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An Introduction to Tezos Blockchain




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Tezos has experienced a reasonable state of balance since the summer of 2018, with multiple upgrade cycles and extra functionalities within a short period. XTZ is the native token of Tezos, and with the continuous increase in price, many have started to consider Tezos as a promising project. Well, that’s not entirely the case, as concentration seems to be on the baking rewards, forgetting that there are other positive features of Tezos. Let’s have an overview of other real reasons behind it being a long-term hold.


Decentralization is the main factor behind the uniqueness of Blockchain as a trustless database. But so far, it seems like both traders and investors often forget about decentralization. Bitcoin is well-known because of its decentralized nature. No central party can enforce their will on a decentralized blockchain. Hence, the uniqueness of Tezos, because it is a truly decentralized blockchain.

However, most cryptocurrencies go for centralized or semi-centralized variations because decentralization comes with numerous challenges. Such challenges include low speed, and the inability to make changes to keep up with the market. It is also difficult to add new functionalities, fix bugs, etc. in decentralized systems. Tezos uses a governance model to solve these issues, and still maintains its full decentralization.

Tezos’ Unique Governance Model

One of the existing problems of decentralized blockchains is the inability to evolve, upgrade, and fix bugs.

To improve the main code and add extra functionality, the blockchain code needs to be upgraded, and that requires a consensus amongst the nodes. The majority have to approve the changes and upgrade their nodes.

Note: Nodes are computers run by miners/ bakers. 

If the code is changed and there is no majority, then the new code will not be implemented in the main chain. But if the minority of the nodes still goes ahead to use the new code, the blockchain will divide (Fork). This means that the main chain will use the old code, while the new chain uses the new code. BTC and BCH is a perfect example of a Hard Fork.

The above illustration depicts two problems:

  1. Rough evolution
  2. If an STO is created on a chain that forks, owners of tokens will own these tokens both on the main chain and the new chain. And that’s not good for regulated tokens.

But the case is different for Tezos blockchain, as the unique governance model ensures:

  • Swift evolution

As a fully decentralized system, Tezos ensures swift evolution with its on-chain governance model, which includes self-amendment. Upgrades are done via a fixed amendment model. Although all these don’t happen once on the blockchain, there are stages; the first phase, an exploration phase, a testing phase, and the final phase.

In the first phase, any baker can submit a proposal, then the proposal with the highest votes advances to the next stage. And in the exploration phase, the voting is focused on the single proposal from the first phase. But a supermajority is necessary for the proposal to advance to the third phase.

In the third phase, which is the testing phase, the proposal is tested on a test-net. Here, bakers can join in checking the proposal so they can make a unified decision.


The final phase is the implementation stage in the main-net, with Tezos evolving within three months. The implementation of the upgraded protocol in the main-net is automated. At the end of the final voting and a supermajority is achieved, the protocol activates the nodes. Then, the nodes automatically download the code, and they begin to use the new protocol at the beginning of the next cycle.

Following the two amendments made last year, there is enough proof that the governance model works. That is why Tezos’ evolution is swift, faster, and smoother than any other chain.

The governance model also beneficial for projects built on Tezos. Projects like StakerDAO (and potential DAOs), Coase cardgame, and USTDZ will be able to integrate this governance in their project.

  • The upgraded protocol prevents harmful chain splits.

Hard forks can generate community and chain splits, which is a general issue for stablecoins, STO’s, and NFT’s. Stablecoins are supported by actual value, so doubling the number of coins is unacceptable. The same applies to STO’s, as SEC is constantly watching the space.

PoS (LPoS for Tezos)

Tezos uses Proof of Stake, instead of Proof of Work (PoW) as a consensus mechanism. The variation of PoS for Tezos is Liquid Proof of Stake (LPoS). Owners of XTZ can direct their coins towards the PoS system and become a block validator earning rewards in return. “Baking” is the term used for Tezos. So, as miners earn incentives in PoW, bakers earn rewards in PoS. However, anyone who can’t start up a node can delegate their XTZ to a baker of choice. Delegators don’t have to fixate their XTZ and can stop any time. Bakers also get to earn a percentage from the reward of delegators.

