🔥 Tezos Wiki - XTZ course, cryptocurrency & more!
Tezos broke into the crypto space by putting $ 232 million in their then-record-breaking ICO. Since their ICO, their launch date has been continually delayed due to behind-the-scenes drama and other conflicts. Tezos officially launched in September 2018 and now is a good time like any other to get involved in this exciting project. So what is Tezos?
What is the Tezos coin?
The Tezos website states, "Tezos is a new decentralized blockchain that governs itself by building a true digital commonwealth".
Tezos (XTZ) is a blockchain network connected to a digital token called a tez or tezzie. Tezos is not based on mining tez. Instead, token holders receive a reward for participating in the proof-of-stake consensus mechanism.
A Commonwealth is a group that unites on the basis of their common goals and interests. The main goal of Tezos is to get their token holders to work together to make decisions that will improve their protocol over time. The native Tezos token is XTZ.
Tezos has many features that make it unique. We'll cover them later in the guide. For now, let's give you a little background on the project.
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A brief history of what Tezos is
The co-founders, Arthur Breitman and Kathleen Breitman, have been developing Tezos since 2014 with a core group of developers. The company is headquartered in Switzerland. As we said earlier, in just 2 weeks they raised $ 232 million in an uncapped ICO, accepting contributions from both Bitcoin and Ethereum. Shortly after their historic ICO, Tezos plunged head first into a host of management problems. To understand these management issues, you need to know that the company Tezos founded is called DLS (Dynamic Ledger Solutions) and the company that holds all the funds raised during the ICO is called the Tezos Foundation.
Arthur and Kathleen Breitman got into a public argument with the President of the Tezos Foundation, Johann Gevers. Apparently, Gevers, who had control of the funds, refused to pay the funds to the Breitmans. This dispute created chaos within the community and the estimated exchange rate plummeted. The Breitmans issued a damning statement on Gevers that included words such as "self-dealing, self-promotion and conflicts of interest".
Eventually, after much drama and unwanted media attention, Gevers left the company after receiving more than $ 400.000 in severance pay. Now everything is finally going smoothly. So with that in mind, let's get down to the bare details.
Tezos architecture
You can ask "What is Tezos?" do not answer correctly. The Tezos blockchain uses an agonistic native middleware called "Network Shell". This allows them to develop a modular style with a self changing ledger. A generic blockchain protocol is divided into three layers:
- Network Protocol: This is the Gossip Protocol which is responsible for peer listening and transmission between nodes.
- Transaction Protocol: This is the transaction layer that defined the billing model implemented by the blockchain.
- Consensus Protocol: Pretty self explanatory. It defines the consensus protocol that will help our blockchain reach agreements on the status of our transactions.
In Tezos, the last two protocols, transaction and consensus, are summarized and referred to as the blockchain protocol. The Network Shell supports communication between the network protocol and the blockchain protocol. The network shell is agnostic towards the transaction protocol and the consensus protocol.
The two accounts of Tezos
The two types of accounts you can use in Tezos are
- Implicit Accounts; and
- Original accounts.
Implicit accounts
These are the most common accounts in Tezos. They start with tz1 (e.g. tz1cJywnhho2iGwfrs5gHCQs7stAVFMnRHc1). This is a simple account generated from a pair of public / private keys. The tz1 public address is derived from the public key, and each tz1 account has its own private key. These accounts have an account holder and an account balance.
Implicit accounts cannot have a delegate. To delegate funds, they must transfer funds to an originating account and then a delegate must be appointed.
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Original accounts
In addition to implicit accounts, you also have accounts for your smart contracts called source accounts. These begin with KT1 (e.g. KT1Wv8Ted4b6b6raZDMoepkCPT8MkNFxyT2Ddo). These accounts have the following fields:
- Manager - This is the account's private key
- Amount - amount of Tz in this account
- Delegable - If the funds of this account can be delegated for baking
- Delegated Fields - Information about who this account has delegated to for baking.
An originating account can delegate its funds to the Baker's implicit account. We'll talk more about Baker later.
Tezos has three unique abilities:
- On-chain governance and self-change.
