Notum logo



Tokens & Coins


How-to Guide

Product Updates







What Is Tezos? | XTZ Features and More | Notum

By Notum

Aug 04, 20225 min read


What Is Tezos?

Tezos cryptocurrency is positioned as an economic space based on which users and developers can host their decentralized applications, build smart contracts, and issue tokens. The project is based on its public blockchain with open source code. The Tezos NFT ecosystem has become particularly popular and has even attracted major brands such as Manchester United, Ubisoft, Redbull Racing, McLaren, and others. Hundreds of smart contracts have been deployed based on Tezos, as well as products related to the tokenization process, games, DeFi, NFTs, and so on have been developed. For example:

  • Kalamint. A platform for trading and issuing non-fungible tokens.
  • OneOf. A portal for the exchange of music NFTs.
  • Play with Brio. A platform where users can play Bingo, Solitaire Square-Off, Mahjong, and online golf.
  • Wrap protocol. It creates a bridge between Ethereum and Tezos blockchains. Users can wrap any ERC20 tokens in FA2 tokens.
  • SmartPy. This is a system for deploying smart contracts. It includes an integrated development environment, a command-line interface, as well as a special explorer for interacting with smart contracts. Developers can use the Python programming language. Then it is interpreted into Michelson code. The system allows you to “glue” different languages for developing and verifying smart contracts on the blockchain platform.

In essence, the described model has already been implemented in Ethereum, but Tezos solves a number of the problems, such as the speed of operations, scalability, and so on. The fundamental difference from Ethereum is that the improvement of the blockchain is possible without hard forks (dividing the network into two separate chains). As a result, the costs of updates and coordination of participants are reduced, and it is easier to innovate.

Tezos Architecture

Tezos is written with Ocalm. This model allows the platform to confirm and verify separate parts of the protocol. On the other hand, the narrow specification of this programming language makes it unpopular among developers. Therefore, the Tezos team did not use the Ethereum Virtual Machine. Instead, they created their own system working for Michelson. The next technical point is the use of its own “layer system” for updating the protocol and detailing it. The model consists of 3 layers:

  • Network layer: It is responsible for ensuring the communication of users within the system and performs data transfer operations and connection of machines and computing power.
  • Transaction layer: This component takes over the work of transferring funds inside Tezos. Token transfer, transactions from user to user.
  • Consensus layer: Confirmation of operations and continuation of the chain is carried out here. In general, perhaps the most crucial layer of the blockchain.

The Liquid Proof-of-Stake (LPoS) mechanism is used to operate the platform. Liquid algorithm based on Proof-of-Stake equalizes incentives for all participants and helps to avoid the loss of funds due to inflation. A baker (validator) creates new blocks, and several other randomly selected stakeholders must sign the action. Users who do not have the means or desire to become bakers can delegate their voting rights to other participants. A rating of reliable bakers has been published on Tezos Nodes. An index is used for evaluation, which is based on ten basic indicators. Since only bakers produce blocks, the process is called “baking”.

The right to create new blocks depends on the stake amount. The staker chooses a baker with similar voting preferences and delegates XTZ tokens. At the same time, the ownership of the tokens does not transfer. In addition, the tokens are not locked for the duration of the delegation process.

Tezos Governance

In addition to maintaining network stability and block confirmations, bakers vote for or against all protocol updates. The process is divided into five stages. Each of them takes five validation cycles (approximately 20,480 blocks — 14 days + 5 hours). That is, it takes about 70 days in total. Stages of the process:

  1. Proposal. Any baker can propose to modify the protocol (limit: 20 pcs. for one period). Other participants in the same status vote. Several proposals are being considered at the same time. The one that will cause the greatest response will go to the next voting stage.
  2. Exploration Vote. Bakers vote for one of the proposed updates. If it gets 80% + “for”, it goes to the next stage. The participation rate should be approximately the same as in the last vote (that is, the decision is made only with a sufficient number of bakers).
  3. Cooldown. An additional stage was implemented as part of the Florence update. This is the testing period of the protocol, which is carried out by chains outside the mainnet.
  4. Promotion Vote. The participants vote again after studying the consequences of implementing the update in the test network. If the smallest required number of people has been reached (the minimum quorum has been gathered) and 80% have approved the initiative, the update is implemented in the mainnet.
  5. Adoption. A period of “calm” when validators and programmers adapt to the update.

This approach makes it possible to solve the main problems of decentralized networks, which are related to sustainability, the possibility of simple renewal, and the equalization of incentives.

XTZ Token

A $XTZ token is the fuel of the network. Tokens are used not only for financial transactions but also act as a key to the entire functionality of the platform: from the deployment of smart contracts to the development of NFTs, dapps, and DeFi products. In addition, holders of the XTZ cryptocurrency receive an easy way of passive earnings by staking directly through the platform’s wallet and large cryptocurrency exchanges.

The emission of tokens is unlimited. They are created as new blocks are generated, but some of them are “burned” due to violations in the work of validators. An additional issue is also possible if the baker, when making an offer to update the protocol, sets himself a reward in coins. If the change is approved and implemented, new tokens will be generated for it.

In addition, Tezos uses an inflationary model, according to which the average inflation per year should be about 5.5%.

Final Thoughts

Tezos is the first blockchain in which the problem of hard forks has been solved, which will help all system participants focus on the development of a purely single product. The project has a fairly well-known and robust development team. In addition, Tezos is characterized by high security, flexibility, and decentralization, which makes it one of the most promising platforms for developers.