The Ethereum blockchain is currently seen as the dominant layer-one protocol. It’s use of smart contracts, as well as active user base is impressive, however its race to be the world’s computer is filled with difficulties.
Several big issues exist with Ethereum at the moment – like high transaction costs and slow confirmation times. As a result, Tezos, a proof-of-stake blockchain that is designed to evolve over time without requiring a hard fork, has seen a surge in popularity over the last few months.
What is Tezos?
So fundamentally, Tezos is a “self-amending blockchain” that has a bunch of the same features as Ethereum, but with a few improvements. Tezos is an open-source blockchain and application platform that can actually upgrade itself and develop smoothly.
Upgrades to the core protocol, including even the amendment process itself, are decided upon by people who hold and stake the Tezos coin. This means if you own some Tezos, you can stake it, and actually have some voting power in the network! Many see it as the protocol to solve one of the most significant flaws in blockchain technology right now.
The Tezos token – traded under the symbol XTZ, is also known as a tez. Tezos is not dependent on mining. Instead, token holders are rewarded for participating in the blockchain's proof-of-stake consensus method – which is part of the reason why many say it is superior to Ethereum, or at least until Ethereum supposedly upgrades to 2.0. Oh, by the way, if you stake Tezos, they use a “Liquid” proof of stake style, meaning you can unstake your tokens at anytime, for any reason, with no lockup period. This is unique to other staking methods.
What problems does Tezos solve?
Basically, by looking at the problems that existing blockchains are facing, Tezos was created. With the purpose to evolve the space and act as the DeFi revolution, Tezos was born. I know, I know, this sounds almost too good to be true, and maybe it is, but just bear with me. Transaction costs, the self-amendment process and smart contract issues are the biggest problems for DeFi, and a lot of this goes back to Ethereum's original proof-of-work architecture. Let’s discuss how Tezos solves or improves each of these:
1. Transaction Costs
Crypto investors are frustrated with the increase in transaction fees, especially over the past few years when cryptos continue to break higher to new records and are constantly flooded with new users. It doesn’t take long to browse the /r/Ethereum or /r/Cryptocurrency subreddits to start seeing memes about high gas fees (which is a technical term for Ethereum’s transaction costs).
Fortunately, Tezos addressed this challenge when it was created – and it simply won't have the same problems that proof-of-work blockchains have when it comes to high transaction fees.
Specifically, since its introduction, the Tezos network has undergone seven successful upgrades, three of which happened in 2021. On August 6, the most current 'Granada' upgrade was implemented and this marked the evolution of the platform to address transaction costs.
Some of the advantages of this recent development include a decrease in block creation time from 60 seconds to 30 seconds and also a decrease in gas usage by smart contracts by up to a third. I mean, just look at this… In August, they had the most transactions in the whole history of Tezos, and the gas fees were so much less than even the month before.
The network already outperforms Ethereum in throughput and speed, and as the Tezos community focuses on growth, more advancements are likely.
Every DeFi platform requires constant updates and adjustments to solve unexpected problems. New ideas within the cryptocurrency world are never ending, so any platform has to be flexible enough to adapt quickly.
Upgrades usually require a lot of work, and most early blockchain platforms used a “fork-based governance” model that is slow to adapt. This means that major changes require other people to actually update their software.
The team at Tezos created an on-chain governance system that features self-amendment to drop the coordination costs that come along with upgrades to a blockchain network. This is a fancy way of saying, it is very easy to make future major changes to the blockchain, opposed to the lengthy forking process that other blockchains have to do.
If there’s one thing I’ve learned about Tezos by being in their discord, it’s that what they care about most is that the blockchain actually serves them to the best of its ability, not bottlenecked by something that could be easily fixed.
By using this self-changing technique, “hard forks” will likely be avoided. Not only is this a much faster system, it also helps to avoid legacy tokens like Ethereum Classic and Bitcoin Cash, which was the result of a hard fork. We actually have a video on Ethereum Classic coming up soon, so if you’ve already enjoyed this video, we know you’ll love that one. Subscribe if you want and you’ll also reward our hard work making these videos!
3. Smart Contract Issues
Developers that want to launch decentralized applications could be interested in the Tezos blockchain. The platform offers the ability to make tokens and dApps as an open-source platform for smart contracts.
Particularly, Michelson, which is the platform's primary smart contract language, delivers strong security via a -- bear with me as I couldn’t find a better way to rephrase this -- ‘formal verification mechanism that ensures the code functions as intended’. This Tezos functionality is useful for smart contracts and applications with significant real-world value, such as tokenized assets and loans.
Now, currently, the Tezos dApp ecosystem isn’t widespread like Ethereum, Binance, and Matic... but I think it’s because they are still working on certain protocols and the ones that are being built are currently being tested and in the development phase. Smart contracts in Tezos are much different than in Ethereum, so the way I understand it, developers are still tinkering. There’s a link in the description if you want to check out their DeFi apps, and also HicEtNunc (HEN) is actually an NFT marketplace with a ton of daily active users.
So How is Tezos Different from Ethereum?
There are some similarities between the two projects, but there are also some significant differences that make Tezos stand out. First and foremost, both are blockchain-based decentralized ledgers and smart contract platforms.
First, Tezos agrees with Ethereum that maintaining the protocol dynamic and evolving is critical, but it takes a different approach through the self-amending process. Ethereum on the other hand, uses a soft and hard fork system. If you’re curious about the difference between soft and hard forks, you are lucky because we have an entire video on it.
Secondly, Tezos is one of the earliest blockchains to use a proof-of-stake consensus protocol from the start, whereas Ethereum still uses proof-of-work. Ethereum intends to switch to proof-of-stake soon though.
Lastly, in terms of smart contracts, Tezos just has completely different smart contracts than Ethereum. Ethereum created a low-level machine called the Ethereum Virtual Machine, which requires higher-level coding languages to take advantage of it. Tezos, on the other hand, keeps its smart contracts simple and low-level.
Tezos' Michelson was built from the ground up to be a simple target for formal verification – which may become far more important if smart contracts are used by more people around the world.
Where is Tezos Going?
In July 2017, Tezos executed its initial coin offering (ICO) that raised $232 million making it the largest ICO ever at the time. The Tezos Foundation, based in Switzerland, was established following the ICO to launch the protocol.
Since then, Tezos community is presently working on strengthening the core protocol's security and privacy, as well as providing more developer-friendly tools.
One of Tezo’s self-amendment upgrades, called Carthage, which went into effect in March 2020, made enhancements that allow developers to do more powerful things with their smart contracts and also made it much safer in the process. Edo and Florence were also very important updates that give a ton of flexibility in writing smart contracts.
One of the largest and coolest concepts when it comes to tezos is their agenda. I was asking some questions on their Discord to learn more, and one of their users said this “Main thing that's good about Tezos is there is no "organization" that's also "running the chain" going around and paying people like you to make content and shill the coin. When folks take an interest, it's genuine”. And he is right.
That’s all we have for Tezos today but if you have any questions, don’t hesitate to leave it in the comments section below as Tezos is an attractive project with a great number of passionate supporters. Thank you for watching, we hope you learned something and above all, we hope to see you in our future video!