- A liquid proof-of-stake consensus mechanism
- Smart contracts with formal verification.
Let's go through each of these in turn.
1. On-chain governance and self-change
To understand the importance of on-chain governance and self-change, you first need to understand the "F-word" in the crypto community, the forks.
A fork is a state in which the state of the blockchain breaks down into chains, in which one part of the network has a different perspective on the history of transactions than another part of the network. That's basically what a fork is, it's a divergence in the perspective of the state of the blockchain. A fork can be achieved through a soft fork or a hard fork.
What is a soft fork?
Whenever a chain needs to be updated, there are two options: a soft fork or a hard fork. Think of soft fork as an update in software that is backwards compatible. What does that mean? Assuming you are running MS Excel 2005 on your laptop and want to open a spreadsheet integrated in MS Excel 2015, you can still open it because MS Excel 2015 is backwards compatible.
BUT after saying there is a difference. Any updates that you can enjoy in the newer version will not be visible to you in the older version. To come back to our MS Excel analogy: Assuming there is a function that allows you to insert GIFs into the table in the 2015 version, you will no longer see these GIFs in the 2005 version. So basically you see all of the text, but not the GIF.
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What is a hard fork?
The main difference between a soft fork and a hard fork is that it is not backwards compatible. Once used, there is absolutely no going back. If you don't join the updated version of the blockchain, you won't get access to the new updates or interact with the users of the new system, whatever. Think PlayStation 3 and PlayStation 4. You can't play PS3 games on PS4, and you can't play PS4 games on PS3.
This is how Andreas Antonopoulos describes the difference between hard and soft fork: If a vegetarian restaurant decided to put pork on the menu, it would be considered a hard fork. If it chose to add vegan dishes everyone who is vegetarian could still eat vegan, you don't have to be vegan to eat there, you could still be vegetarian to eat there, and meat eaters can too eat there so that is a soft fork.
Well, one thing should be clear here. Forks aren't a bad thing. A high quality platform should constantly evolve and update itself. To do this, it is absolutely necessary for a system to go through constant forks, hard and soft. The main problem lies with controversial hard forks that divide the community.
The most obvious example of this are all of the tough tests that Bitcoin and Bitcoin Cash have gone through. Bitcoin was split into Bitcoin and Bitcoin Cash, while Bitcoin Cash itself was later split into Bitcoin Cash and Bitcoin SV. The split between Bitcoin Cash and Bitcoin SV was particularly ugly. It triggered the so-called "Hash Wars".
The hash war basically consisted of these two chains using their hash power to mine the longest chain. The longest chain reportedly becomes the dominant Bitcoin cash chain. This unnecessary fuss plunged the entire crypto community into the abyss as the entire market cap lost value. Worse, it split the Bitcoin Cash community in two.
This is exactly what Tezos wanted to avoid.
As Kathleen Breitman puts it, "The great irony of Bitcoin is that it is ultimately a tool for community consensus, but it is [tarnished by] an immense amount of hostility. Tezos enables innovation in a systematic way and that Wise happens, as opposed to one born of politics. You won't find two people who loathe politics more than Arthur and I. That's the idea behind Tezos: let's formalize this extraordinarily informal process ".
How can this be mitigated with Tezos?
Tezos mitigates controversial hard fork through self-change and on-chain governance. The self-change helps to upgrade the blockchain without going through a hard fork. On-chain governance simply means voting on a proposed change on the platform. With a combination of on-chain governance and self-amendment, the coordination process can be modified or changed as required. The system's stakeholders (which we'll talk about later) take care of the voting. The design of this system allows the blockchain to develop smoothly instead of having to do a hard fork.
So how does that work exactly?
- The developers independently submit protocol upgrade proposals and request compensation for their work.
- The claim for compensation ensures that developers have a strong economic incentive to contribute to the ecosystem
- The proposal goes through a testing phase in which the community tests the protocol and criticizes it for possible improvements.
- After repeated tests, Tezos token holders can then vote on whether or not to accept the proposal.
- As soon as a legitimate upgrade is decided, a "hot swap" takes place on the protocol, which initiates the new version of the protocol.