The reward for baking is big enough to make Tezos the most decentralized PoS chain, with 400-500 nodes, and a good number of delegators. Meanwhile, delegators also influence the voting process. This means that the voting model can transform into something where delegators get a fixed influence.

Many big exchanges also allow their users to delegate their coins. Coinbase, Kraken, and OKEx are currently topping the list.

Note: XTZ is the first cryptocurrency with daily rewards on exchanges.

Also, from an investment point, in a PoS system for miners, they sell to cover costs, such as electricity and expensive hardware. But bakers (for Tezos) have fewer costs to cover, such as less expensive hardware and less energy costs. The reward for long-term holding is even bigger if you can earn extra XTZ while holding on to your XTZ.

Tokensoft and Tezos

One unique thing about Tezos is their standard of smart-contracts, which makes it possible to issue Security Token Offerings (STOs). These contracts are verifiable and can be tested before you launch millions on them.

Tokensoft provides a blockchain-based framework for issuers seeking to place equity, debt, or derivatives on the blockchain. In 2017, Tokensoft launched the first platform that enables blockchain issuers to adhere to security laws internationally. In 2019, they also launched the world’s first custody solution for security tokens. This solution enabled cold-storage and multi-signature custody of blockchain-based securities. The platform has issued over half a billion and is seeking to put $3 billion+ onto the blockchain.

Tokensoft is also in a partnership with Tezos, which will prompt the issuance of STOs on Tezos. They also project that 25% – 35% of their 3 billion-worth clientele will choose Tezos-based STO issuance.

Tokensoft talks about Tezos:

“After performing diligence on the Tezos blockchain, we found that Tezos is great for high complexity and high value. With the formally verified contracts, you can now test high-value transactions before publishing them on the blockchain, providing greater confidence in safely and securely using the blockchain. Anything which furthers security and reliability is of interest to our clients.”

STOs announced on Tezos so far.

  • BTG Pactual and Dalma capital adopt Tezos for STOs worth $1 billion.
  • Bonds Vinci signs business agreement with Tezos Korea for Real Estate Securities token.
  • The Fundamental Group has developed German’s first real estate crypto token and has a strategic partnership with Tezos.
  • Andra Capital to launch their new STO on Tezos.
  • Transfer Agent, Vertalo, wants its customers to issue securities on Tezos.

Tezos Blockchain

Tezos Foundation and Funding system

The Tezos Foundation has $650 million worth of funding at their disposal. This is quite a big amount, which many other projects can’t match. The amount will fund Tezos’ development for years and, maybe, decades. There is also room for organizations with projects that can improve the Tezos blockchain. Such organizations can apply for a grant to fund their project. Criteria for grant approval:

  • Must build projects on Tezos.
  • Develop new amendments (check governance system).
  • Must provide education, partnerships, etc.

The funding system generally provides a decentralized structure by expanding Tezos into independent sub-organizations and ensures overall growth.

Asides the funding done by the foundation, Tezos protocol can also fund projects by itself. Developers that insert a proposal into the amendment cycle can add an invoice that requests for a payout on XTZ. If the amendment is accepted after the multiple voting rounds, then the protocol will mint the amount of XTZ and deposits into the account on the invoice.

This feature also improves the decentralization level of Tezos, which means that anyone can improve the protocol and get rewards in turn. Therefore, even if the Tezos Foundation cannot fund the work on a certain project, the protocol invoicing can take place (although it will still be pre-funded by the development team).

Developers community

Developers community form the basis of projects in Tezos. The funding system has also helped to grow the developers’ community. Tezos trains over 500 developers with their Tezos Blockstar program in collaboration with B9lab. Organizations like Nomadic Labs, Cryptonomic, and Stove Labs also host workshops. In December last year, the Foundation disclosed that they had 1,338 developers, some were still in training while some were done.

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