
Tezos ventured into the crypto space by raising $232 million in their then record-breaking ICO.
Since their ICO, their launch date has been continuously postponed due to behind-the-scenes chaos and other controversies. Tezos was publicly released in September 2018 and now is a perfect time to look at this thrilling project. So, what’s the Tezos?
What’s the Tezos Coin?
Tezos is a new unified blockchain, regulating itself by creating a real digital commonwealth, according to the Tezos website.
Tezos (XTZ) is a blockchain network connected to a global token called a tez or a tezzie. Tezos is not focused on tez mining. Instead, token investors are credited for engaging in the proof-of-stake consensus process.
A commonwealth is a community that wants to be bound together because of their mutual values and desires. The key goal of Tezos is to ensure that their token holders collaborate together to make choices that will strengthen their protocol over time. The native token of the Tezos is XTZ.
There are a number of features in Tezos that make it exclusive. We’re going to cover them later in the guide. Let’s give you a little history on the project for now.
A Short Overview of What is Tezos
The co-founders, Arthur Breitman, and Kathleen Breitman, have been designing Tezos with a small community of developers since 2014. The company is based in Switzerland. As we’ve already said, $232 million in uncapped ICO has been collected in just two weeks, welcoming donations from both Bitcoin and Ether. Shortly after their seminal ICO, Tezos first ran into a number of management problems. In order to grasp these management problems, you must realize that the Tezos-founding organization is called DLS (Dynamic Ledger Solutions) and that the entity that maintains all the funds raised through the ICO is entitled the “Tezos Foundation.” Arthur and Kathleen Breitman have gotten into a public squabble with the founder of the Tezos Foundation, Johann Gevers. Apparently, Gevers, who was in charge of the finances, refused to pay the money to the Breitmans. This disagreement has led to instability within the economy and the expected exchange rate has plummeted. The Breitmans issued a scathing statement on Gevers that included terms like “self-dealing, self-promotion and conflict of interest.”
Eventually, following a lot of drama and unwelcome public coverage, Gevers left the organization following getting more than $400,000 in severance. Now things are running smoothly. And, on that note, let’s get down to the bare facts.
Tezos Architecture
You can’t answer the question, “What us tezos?” “The Tezos blockchain uses an agonistic native-middleware called ‘Network Shell.’ This helps them to build a modular style with a self-modifying ledger. The standardized blockchain protocol is split into three layers:
- The network protocol: The gossip protocol, which is responsible for peer listening and node transmission.
- Transaction Protocol: This is the transaction layer that describes the accounting process that the blockchain implements.
- Consensus Protocol: Very self-explanatory. This establishes a consensus mechanism that will help our blockchain achieve decisions on the status of our transactions.
In Tezos, the last two protocols, Transaction and Consensus, are fused to be referred to as the Blockchain Protocol. The Network Shell helps to communicate between the network protocol and the blockchain protocol. The network shell is agnostic to the transaction protocol and the consensus protocol.
Tezos Account Types
The two forms of accounts that you will use in Tezos are:
- Implicit Accounts.
- Originated Accounts.
Implicit Accounts
These are the most common accounts in Tezos. They begin with tz1 (ex: tz1cJywnhho2iGwfrs5gHCQs7stAVFMnRHc1). This is a simple account that is created by a pair of public/private keys. The public tz1 address is extracted from the public key and each tz1 account has its own private key. Such accounts have the owner of the account and the balance of the account.
Implicit accounts can not have a delegate. In order to delegate the funds, they will need to transfer the funds to the originating account and then set up a delegate.
Originated Accounts
In addition to implicit accounts, you also have smart contracts accounts called originated accounts. They start with KT1 (ex: KT1Wv8Ted4b6raZDMoepkCPT8MkNFxyT2Ddo). Such accounts have the following fields:
- Manager – This is the private key of the account
- Number – Number of Tz in this account
- Delegatable – Can the funds in this account be delegated to baking
- Delegate fields – Information on to whom this account has been delegated to for baking.