Due to this system, the protocol is updated passively and in a decentralized manner. Each individual protocol update goes through several test phases and receives relevant feedback from the community. This ensures that any improvement is approved by a majority of the community. This prevents the community from splitting off.
2. Proof-of-Work Consensus Mechanism - How does it work at Tezos?
The community consensus mechanism is the heart and soul of a decentralized network. It makes no sense to connect multiple nodes over a wide area network if there are no concrete methods of how they can communicate with each other and come to a decision. When Satoshi Nakamoto created Bitcoin, he built the proof-of-work consensus mechanism into it. The idea of the POW mechanism is pretty simple:
- Let the miners use their computing power to solve cryptographically tough puzzles.
- Reward the miners who were able to solve these puzzles.
It's that simple. These puzzles are so difficult that they usually use a lot of your numeracy skills. While the POW was definitely effective in the beginning, it has a lot of problems:
- First and foremost, the proof-of-work is an extremely inefficient process because of the sheer amount of force and energy it consumes.
- People and organizations that can afford faster and more powerful ASICs usually have a better chance of mining than the others.
- POWs lead to centralization.
To counter the problems of POW, a new consensus protocol called "Proof of Stake" or POS was created.
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What is the proof of stake?
The proof of stake will make the entire mining process virtual and replace the miners with validators. Here's how the process will go:
- The auditors will have to lock up some of their coins as a POS.
- Then they start validating the blocks. That is, when they discover a block that they believe can be added to the chain, they validate it by placing a bet on it.
- When the block is attached, the examiners receive a reward proportional to their stakes.
However, this can be an issue as it still encompasses the entire community and may not be the most scalable method. For this reason, many modern blockchains such as EOS, Cardano, Lisk, NEO etc. are built with a delegated protocol. EOS and Lisk use a “proof-of-stake” delegated protocol in which a set number of delegates are pre-elected. These delegates are the ones responsible for the consensus and general well-being of the network.
Tezos' consensus mechanism is similar to this, but with one small difference. Instead of the hardcore delegation, Tezos includes a fluid democracy model in its consensus.
How does Liquid Democracy work?
It is a system that flows between direct democracy and representative democracy. The process has the following characteristics:
- People can vote directly on their policies.
- People can delegate their voting responsibility to a delegate who can vote on their policies for them.
- The delegates themselves can delegate their voting responsibility to another delegate who can vote on their behalf. This property, in which a delegate can name his own delegate, is known as transitivity.
- If a person who has delegated their voting rights does not like the vote chosen by their delegates, then they can simply withdraw their vote and vote on the policy themselves.
So what are the benefits of a liquid democracy?
- Each individual's opinion matters and plays a role in final policy making.
- To become a delegate, you just need to gain someone's trust. You don't have to spend millions of dollars on expensive election campaigns. Because of this, the barrier to entry is relatively low.
- Because of the possibility of oscillating between direct and delegated democracy, minority groups can be represented more fairly.
- After all, it has a scalable model. Anyone who does not have the time to vote on their policy can simply delegate their voting responsibility.
What is a liquid proof of stake?
In contrast to DPoS (Delegated Proof of Stake), there is no hard and fast rule that delegates must necessarily be selected. It is entirely up to the participants what they want to do. All right, so let's start with the LPoS.
Tezos is a liquid proof of stake system that requires holding a certain number of Tezos tokens in order to participate in the consensus on the blockchain. The process of “mining” Tezos tokens (XTZ) is known as baking.
Token holders alias "Baker" can delegate their validation rights to other token holders without transferring ownership. In contrast to EOS, delegation is optional.
XTZ blocks baking
You find and add blocks to the Tezos blockchain through a process called "baking". And that is how it works:
- Baker receive block publishing rights based on their share.
- Each block is 'baked' by a random baker and then certified by 32 other random bakers.
- When the block is ready for use, the block is added to the blockchain.
- The successful baker receives a “block reward” and can charge transaction fees for all transactions within the block.
