DEFINITION of Tezos
When it comes to cryptocurrency launches, few have seen as much hype as Tezos. According to the project’s website, Tezos is “a decentralized blockchain that governs itself by establishing a true digital commonwealth and facilitates formal verification, a technique which mathematically proves the correctness of the code governing transactions and boosts the security of the most sensitive or financial weighted smart contracts.”
In practice, this means that Tezos is a blockchain network which is linked to a digital token, called a Tez or a Tezzie (XTZ). Unlike other digital currencies, Tezos does not involve the mining of Tez tokens; rather, token holders receive a reward for taking part in the proof-of-stake consensus mechanism.
However, despite a promising start and one of the largest ICOs to date, Tezos has encountered numerous delays, some of which have resulted in legal trouble. (See also: $232 Million ICO Has Some Worried About an Ethereum Sell-Off.)
BREAKING DOWN Tezos
Like bitcoin and ethereum, Tezos is a decentralized ledger which makes use of blockchain technology. Like ethereum, Tezos is designed to make use of smart contracts (“Tezos” is ancient Greek for “smart-contract,” according to the developers).
Unlike these preceding cryptocurrencies and networks, however, Tezos takes the smart contract concept “one step further by letting participants directly control the rules of the network.”
Tezos is intended to be an evolving network. This flexibility is seen as a crucial aspect of the system, as a lack of flexibility and scalability in bitcoin in particular has made for a difficult set of growing pains for the world’s leading digital currency by market cap.
One of the distinguishing elements of Tezos is its governance. While most early blockchains rely on development teams and mining communities to formulate new design choices, Tezos attempts to build the decision-making process into the network of users itself.
“Tezos takes a fundamentally different approach by creating governance rules for stakeholders to approve of protocol upgrades that are then automatically deployed on the network," its developers claim. "When a developer proposes a protocol upgrade, they can attach an invoice to be paid out to their address upon approval and inclusion of their upgrade.”
As a result of this system, Tezos incentivizes user participation in the core development process. This not only democratizes the development process, but also serves to decentralize the maintenance of the Tezos network.
At the same time, the developers of Tezos were aware that certain key properties needed to be upheld over time. In order to ensure that this remains the case, Tezos uses formal proofs to mathematically verify that these properties are maintained.
In effect, this means that the Tezos network remains decentralized, as other blockchains are as well, while it also includes a mechanism that allows for collective decision making. Tezos token holders are allowed votes on pending protocol developments.
Contentious ICO and Legal Troubles
With a powerful and flexible network at its core, Tezos drew massive attention in its initial coin offering. The ICO began on July 1, 2017 and went on to earn $232 million, making it one of the largest ICOs of all time.
However, following the success of the ICO, a major dispute took place between Tezos founder and president Johann Gevers and Arthur and Kathleen Breitman, the owners of Tezos’ intellectual property rights.
As a result of the dispute, the launch of the Tezos platform itself was delayed indefinitely. As of early March 2018, the Tezos network had not yet launched, although Kathleen Breitman had previously suggested the launch would come within a few weeks of a conference at UCLA on February 17th and 18th.
The delay of the launch was one of the reasons that Tezos has run into legal trouble. Users launched a series of lawsuits against the company, arguing that Tezzies constitute securities and they were unregistered. The lawsuits seek to allow investors to receive refunds for the purchases that they made in the ICO.
In February 2018, the U.S. Securities and Exchange Commission (SEC) declined to provide information about Tezos upon a request by attorney David Silver via the Freedom of Information Act. Silver was acting as representative of plaintiffs in a class action lawsuit against Tezos which was filed in November of 2017.
In mid-February 2018, investors in the Tezos project gained optimism that the network would launch as two board members of the Tezos Foundation, including Gevers, voluntarily decided to step down. They were replaced by Tezos community members Michal Mauny and Ryan Jesperson.
In a statement regarding the replacement, Jesperson indicated that “Johann Gevers and Diego Olivier Fernandez Pons have voluntarily offered to resign from the Foundation Board. They are committed to the success of the Tezos project and will continue to support its development towards a bright future.” Jesperson had previously sided with the Breitmans in the Tezos dispute following the company’s ICO.
Tezos has garnered massive attention and financial backing, but it’s pushing the boundaries in more ways besides its technological innovations; the network is also testing the limits of investor patience in the fast-moving world of cryptocurrencies.