What is the Tezos blockchain and its token XTZ?

What is the Tezos blockchain? How does it work? What is the purpose of the XTZ token? These are surely the questions you are asking yourself. Let's explore all of this together in this new tutorial, Racers!

What is the Tezos blockchain?

Tezos is an open-source blockchain infrastructure designed to execute smart contracts and host decentralized protocols or digital assets. In short, it is a programmable platform on which decentralized finance applications can be built.

Often regarded as an "Ethereum killer," a blockchain aiming to surpass Ethereum, the Tezos project actually started long before Vitalik Buterin's Ethereum came into existence.

The idea of launching Tezos originated in 2014 in the mind of Arthur Breitman, a French engineer and mathematician. At a time when Ethereum did not yet exist, he wanted to build a blockchain that was more efficient than Bitcoin and capable of issuing new tokens.

In 2015, he teamed up with his wife, Kathleen Breitman, to found the company Dynamic Ledger Solution (DLS), dedicated to developing the Tezos blockchain. In 2016, they released the Tezos code as open-source.

Thanks to this revolutionary vision, a strong team, and a growing community, Tezos managed to raise $232 million through an Initial Coin Offering (ICO). It was the largest sum ever raised at the time and still remains one of the largest ICOs in the history of cryptocurrencies.

Despite legal issues that led to a project deadlock for over a year, Tezos has regained momentum and continues its development.

📎 Find all our articles on the Stables blog.

How does Tezos work?

Now that you have a general understanding of what Tezos is and the genesis of the project, it's time to delve into the details. How does Tezos work, and more importantly, why is this blockchain truly interesting?

The XTZ token of Tezos

Like many blockchains, Tezos operates on a native cryptocurrency. It is called Tez or Tezos, and its ticker symbol is XTZ. It plays an important role in the governance of the protocol, rewarding validators who secure the network, and paying transaction fees.

Currently, there are approximately 930 million XTZ in circulation. In the current system, 80 XTZ is distributed as a reward for each validated block, resulting in an annual inflation rate of about 5.5%.

📎 Discover how to buy XTZ with your Ledger wallet.

Liquid Proof of Stake

With the recent events on Ethereum, you are probably familiar with Proof of Stake (PoS). Well, Tezos operates on a variant of PoS called Liquid Proof of Stake (LPoS). As you will see, dear Racers, this consensus mechanism offers numerous advantages!

As a reminder, Proof of Stake is a consensus system that validates transactions through validator nodes. This process is known as staking, where a certain amount of the native cryptocurrency is locked to earn a financial reward for participating in the network's security.

In the case of the Tezos blockchain, validators are called bakers and must lock a minimum of 6,000 XTZ. The more XTZ they stake, the higher their chances of validating a block and earning a reward, which is around 5.5% annually.

However, Tezos incorporates an interesting feature for smaller wallets: the concept of liquid proof of stake. If you do not have the required 6,000 XTZ, you can delegate your coins to a baker and still contribute to the network's operation while earning rewards. As the name suggests, this consensus mechanism makes proof of stake more liquid.

The Michelson programming language

The Tezos blockchain has its own programming language called Michelson. It is described as Turing complete and includes a formal verification process, ensuring better security for the smart contracts developed on the blockchain. This choice was driven by the context of the time, marked by numerous hacks and protocol vulnerabilities on Ethereum.

However, the developer community did not show significant enthusiasm for Michelson, considering it too unfamiliar and not easily accessible. As a result, the Tezos Foundation proposed higher-level languages that can be compiled into Michelson. The most well-known is Liquidity, a variant of Solidity on Ethereum, which is much simpler to use.

Tezos governance

One of the major advantages of Tezos is its self-amendment capability. Although it may sound like a complex term, the concept is quite simple: the blockchain has a governance system that allows the community to propose infrastructure improvements every two months.

This was part of Arthur Breitman's vision when creating Tezos. In 2014, he specifically highlighted the inefficiency of Bitcoin's governance mechanism and the issue of developer compensation. Thus, he aimed to establish a unique system, which we will discuss in detail here.

In a nutshell, bakers can submit proposals for protocol improvements, which are reviewed, discussed, and enhanced by the community. Tezos governance goes through five major stages:

• Proposal period: During this initial stage, bakers (validators) can submit proposals and approve their favorites. Proposals with the highest approval proceed to the next stage.
• Exploration period: This is the voting stage. Bakers can choose between validation ("Yay"), rejection ("Nay"), or abstention ("Pass"). A majority of 80% "Yay" votes is required to proceed to the next stage.
• Reflection period: During this stage, the community explores, reads, and discusses the proposal to further refine it if necessary.
• Promotion period: At this stage, bakers vote on the integration of the proposed improvements in the following stage. All proposals receiving more than 80% "Yay" votes are integrated.
• Adoption period: Finally, this period is dedicated to implementing the proposal into the infrastructure's code by developers.

Note that proposals sometimes include invoices to compensate the developers who will work on their implementation.

📎 More information on digital wallets for interacting with Tezos.

Stables, an NFT project on Tezos

You have certainly noticed, dear Racers, that the Tezos ecosystem is buzzing. Whether initiated by independent projects or resulting from partnerships forged by the Tezos Foundation, the brand shines internationally.

Tezos has a significant presence in the sports domain. The foundation has entered into a sponsorship contract with the legendary Manchester United football club and the Formula 1 world champion team, Redbull Racing.

However, the largest communities mainly gather around independent projects that have chosen Tezos for its considerable advantages over the competition. One such example is Stables, the PMU's Fantasy Game for horse racing!

📎 Discover how to buy Stables NFTs with your XTZ!

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