Learning What Tezos (XTZ) is: Building Democracy on The Blockchain

More than 23 centuries have passed since a direct and apparently-ideal sort of Democracy was actually put into practice. Every single citizen had the right to vote on each critical decision in those Athenian classical times. The evolution of societies into over-populated groups of hundreds of thousands or millions of individuals, have made that kind of Democracy look like a fairy tale. Or, at least, in modern days we have been educated to feel it as a story of impossible fairies, not as an option.

Not even in the – so called – most “developed countries” of the world could this type of ideal Democracy be considered a possibility now. Any social arrangement in which all citizens could participate in every decision that is important for the entire community, might sound like surrealistic thinking in our days. Around the world, today, Democracy is “relative”. It is not real Democracy because power is centralized in very small groups that decide what everyone else may, may not, or must do. This ironically modern system is called “representative democracy”, although some see it as “false democracy” because the community loses the power to decide.

At present, in all political systems, as in countries, institutions, organizations and in all types of human groups – including monetary systems -, power is centralized and “democracy” almost only serves the purpose of giving to people a chance to choose to whom they handle total power, either to one group or to another. This is not “democracy” in the strict sense of the term. Supposedly, since the revolution initiated by Satoshi Nakamoto in 2009, governance systems on the Blockchain were born to begin to solve the contradictions of fictitious democracy. Nonetheless, one project – Tezos – is demonstrating that perhaps Bitcoin and Ethereum, even unwillingly, still retain a high degree of tyranny, as the rules for consensus are invented by a small select group of engineers or developers in those communities.

WHAT IS TEZOS?

In a sense, Tezos is not just a currency or simply a Blockchain project. Tezos is a community united by common sentiments and a social and financial vision. Tezos is a frontierless and a landless country whose physical boundaries are only the sky or the atmosphere, at least for now. Tezos is a network of humans trying to generate some sort of a planetary classically-democratic nation. As opposed to many others projects, where a Blockchain is born with some fixed characteristics and humans gather around it later, Tezos tries to be, above all, a community in search of the most efficient ways to behave as a global human tribe that implements an old ideal of Democracy, more or less like that of the ancient Agora. The new Agora is, nevertheless, virtual: the Blockchain.

From an exclusively technical perspective, Tezos is a new type of financial platform and smart contracts. The development of Tezos began in 2014 thanks to Arthur and Kathleen Breitman. They worried about the common errors and hard-forks that blockchains like Bitcoin and Ethereum would inevitably continue to produce. Arthur and Kathleen concentrated on finding a solution based on putting the power of decision on the hands of a community, even when deciding the basic characteristics of the Blockchain and its algorithms, which means the future of the Blockchain would be proposed and created by “citizens”. These founders wanted to create a Blockchain whose design, consensus model and future were in the hands of the community, unlike other Blockchains in which the design and the forms of consensus depended on developers.

Tezos is fueled by its own cryptocurrency, XTZ. It is also designed as a Turing-complete peer-to-peer distributed system, which means – in principle – that any type of program is implementable in its Blockchain. To achieve the ideal of Democracy that the community desires, the platform is controlled by online voting backed by the Proof of Stake consensus model. This model is based on the existence of the Stakers, holders who invest – lock – funds in support of the democratic system for the benefit of the community. A Staker is like a Greek citizen of old times, with the power to work for the platform and vote on its development and future.

HOW WAS THE BIRTH OF TEZOS?

The first person to ever make a publication with the idea of ​​a Blockchain on which a democratic system could be recreated, was Arthur Breitman, a programmer and expert in finance, financial informatics and financial Math. Arthur had worked for Google X and Goldman Sachs as an analyst. He published a Whitepaper and a manifesto in August 2014 under the pseudonym “LM Goodman.” In these documentes he described the principles of Tezos.

