, working for companies such as Morgan Stanley and Goldman Sachs as a computer scientist and mathematician. His wife, Kathleen Breitman, also cut her teeth in the financial sector, working for Bridgewater Associates and R3 among other companies.

Having identified a number of shortcomings in Bitcoin’s architecture, which he believed would hinder its ability to evolve in the future, Arthur became interested in developing what he called a self amending cryptocurrency. His aim was to create a crypto that could evolve to cope with both growing pains and future challenges, without running into any roadblocks or triggering any major conflicts in the process.

A Rocky Start

Although Tezos and its XTZ coin are as stable as any other crypto at the time of writing, this was not always the case. After raising $232 million in their 2017 ICO, Tezos became embroiled in conflict and controversy, to such an extent that some industry watchers doubted their ability to come out the other side intact. The core issue was a disagreement between the Breitmans and the then president of the holding company, the Tezos foundation, Johann Gevers, who refused to release any of the ICO proceeds to Arthur or Kathleen.

Following a drawn-out confrontation that played out under the spotlight of the financial media, Gevers resigned his position in exchange for a severance package and the Tezos project found itself in calmer waters, finally able to officially launch its network. Looking back, the project suffered from a wasted year as far as all the conflict and controversy was concerned but it did at least clear the path for a less complicated future.

The Tezos Platform Architecture

The XTZ coin blockchain uses 3 protocol layers, with an agnostic middleware to aid communication between the separate layers. The main blockchain protocol consists of the transaction and consensus protocols, with a network protocol that communicates with these two protocols via the agnostic middleware (the network shell). Below, is a brief description of the function of each protocol.

  • Transaction Protocol – This layer forms part of the core blockchain protocol, along with the consensus protocol. It defines the accounting model used by the blockchain.
  • Consensus Protocol – As you would imagine, this layer describes the protocol that is used to validate transactions/blocks in the chain by consensus.
  • Network Protocol – This is the communication protocol that nodes use to communicate with each other and peers use to listen out for notifications.

This modular blockchain architecture is designed to facilitate easy upgrades and amendments, avoiding the previously mentioned issues that have plagued some other cryptocurrency blockchains in the past.

The Tezos Proof-of-Stake Protocol

As mentioned earlier, the procedure for validating blocks in the XTZ blockchain is called baking and differs from mining in that your ability to participate depends on the number of XTZ coins you hold and not on the capabilities of the computer hardware you use. If you own 8,000 XTZ, you can set up a node and bake blocks yourself. Alternatively, you may delegate your baking rights to a third party (a delegation service), who will perform the baking procedure and forward the rewards to you, minus their fees.

The Advantages of Tezos Blockchain Technology

Compared to conventional cryptocurrency blockchains, Tezos offers several interesting advantages:

  • No Hard Forks – The on-chain governance and self amending properties of the Tezos blockchain is designed to avoid hard forks, thereby ensuring that all stakeholders are focused on one product and do not end up competing against each other in separate forks.
  • Continual Upgrades – The process of continual upgrades to the blockchain helps to make it more robust and less vulnerable to attacks.
  • On-Chain Governance – The democratic governance of Tezos ensures that a consensus is reached before any permanent shifts in the philosophy, technology or operational procedures of the project are implemented.

Types of Tezos Accounts

There are two types of accounts and depending on what you wish to do with your investment in XTZ coins, one may be more suitable for your needs than the other.

  • Implicit Accounts – Created with a pair of public/private keys, a Tezos implicit account is the simplest type of account you can use to hold and trade XTZ coins. The two primary properties of an implicit account are a name, denoting the owner of the account, and a balance, reflecting the number of XTZ coins currently held in the account.
  • Originated Accounts – An originated account is also created with private and public keys but it has a couple of additional properties that differentiate it from an implicit account. These are a boolean field that indicates whether the baking rights attached to funds in the account can be delegated and a delegate name field that specifies the third party that the baking rights have been delegated to, if indeed the rights are delegated.

As you have probably surmised from the above description of the two different account types, an account holder who wishes to delegate their baking rights should open an originated account whereas somebody who either wants to participate in the baking process themselves or simply hold XTZ coins and not bother about baking at all, should open an implicit account.

If you open an implicit account and wish to bake, you should register as a delegate and if you open an originated account and wish to profit from delegating your baking rights, you will need to assign them to a registered delegate.

Secure Smart Contracts

Tezos smart contracts are created with Michelson, a functional programming language. This makes Tezos smart contracts inherently more secure than contracts created by imperative programming languages, such as those used in other cryptocurrency projects.

The smart contracts are more secure because the mathematical behavior of contracts created with a functional programming language is easy to predict, resulting in fewer bugs and weaknesses. More importantly, the predictability and readability of contracts and applications written using Michelson enables Tezos to perform formal verifications on the smart contracts, DApps and other programs that run on its platform, providing investors with industry-leading levels of security and giving them great confidence in the functionality of the Tezos platform and its software.

How to Store XTZ Coins

If you decide to invest in this intriguing cryptocurrency, you will probably want to store your coins in a ledger or wallet, for safekeeping. Whilst almost all cryptos can be stored on exchanges, this is not considered the safest way to do it. With XTZ coins, you can use a web wallet such as Tezbox Wallet or Galleon Tezos Wallet, or a hardware wallet such as Ledger Nano S or Trezor. At the time of writing, there are no official GUI wallets offered by the Tezos Foundation. You also have the option of using what is called a paper wallet, which is simply to print out your private key and store it somewhere safe.

The Future of Tezos

The fact that Tezos started out by addressing some of the key issues other blockchains have faced as they grew makes it a unique project. This, together with the on-chain governance model it has pursued, sets it apart from any other cryptocurrency currently on the market and has led some industry insiders to speculate that Tezos and its XTZ coin have the potential to challenge Ethereum’s dominance at some point in the future. Whether this turns out to be the case remains to be seen, but assuming that no glaring vulnerabilities are found in its network protocols once it starts to become more popular, it certainly looks like it may have an interesting future.

As it is the security of its smart contracts and the self amendment capability of its blockchain that sets Tezos apart from other cryptocurrencies, it is most likely to turn out that it is on these features that it will stand or fall in the future. If exploits are uncovered, confidence could be shaken, but if not, the platform will certainly attract more attention from industry insiders and casual observers alike.

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