As we said before, holders of baking tokens have the option to delegate their baking rights to other holders without letting go of ownership of their tokens. After the baking is complete, the Baker will share his rewards with the rest of the delegates.
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3. Smart contracts and formal verification
Tezos was coded with OCaml. The smart contract that will run on Tezos will be created with Michelson. So what is special about these languages? They are both functional languages. When it comes to languages, they belong to two families:
- imperative
- Functional
Imperative programming languages
An imperative approach requires the coder to write down all of the steps the computer must take to achieve a goal. All of our traditional programming languages like C ++, Java, and even Solidity are imperative programming languages. This type of programming approach is also called algorithmic programming.
Let's take an example of what we mean by that. Let's look at C ++. Suppose we want to add 5 and 3.
int a = 5;
int b = 3;
int c;
c = a + b;
So, as you can see, the addition process takes on several steps, and each step is constantly changing the state of the program as they all run one at a time. An addition process took four steps and the steps are:
- Declare an integer a and assign the value 5.
- Declare an integer b and assign the value 3.
- Declare an integer c.
- The values of and b are added and stored in c.
Functional programming languages
The second family of programming languages are the functional languages. This style of programming was created to provide a functional approach to problem solving. This type of approach is called declarative programming. So how does functional programming work?
Suppose there is a function f (x) that we want to use to compute a function g (x), and then we want to use that function to work with a function h (x). Instead of solving all of these functions in one sequence, we can just put them all together in a single function like this one:
h (g (f (x)))
This makes it easier to justify the functional approach mathematically. For this reason, functional programs should be a safer approach to creating smart contracts. This also contributes to easier formal verification, which pretty much means that it is easier to mathematically prove what a program does and how it behaves.
Let's take a real life example and see why this can be extremely critical and even life saving under certain conditions.
Suppose we code a program that controls air traffic. As you can imagine, coding such a system requires a great deal of precision and accuracy. We can't just blindly code something and hope for the best when people's lives are in danger. In such situations we need code that has been shown to work with a high degree of mathematical certainty.
This is exactly why the functional approach is so desirable. This is why Tezos uses OCaml and their smart contracts Michelson.
So let's look at the benefits of the functional approach:
- Helps in creating high assurance code as it is easier to demonstrate the math behavior of the code.
- Increases readability and maintainability, as each function is designed to fulfill a specific task. The functions are also state-independent.
- The code is easier to reform and any changes in the code are easier to implement. This facilitates reiterative development.
- The individual functions can be easily isolated, which makes testing and debugging easier.
More about Michelson
Michelson is a strongly typed, stack-based language. In Ethereum, smart contracts are written in Solidity or Viper and compiled into EVM bytecode, which is then executed in the Ethereum virtual machine (EVM). There is no unnecessary extra step in Tezos, and the Michelson code itself runs in the Tezos VM.
What is the benefit of this approach? It can be easily read by humans, which helps in establishing the correctness evidence and helps avoid mistakes.
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The following is an example of a Michelson contract
Parameters (pair (lambda int int) (list int));
Return (list int);
Storage unit;
Code {DIP {NIL int};
CAR;
DUP;
DIP {CAR; PAIR}; # Unpack the data and set up the accumulator
CDR;
LAMBDA (pair int (pair (lambda int int) (list int)))
(Pair (lambda int int) (list int))
# Apply the lambda and add the new item to the list
{DUP; CDAR;
DIP {DUP; DIP {CDAR}; DUP;
AUTOMOBILE; DIP {CDDR; SWAP}; EXEC; CONS};
PAIR};
TO REDUCE; CDR; DIP {NIL int}; # Reduce first
LAMBDA (pair int (list int))
(List int)
{DUP; AUTOMOBILE; DIP {CDR}; DISADVANTAGE};
TO REDUCE; # Correct list order
UNIT; EXCHANGE; PAIR} # Convene Congress
Our conclusion on Tezos
So there you have it. Tezos is an extremely fascinating project that has unfortunately been overshadowed by all of the drama behind the scenes. This project deserves a more detailed analysis because it brings an interesting use to the blockchain space. Now we have to wait and see if they can justify the hype they generated after their ICO.