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Tezos (XTZ), the liquid Proof of Stake protocol in the spotlight

Camilla Marziani

By Camilla Marziani

When it comes to DApps and NFTs, Ethereum is faced with some competition: Tezos (XTZ) is an increasingly popular protocol with its characteristic on-chain governance and is the go-to choice of artists such as Doja Cat and Mike Shinoda. But, many investors have been familiar with this blockchain and its native token XTZ for a while, and for good reasons. Here’s what you need to know about Tezos (XTZ).

Tezos (XTZ) in a nutshell

DApps and NFTs have been taking over the scene of digital arts, for both the financial opportunities and the use cases they offer. With more than 130 projects and DApps running on its blockchain, Tezos has been building a reputation as the go-to platform for many artists.

And there’s more: Tezos based NFT platform, OneOf, has recently announced a partnership with the Grammy awards and will be releasing NFTs to commemorate the 64th, 65th and 66th Grammy Awards:

However, the protocol had been enjoying a reputation in the crypto space before, as it comes with a set of features that are one of a kind. In fact, this open-source blockchain protocol runs on a “liquid” Proof of Stake consensus algorithm and can be proud of its on-chain governance that is quite unique and enables democratically chosen and automatic upgrades on the network. 

As stated on their official website:

“Tezos embraces long-term upgradability, open participation, collaboration, and smart contract safety.”

Tezos’ talents in detail

“Liquid” Proof of Stake

Unlike Bitcoin and - at least for now - Ethereum, which are both running on Proof of Work, the consensus mechanism behind Tezos is Proof of Stake, also known by some as a “liquid” Proof of Stake.

After the network’s Granada upgrade that took place in August 2021, the previous algorithm, nicknamed Emmy+ at the time, saw some important changes, and it’s now called Emmy*. With the upgrade, Tezos reduced its gas consumption by 50% and block creation time was also shortened from 60 to 30 seconds.

How does “liquid” Proof of Stake work? 

In the Tezos’s network, validators are called “bakers”. Users can become bakers if they stake a minimum of a “roll” corresponding to 8,000 XTZ - which was originally 10,000 XTZ. The more rolls, the higher the chance of being selected for the block creation. 

Other than low gas fees and block creation time, which are rather common features of blockchains employing PoS - i.e. Solana (SOL) and Algorand (ALGO) - Tezos’ consensus algorithm has a unique characteristic that earned it the name of “liquid” Proof of Stake: its special, fluid use of delegation

Tezos users who don’t have the minimum amount of XTZ to participate in the block creation as bakers, or who own it but lack the necessary infrastructure to effectively create blocks, have the opportunity to delegate their coins to a baker. 

This type of delegation doesn’t transfer ownership of the coins from a user to a baker, but rather resembles the action of lending. Bakers who accept the delegation and are chosen for block creation will then have to share their rewards with the users that “lent” them the coins.

In contrast to Delegated Proof of Stake, “regular” and “delegated” bakers coexist and can all take part in block creation. In short, there isn’t a group of delegates, like in traditional Delegated PoS.

On-chain governance and self-amendment

Other singularities of Tezos are its on-chain governance and self-amendment rule, qualities for promoting scalability, decentralisation and collaboration in the network.

In fact, bakers can not only create blocks, they can also vote to approve or disapprove adjustments or amendments to the protocol. The initial quorum needed to determine the outcome of a vote is set at 80%, but is subject to change based on the average participation. 

If an alteration to the Tezos network is approved by the bakers, it will automatically be implemented on the blockchain through smart contracts. This is the process that earned Tezos the title of self-amending protocol.

Tezos’ on-chain voting system combined with the self-amendment feature make disputes and forks less likely to occur on the blockchain: every upgrade is democratically voted for by bakers and then executed via smart contracts. This means that all upgrades and changes are democratically approved by the community of bakers, virtually eliminating the need for a fork. 

Widespread adoption: Tezos in music, art, and institutions  

The crypto savvy may not be the only ones who have been hearing about Tezos lately. In fact, the protocol has been making quite some headlines. Let’s see some of the news that brought Tezos centerstage: 

  • In October 2021, people from Neuilly-sur-Seine, France, were able to vote digitally through the Tezos-based app Electis. The vote concerned the choice of books in a public library, and it represented a great testing opportunity for the use of Tezos blockchain technology in the voting system.
  • An increasing number of traditional financial institutions are adopting decentralised finance solutions based on Tezos blockchain, with the most recent instance being the Swiss Arab Bank. The institution has partnered with Tezos and will be using the Tezos blockchain and native coin to offer digital assets to its clients.
  • Tezos is also one of the go-to choices for musicians: the NFT platform OneOf, running on Tezos blockchain, has been gaining popularity thanks to users such as Doja Cat, John Legend, Charlie Puth, The Kid LAROI and others. The platform was launched with an outstanding amount of funding just earlier this year.
  • Talking about art and NFTs, Tezos is also participating in the digitalisation of art and culture. Another popular platform built on Tezos is hicetnunc, the NFT platform that was adopted by musician Mike Shinoda, but also by Manchester Whitworth gallery, which minted a William Blake NFT to raise money for social projects. The protocol is also active “in real life”: between November and December, Tezos is curating and presenting an NFT Exhibition at Art Basel Miami Beach 2021.

Tezos (XTZ) vs Ethereum (ETH) 

With its growing popularity and 130+ projects and DApps, Tezos is moving up in the world. But does it really compare to the crypto-giant Ethereum, especially given ETH’s considerable volume of DApps? Let’s compare a little between XTZ and ETH. 

Sources: Ethereum, Tezos

How to start your research

When it comes to investing, doing your research is key. For cryptocurrencies and altcoins, a good place to start is the official website of the asset you’re researching, such as Tezos official website. You can get to know the protocol’s projects, use cases, and technical information better, and find even more to learn.

How would a crypto actually tie into your strategy? When you’re researching a coin, ask yourself how that crypto would fit in your investment portfolio, and also consider whether you are more comfortable with low risk but long-term investments or you’d be at ease with faster and (perhaps) profitable but higher-risk investments.

Where can you buy XTZ? 

At Bitpanda, XTZ is just a few clicks away on your smartphone or desktop, 24/7. Bitpanda’s easy-to-use interface makes investing in crypto and other digital assets a piece of cake. Start investing today.

Camilla Marziani

Camilla Marziani

Global content specialist, blockchain enthusiast and coffee lover