In 2015, this time with his wife Kathleen Breitman, he created a company, Dynamic Ledger Solutions and registered the intellectual property of the first Tezos platform implementation software on behalf of this company. Kathleen had an equally broad experience having worked for companies such as Accenture, Bridgewater Associates, The Wall Street Journal and the Blockchain R3 consortium. Later, they were joined by a large number of developers, such as the controversial heads of the Tezos Foundation.

An important fact in the case of Tezos is that, in the month of July 2017, it carried out – what was by that time – the most successful ICO in the history of Crypto. Tezos managed to raise about $ 232 million in BTC and ETH at a price of $ 0.47 per XTZ coin. This ICO lasted only 13 days. 66,000 Bitcoins and 361,000 Ethereum were collected. By December of the same year, the value of these funds ascended to more than 1 Billion USD. The initial purpose of the founders and the entire development team, was to collect around $ 10 million, however. Since the ICO, Tezos funds have been administered by the Tezos Foundation, never by Breitman spouses. The Foundation is a non-profit institution based in Zug, Switzerland.

WHAT’S THE RADICAL DIFFERENCE BETWEEN TEZOS AND OTHER PLATFORMS?

Tezos is a platform for Smart Contracts on which all types of decentralized applications (dApps) can be based. The most important differentiating feature of the Tezos Blockchain is the search for democracy or, rather, the constant work to convert democracy into computational code implemented on the same platform. What Tezos wishes to create is a public, totally open and decentralized planetary system of Open Finance in which even the rules of the system can be reviewed and transformed by the “citizens” of this novel planet Tezos. No Blockchain has ever created a system like this. All Blockchains are invented by developers as an unchangeable set of rules, as a fixed game.

Like Bitcoin or Ethereum, Tezos has its own currency, the Tezzies, also called “Tezos tokens” or “Tezzie coins” (XTZ). XTZ serves as a fuel to power all the functions and services of its Blockchain. Transaction validation is done on special nodes called “Bakeries” (more or less like what is called a Masternode in other Blockchains) and they are based on the staking system as well. The work of validating transactions is called “Baking”. In order to be able “to bake” or, on other words, in order to be able to work as validator for the platform, one has to stake a considerable amount of Tezzies. In this moment, one has to stake 8,000 XTZ in order to run a Bakery. Currently, the total number of coins in circulation is 660,373,612 XTZ. The total supply of bakable tokens is 801,312,599 XTZ.

CAN WE SAY TEZOS MATERIALIZES REAL DEMOCRACY ON TOP OF THE BLOCKCHAIN?

Perhaps there can never be an absolutely democratic governance system in any human society. It is possible that this is only achievable in the realm of imagination or in a society of robots. Not even the ancient Greeks knew the perfect democracy. Recall that in Greece there were slaves and women could not vote. However, Tezos is making an effort like no other Blockchain. The governance of the Tezos platform demonstrates a real attempt to establish Democracy. Those who want to participate in the governance of the protocol will have the power of decision. Unlike most other Blockchains, in Tezos, the community can change even the most fundamental algorithms and rules of the game if everyone agrees.

According to Blockchain developers, Tezos can be described as an open, public, decentralized, censorship-resistant and permissionless peer-to-peer distributed ledger with an internal structure that is supposedly more “advanced” than that of other large Blockchains because it reduces highly the risk of experiencing hard-forks, thanks to the democratic model. Avoiding hard-forks like Bitcoin’s many divisions, and avoiding crisis like Ethereum’s DAO split, has been one of the main motivations for the Breitmans to propose the Tezos Network, since they considered that hard-forks were a form of perpetual insecurity for a open financial system. In Tezos, the community has the ability to propose protocol updates and Tezos token holders, in turn, can vote in favor or against proposals.

In order to make the updates, any member of the community that wishes an improvement or an update of the system – typically the developers, but in theory it can be any – sends independent proposals so that the community considers them. The proposal must go through several levels of discussion and assessment by the majority of the community. If a substantial part of the community supports the proposal, it goes up to the voting level. Any holder who owns Tezos tokens can vote on these proposals and, if they are approved, the developers who had prepared the designs can start working on the updates.