The originated account could assign its funds to the implicit account of the baker. We’re going to talk more about bakers later.
Tezos has three distinct capabilities:
- On-chain administration and self-modification.
- Liquid Proof-of-Stake Consensus Mechanism
- Intelligent contracts with formal authentication.
Let’s go over every single one of them.
On-Chain Governance and Self-Amending
In order to grasp the importance of on-chain governance and self-amending, you will first grasp forks.
A fork is a situation in which the state of the blockchain is split into chains where a part of the network has a different view on the history of transactions than another part of the network. That’s essentially what a fork is, it’s a separation from the point of view of the blockchain community. A fork can be made with a soft fork or a heavy fork.
What’s a Soft Fork?
Whenever a chain has to be modified, there are two options to do this: a soft fork or a hard fork. Think about the soft fork as a backward compatible software upgrade. What does that mean to you? Suppose you are running MS Excel 2005 on your laptop and choose to use the built-in MS Excel 2015 spreadsheet, you can still use it since MS Excel 2015 is backward compatible.
Still, having said that there’s a difference. Not all features that you will experience in the newer edition will be available to you in the older version. Moving back to our MS Excel example again, assume there’s a tab that lets you place the GIFs in the spreadsheet in the 2015 edition, you won’t see the GIFs in the 2005 edition. And essentially, you’re going to see all the text and you’re not going to see the GIF.
What Is a Hard Fork?
The key distinction between a soft fork and a hard fork is that it’s not backward compatible. If it’s being put to use, there’s just no way out. If you do not use the updated version of the blockchain, you will not be able to access any latest features or communicate with any other system users. Think about PlayStation 3 and PlayStation 4. You can’t play PS3 games on PS4 and you can’t play PS4 games on PS3.

Andreas Antonopoulos explains the distinction between hard and soft fork like this: if a vegetarian restaurant wants to add meat to their menu, it will be called a hard fork. If they’d like to add vegan foods, someone who’s vegetarian will still eat vegan, you don’t have to be vegan to eat there, you could still be vegetarian to eat there, and meat eaters could eat there too, and that’s a soft fork.
Now, one thing is meant to be obvious here. Forks are not a bad idea. A high-quality platform will still develop and upgrade itself on an ongoing basis. In order to achieve so, it is important for the system to go through hard and soft forks. The biggest issue are the divisive hard forks that separate the group.
The most clear example of this is all the hard forks Bitcoin and Bitcoin Cash have gone through. Bitcoin was split into Bitcoin and Bitcoin Cash, while Bitcoin Cash itself was later divided into Bitcoin Cash and Bitcoin SV. Bitcoin Cash and Bitcoin SV splits were particularly ugly. It started the so-called “hash wars.”
The Hash War was simply two chains that used their hash power to mine the longest chain. The one with the longest chain is considered to be the main Bitcoin Cash chain. This futile posturing sunk the entire crypto world as the whole market cap fell in value. Worse still, it split the Bitcoin Cash community into two.
That is precisely what Tezos was hoping to stop.
Kathleen Breitman said that Bitcoin’s great irony is that it’s basically a collective trust device, but it’s a huge amount of hostility. Tezos helps creativity to happen automatically, as opposed to one born in politics. She said that Arthur and she are two people who despise politics and games. That’s Tezos’ idea: let’s formalize this incredibly informal method.
How Is Tezos Avoiding This?
Tezos mitigates divisive hard forks by self-modification and on-chain governance. Self-amendment aims to update the network without enduring a hard fork. On-chain governance literally means voting on the platform on the proposed reform. With a mixture of on-chain governance and self-amendment, the voting process may be changed when required. Stakeholders in the framework (which we will talk about later) take control of the decision. The architecture of this framework makes a gradual development of the blockchain rather than a hard fork.
Okay, but how does this work?
