What Is Tezos (XTZ)?

Like many crypto platforms, Tezos (XTZ) not only has its own cryptocurrency, but is also a decentralized, open-source blockchain network that uses a system of self-governance. Also like many crypto platforms, Tezos allows peer-to-peer transactions, and users can trade assets, develop applications, and create smart contracts.

Tez, or XTZ, is the native cryptocurrency for the Tezos blockchain, and it is the 40th largest crypto, as of Feb. 8, 2022.

Tezos coin uses a proof-of-stake (PoS) consensus mechanism, which means there is no need for miners to undergo the complex proof-of-work (PoW) calculations to verify blocks of transactions and create coins. Rather, users stake XTZ in order to verify the code and data on the blockchain (a process known as “baking”), and through that process, receive XTZ crypto.

How Does Tezos (XTZ) Work?

The Tezos platform was created as a self-amending blockchain network, which means that anyone who owns XTZ crypto can propose and vote on changes to its rules as part of their on-chain governance model.

Tezos uses a formal verification process for upgrades and smart contracts, allowing them to be mathematically verified and thus more secure.

Crypto Governance

Thanks to its democratic design, the Tezos community has greater control over changes to the network, which sets it apart from other blockchains where control remains with the developers or the biggest stakeholders. Tezos’s ongoing evolution also gives it a flexibility that some other cryptocurrencies might not have.

The developers established this self-updating system in part to avoid the hard forks that have caused some upheaval in the evolution of other cryptocurrencies. Bitcoin Cash (BCH) was a hard fork off the Bitcoin blockchain, for example, resulting in a currency with faster transaction speeds. Hard forks can correct problems or create innovations, but can also create security vulnerabilities.

What Is Baking?

Tezos stakeholders are called “bakers” and use a liquid proof-of-stake (LPoS) consensus mechanism that is considered more energy efficient and environmentally friendly than proof-of-work (PoW), and more fluid than typical PoS systems.

Baking is the process by which all transactions are verified. To bake blocks of transactions and earn newly minted XTZ, bakers need a minimum of 8,000 XTZ, which constitutes one roll. The more rolls you have, the more you can bake, and the more Tez you can earn.

The liquid proof-of-stake protocol also permits delegating so that all participants, regardless of how much XTZ they own, have a means of staking, i.e. participating in the community. You can delegate your Tez holdings to a validator — i.e. a larger stakeholder — and receive a portion of rewards in return, similar to earning interest on a bank account, or dividends from a stock.

The amount you delegate is also liquid. You can add to or withdraw your XTZ at any time. The typical return from delegating your Tez is 6%.

Advantages and Disadvantages of Tezos (XTZ)

Tezos offers investors a number of advantages that set it apart from other crypto. But there are some potential downsides to this crypto as well.

Advantages

The PoS consensus mechanism is a more energy efficient way to create new coins, and using a liquid PoS, as noted above, allows for greater participation from all stakeholders in the community. And users can delegate their stake to bakers to earn partial rewards.

The process of proposing changes to the protocol and voting on them is also more democratized on the Tezos platform than on some others.

Because Tezos is a programmable blockchain, it allows for the use of smart contracts, NFTs, and other DeFi features.

Disadvantages

But while Tezos bills itself as a programmable blockchain with smart contract capabilities, it faces competition from bigger players like Ethereum and Polkadot.

As a result, XTZ is not seeing widespread commercial adoption relative to some other forms of crypto.

And owing to the fairly high Gini coefficient, which indicates overall wealth concentration in a certain system or economy, XTZ tends to be concentrated among a smaller percentage of users. While this is a common issue on many crypto platforms, it can indicate a potential security risk.

Who Created Tezos (XTZ)?

Arthur and Kathleen Breitman, a husband and wife team, first proposed Tezos XTZ in a 2014 whitepaper. In 2017, they raised some $232 million during an initial coin offering (ICO), the biggest-ever crypto debut at the time. XTZ launched in 2018.

The Tezos ICO, however, faced controversy from the start. The Breitmans got into a spat with the president of the Tezos Foundation (the organization created to establish Tezos and conduct the ICO), which led to a court battle in which some investors alleged that the ICO represented a sale of unregistered securities. The suit took three years to settle, and plaintiffs were paid $25 million for lost money and legal costs.

Despite this early hurdle, Tezos has continued to grow and evolve, albeit at a slower pace than its initial entry into the market might have indicated.

Why Does Tezos (XTZ) Have Value?

Tezos or Tez is valuable for a couple of reasons. First, owning XYZ is critical to maintaining and operating the Tezos network. You can’t be a Tezos baker if you don’t own substantial XTZ.

By owning and baking XTZ, users are also able to vote on network upgrades through a formal procedure, with each vote being proportional to the amount of XTZ cryptocurrency they bake. Tezos rewards participants with XTZ based on how many tokens they are baking.

Tezos also has value as a potential source of passive income using crypto, when you delegate your XTZ to a bigger stakeholder (or validator) and earn rewards.

Price of Tezos (XTZ)

XTZ’s coin price has had an up-and-down ride since its launch in 2018. When it debuted, XTZ’s value topped out at more than $12. It hasn’t seen such heights since. In the following months, XTZ prices fell, and bottomed-out at below $0.40.

After more volatility over the next several years, XTZ fluctuated in value and hitting a low of $2.15 in July of 2021, before rising to $8.70 in October 2021. XTZ is now hovering at about $3, as of late January 2022.

Why Use Tezos (XTZ)?

Users may find Tezos appealing based on its communal voting procedure, as well as the formal verification process that establishes the reliability of updates, rollouts, and contracts.

Developers may find the Tezos blockchain compelling as a means of launching new dapps and NFTs. Tezos is home to a wide range of projects, including Tezure, a decentralized insurance marketplace, and a dapp called tzBTC, which aims to tokenize bitcoin.

Investors may also seek to buy and stake XTZ for the potential of earning passive income via XTZ rewards.

Does Tezos (XTZ) Have Staking?

Yes. You can trade and stake your XTZ holdings in a supported wallet, or by delegating your stake to a validator (also sometimes known as a baker). Also, some crypto exchanges may allow you to participate in staking by locking your tez in a staking wallet on the exchange itself. All stakeholders can earn XTZ rewards, which are typically a percentage of your holdings (e.g. 5%).