DOES TEZOS HAVE SMART CONTRACTS LIKE ETHEREUM?

Yes, Tezos shares with Ethereum the quality of being a Turin-complete system. This means that it is a blockchain ideal for the implementation of smart contracts. Tezos also has its own programming language, OCaml. This language is functional. It is designed to facilitate the creation of smart contracts. OCaml has the advantage that it allows the “formal verification” of smart contracts, mathematical verification that serves to test how likely errors are to occur later in various scenarios.

OCaml offers, then, the possibility of creating safer smart contracts through tests of the mathematical models of each contract. Formal verification is a technique used in critical conditions where a very high level of security is an absolute must, such as in the design of flight routes and aviation security systems, for example, or in global banking systems. Not many Blockchain projects use formal verification.

Another quality of Tezos’ smart contracts is that they integrate scalability mechanisms such as Zero-Knowledge Proofs. These are protocols that reduce the amount of computations that are required for high security processes in the execution of smart contracts. Processes based on Zero-Knowledge-Proofs separate the actual execution of a smart contract from its verification by consensus nodes. As a result, the amount of work carried out by the nodes is much smaller, which raises the level of efficiency.

HOW DOES STAKING WORK?

Tezos uses a delegated Proof-of-Stake (DPoS) algorithm to achieve a consensus on the platform. Unlike the Proof-of-Work (PoW) that uses physical mining, DPoS allows virtual extraction. DPoS is a consensus protocol of high energy efficiency. All Tezos token owners can participate in the mining process, either as a delegate or as a voter for delegates.

Each user can decide if they want to vote or prefer to vote for a delegate, in the second situation the chosen person will control our vote to vote on the proposals. This algorithm seeks to be a more efficient form of government and to exert pressure from the community on delegates. If one of the delegates misused his power, he would lose his votes. Tezos does not have a limit of delegates unlike other projects that use DPoS.

SOME LEGAL ISSUES

Tezos has been among the most successful projects in the world of Crypto. However, not everything has been a honey-sweet story. Perhaps it was the great success of the ICO what generated divisions within the group that developed the project from the beginning. No one expected a sum like 200 million dollars to be collected. Money seems to have made many people wake up. And a series of lawsuits affected the public image of the project for some time.

First there were clashes between the Tezos’ founders Kathleen and Arthur Breitman, and Johann Gevers, the head of the Tezos Foundation. The Breitmans accused Gevers of misusing funds while Gevers accused them back of personal attacks to get him out of the way in order to take control of the Foundation – and of the funds -. Secondly, a process was initiated according to which the currency of Tezos, XTZ, could be considered a “security”. None of the processes has been successful so far. Time has passed and the community seems to feel increasingly confident that Tezos is a Blockchain that, thanks to its unstoppable code, will not be affected by legal actions initiated by negative people.

THE FUTURE IS ABOUT TO START

Tezos still has to prove that the democratic and secure planet Tezos is possible. Day by day there is more news on the positive direction presenting Tezos’ disruptive developments, new standards for smart contracts, alliances with various entities and community action that suggests that Tezos is stronger than ever. In July 2019, Tezos passed its greatest historical test for the democratic model where a full-scale voting process for the “Athens A” proposal, was carried out. Athens A was successful in changing the main requisite to establish a Bakery. Through democratic voting, the community changed the requirement to stake a minimum of 10,000 XTZ coins, to only 8,000 coins.

Similarly, for August 2019, for example, Tezos’ listing in one the most respected Exchanges in the world and the largest one in the United States, Coinbase, has been announced and completed successfully. Likewise, Tezos continues to exhibit one of the most populated and active communities in the entire Crypto world, as a demonstration that decentralized social action and distributed power do work, and that development does not depend exclusively on the existence of centralized powers. Decentralization is more than possible at some previously-unthought level that only Tezos is making real.