- Developers independently apply plans for protocol enhancements and seek compensation for their research.
- Request for reward means that developers have a good economic opportunity to contribute to the project
- The implementation goes through a review cycle during which the group reviews the protocol and criticizes it for potential changes.
- After repeated checks, the holders of Tezos tokens will then vote on whether or not the plan will be accepted.
- If a legal update has been agreed on, a “hot swap” will occur on the protocol that will trigger a new version of the protocol.
Because of this scheme, the protocol is being modified passively in a transparent manner. Every protocol update goes through several testing cycles and receives appropriate input from the group. This means that whatever change occurs has the approval stamp from the bulk of the community. This removes any risk of a group breaking into a hard fork.
Liquid Proof of Stake
The collective consensus system is the heart and soul of a decentralized network. There is no point in linking several nodes through a wide area network because there are no clear ways for them to communicate with each other and make a decision. When Satoshi Nakamoto developed Bitcoin, he incorporated the proof-of-work consensus process into it. The concept of a POW system is very simple:
- Let miners use their computing resources to solve cryptographically complicated puzzles.
- Reward the miners who have been able to crack the puzzles.
It’s just as plain as that. These puzzles are so challenging that they normally suck up a lot of the computing forces. While POW was certainly successful when it began, there are a number of issues:
- First and foremost, proof of work is an incredibly wasteful mechanism due to the sheer amount of power and resources it requires.
- Individuals and companies that can afford quicker and more efficient ASICs tend to have a greater chance of mining than others.
- POW is contributing to centralisation.
A modern consensus protocol called “Proof of Stake” or POS was developed to resolve the issues of POW.
What is Proof of Stake?
Proof of stake would make the whole mining cycle automated and replace miners with validators.
This is how the process works:
- The validators would have to lock up any of their coins as a stake.
- After that, the blocks will begin to validate. In other words, when they find a block that they believe can be attached to the chain, they can validate it by placing a bet on it.
- If the block is appended, the validators will be paid in proportion to their bets.
However, this may be a problem because it also covers the whole group and may not be the most flexible of approaches. That’s why many popular blockchains like EOS, Cardano, Lisk, NEO, etc. are developed using a delegated protocol. EOS and Lisk use the delegated proof-of-stake protocol where a set number of delegates are chosen in advance. These members are responsible for the unity and the general well-being of the network.
The consensus structure of Tezos is similar, but with a little variation. Instead of a hardcore group, Tezos has integrated a model of liquid democracy into its consensus.
How Does Liquid Democracy Work?

The system is a dynamic transition between direct democracy and representative democracy.
The mechanism has the following characteristics:
- Citizens will vote individually on their policies.
- Citizens should assign their voting duties to a representative who can vote on their policies.
- Delegates themselves may delegate their voting duties to another delegate who may vote on their behalf. This property, in which a delegate may select his own delegate, is called transitivity.
- If a person who has delegated their vote does not like the vote selected by their representatives, they will simply take back their vote and vote on the proposal themselves.
What are the benefits of liquid democracy, then?
- The view of each person counts and plays a part in the final development of the legislation.
- In order to become a delegate, all you need to do is gain the confidence of an individual. They don’t have to spend millions of dollars on lavish election campaigns. The barrier to entry is relatively low because of this.
- The prospect of oscillating between direct and indirect democracy means that minority groups can be more fairly represented.
- In the end, it has a scalable model. Anyone who has little time to vote on their proposals can easily delegate their voting duties.
What is Liquid Proof of Stake?
Unlike DPoS (Delegated Proof of Stake), there is no hard and quick law that delegates specifically must be chosen. It’s completely up to the person to do what they want to do. Now let’s get going with the LPoS.
Tezos is a liquid proof of stake program that allows a certain number of Tezos tokens to engage in the blockchain consensus. The method of staking Tezos tokens (XTZ) is called baking.
The holders of tokens, referred to as “bakers”, can assign their validation rights to other holders of tokens without transferring ownership. In contrast to EOS, delegation is optional.
