Coin Review - Tezos

Coin Review - Tezos    

What is it

Tezos is a smart-contracts platform based blockchain system, it’s unique feature is a Self-Amending Governance system. It allows for the stakeholders of the blockchain to vote on every aspect of the protocol, including the voting. The mechanism claims to provide stakeholders (users) with more decision making privileges, expected to prevent forks, major hacks and encourage innovation and development. 

The platform operates a decentralised Proof-of-Stake consensus algorithm with the option to delegate tokens to another party to bake (stake). The process of baking signs and publishes blocks to Tezos in return for a reward. 


What problem is it solving

Tezos aims to address 3 key areas

Elimination of Hard-Forks
Hard-Forks divide the resources, developers, users and stifle innovation by activity dividing the community. Therefore, by creating a governance system that allows voting on major upgrades, scaling and rewards it aims to solve this issue - stakeholders are incentivised to participate and help improve Tezos.

Cost and Centralisation issues
Proof-of-Work was built to be a decentralised mechanism for validating blocks, this has however, developed into one country (China) with the most dedicated resources owning more than 60% of the hashing power. Proof-of-Stake addresses this by allowing everyone that qualifies (holds 10,000 Tezzies) to stake and collect a reward - interestingly, if you don't qualify, you can nominate a trusted party to stake on your behalf.

Smart-contracts and a platform for dApps
The smart contract language makes it easier to apply formal verification to any smart contract running on the Tezos blockchain. This allows developers to rule out weaknesses in code before uploading that code on the blockchain.

Michelson is statically typed and a purely functional language used for writing smart contracts in Tezos. The language itself looks like a mix between Forth and Lisp. Tezos development team has already proven the correctness of Michelson contracts in Coq, including the multisig contract. In addition, Coq, one of the most advanced proof checking software is able to extract OCaml code from proofs.

Security* - we have highlighted this as it was mentioned in the original whitepaper as a differentiator but over time as crypto assets developed there are numerous existing platforms with a similar approach to security and therefore this item becomes redundant. 

'No system is unconditionally safe' Arthur Breitman. What Arthur means is that you can build a system to protect against certain treats, but not all threats. Bitcoin protects against the double spend, by implementing blockchain technology and a Proof-of-Work consensus mechanism, couple that with cryptographic signatures and you have a relatively robust monetary distribution system. However, Bitcoin doesn't protect against miner collusion, C++ memory corruption and 51% attacks.

Tezos claims to have addressed these issues by using a different programming language and their novel Proof-of-Stake consensus algorithm. It is worth noting that the original Whitepaper was written in September 2014 - as expected the landscape has changed dramatically.


Why do we like it

  • Excellent dedicated team - Tezos foundation, DLS and Obsidian Systems.
  • Naturally grown and engaged community; tools, dApps and explorers all available, all being used. Highly engaged online help forums, tutorials, coverage on baking and more.
  • 3 year timeline to full-scale release gives teams, developers and the community time to continually test the environment - allowing the blockchain to evolve over this period.
  • Independent blockchain with custom consensus mechanism, novel on-chain governance features, on-chain voting features and a self-amending protocol make an interesting project.
  • Tezos implement Formal Verification - mathematical verification for proving the correctness of a system, smart contract, protocol etc.
  • Interesting potential implementation of recursive SNARKs, allowing a smart contract to run independently and only submitting, the 'final balance and proof' to the blockchain - eliminating GAS prices and congestion all together. You can do this to proofs you have witnessed and validated (E.g. another proof or someone else's transaction) meaning you could aggregate a cluster of executed smart contracts into just one proof or validate an entire chain in one proof. (Similar concept to state channels as mentioned above).

Why do we not like it

  • 3 pending lawsuits. 
  • Last minute addition of KYC/AML had a negative impact on the community.
  • Foundation is still carrying baggage from the previous chairman (the chairman was acting against fiduciary duty and taking advantage of the high cash position the foundation was in, he has been removed).
  • Communication from the foundation or the development team is scarce.
  • The Breitmans (founders of Tezos) have become synonymous with conflict in the blockchain, it will take a long time to turn perception.
  • Many unproven concepts and long-term testing/development cycles will prevent Tezos from becoming adopted quickly (this is by design, non-the-less stifles short term adoption).
  • Tezos foundation slow in deploying capital to drive the project forward, majority of the work is still coming from DLS.

Final Verdict

Tezos, the development company (DLS and Obsidian), foundation and nearly every member involved carried baggage, negative perception and conflicting views. The theory, tech and team are focused, driven and have proven to be successful at the worst of times. The negative sentiment presents a long term buying opportunity, if you can whithstand the sharp increase and decreases in weekly price movements. The fact the team was able to execute building the entire blockchain to specification while not having access to their funds showed the rest of the crypto space where their focus should be. Each developer delivered on a daily basis with no certainty they will ever get paid for their work. 

Tezos presents itself as a direct competitor to EOS and Ethereum as well as other smart-contracts platforms. Like EOS, it differentiates with PoS (on its way for ETH) but more importantly it contains unique novel concepts that give stakeholders direct transparency to their blockchain, no need to worry about scaling or forking for example, a simple vote will be cast and the community will decide on what to implement and when. The community will also decide on which organisation or individual gets paid for their contribution.  

While we struggle to see completely decentralised chains win against something like a hybrid chain, which in the short term has the best opportunity to be adopted. Tezos presents an interesting opportunity to allow the community to pick the direction of their platform - In differentiation to EOS, it would be like the block producers coming together and deciding that will no longer receive transaction fee's, someone else will.

We have spoken about the future landscape of platforms and how dApp creators will have to decide on which platform to build based on the differentiated criteria the platform provides. We believe Tezos will be a major player in the space over the long-term, as usability stretches further than just executing a smart contract or P2P transactions.

Disclaimer: Magnet Capital does not accept any liability for any financial decisions made on the basis of the information provided. The above opinion does not constitute financial advice and should not be taken as such. Magnet Capital urges you to obtain professional advice before considering any investment decisions

Egor Sidelska