Baking Blocks
You find and add blocks to the Tezos blockchain through a method called “Baking.” This is how it works:
- Bakers get block publishing rights depending on their stakes.
- Each block is baked by a random baker and notarized by 32 other random bakers.
- If the block is ready to go, the block will be added to the blockchain.
- The good baker gets a block incentive and can charge transaction fees on all transactions inside the block.
As we have said before, token holders have the option of delegating their baking rights to other holders without allowing their tokens to be owned. Upon completion of the baking cycle, the baker will exchange his prizes with the rest of the delegates.
Smart Contracts and Formal Verification
Tezos has been developed using OCaml. The smart contract that will run on Tezos will be developed with the help of Michelson. So, what’s different about these languages? They’re both functional languages.
In terms of languages, they belong to two families:
- Imperative
- Functional.
Imperative Programming Languages
With an imperative style, the coder has to put down all the steps that the machine has to take to accomplish the goal. Many of our popular programming languages, such as C++, Java and even Solidity, are important programming languages. This type of programming approach is sometimes called algorithmic programming.
Take an example of what we mean by that. Let’s take a peek at C++. Suppose we’re going to add 5 and 3.
Int a = 5;
int b = 3;
int c;
c= a + b;
As you can see, the addition process takes several steps and each step is continuously modifying the state of the system as they are all running independently.
The additional method has four steps and the steps are:
- The declaration of the integer a and the assigning of the number 5 to it.
- Declare the integer b and add the value 3 to it.
- The declaration of an integer c.
- Add and store the values of b and store them in c.
Functional Programming Languages
The second programming language family is Functional Languages. This programming style was designed to develop a practical approach to problem-solving. This type of approach is called declarative programming.
Okay, how does functional programming work?
Suppose there is a f(x) function that we want to use to measure the g(x) function, and then we want to use it to deal with the h(x) function. Instead of working out all of them in a sequence, we can simply put all of them together in a single function like this:
h(g(f(x)))
This makes the functional solution easier to understand mathematically. That’s why practical systems need to be a more reliable solution to building smart contracts. This also assists with better Formal Verification, which ensures that it is easier to mathematically prove what the program does and how it operates.
Take a real life example of this and see why it can become extremely critical and even life-saving under certain circumstances.
Suppose we’re coding a system to monitor air traffic.
As you can expect, the coding of such a device requires a high degree of precision and accuracy. We can’t just arbitrarily code something and hope for the best if people’s lives are at risk. In cases like this, we need a code that can be proven to work with a high degree of mathematical certainty.
That is exactly why a practical solution is so attractive. That’s why Tezos is using OCaml and their smart contracts are being used by Michelson.
The following table contrasts the Imperative approach to the Functional approach.

Image Credit: Docs. Microsoft.com
Now, let’s look at the benefits of a functional approach:
- It helps to build a high-security code because it’s easy to show how the code works mathematically.
- Increases readability and maintainability as each feature is programmed to execute a particular purpose. The roles are therefore autonomous of the administration.
- The code is easier to refractor and any improvements to the code are easier to enforce. This makes it possible to replicate inventions.
- The individual functions can be conveniently separated, making it easy to check and debug.
More about Michelson
Michelson is a strongly typed, stack-based language.
Within Ethereum, smart contracts are written within Solidity or Viper and compiled into EVM byte code, which is then implemented in the Ethereum virtual machine (EVM). There is no needless extra phase in Tezos, and the Michelson code itself will run in the Tezos VM.
What’s the value of this approach? This can be quickly read by people, and can help to create proofs of consistency and help prevent glitches.
Tezos – Final Word
Tezos is an incredibly exciting idea that has sadly been overshadowed by all the behind-the-scenes drama. This project needs a closer review because it brings some fascinating usefulness to blockchain space. Now we need to wait to see if they can justify the buzz they created after their ICO.