Tezos | A Real Competition For Ethereum?

Tezos | A Real Competition For Ethereum?

Most of you reading this i’m sure will of heard of Tezos, but for those who have not lets just quickly recap on what Tezos is intended to be and where we currently are with the project.

From their own website, Tezos state:

Tezos is a new decentralized blockchain that governs itself by establishing a true digital commonwealth. It facilitates formal verification, a technique which mathematically proves the correctness of the code governing transactions and boosts the security of the most sensitive or financially weighted smart contracts.

To explain a little further here are the two minds behind Tezos, husband and wife Arthur and Kathleen Breitman:

Continuing from the Tezos website:

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. 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.

This approach provides a strong incentive for participation in the Tezos core development and further decentralizes the maintenance of the network. It compensates developers with tokens that have immediate value rather than forcing them to seek corporate sponsorships, foundation salaries, or work for Internet fame alone.

Tezos instantiates new technical innovations but also enforces types of constitutionalism through the use of formal proofs to mathematically verify that key properties are upheld over time. By allowing stakeholders to coordinate on-chain, the network also allows for the creation of bounties to implement specific features or discover bugs.

Collectively, the network maintains the decentralized aspect of blockchains while introducing a mechanism to enable collective decision making. Tezos tokens not only power smart contracts in the network, but also allow votes on protocol amendments. The initial Tezos rollout is simple by design, but its self-amending nature means that the rules governing the network can be improved over time.

So on the surface how does Tezos compare to Ethereum, well Ethereum offer Smart Contracts, while Tezos offers smart contracts as well as built in Governance to avoid the ‘forking’ issue we see with Ethereum and Bitcoin when developers need to implement software modifications, Tezos also facilitates formal verification. What we mean by formal verification is the programming language to develop smart contracts Michelson is able to verify the mathematical validity of the contracts code. Formal Verification does not guarantee the code is 100% OK, however it is the closest we have to proving long term code validity in such things.

Ethereum Vs. Tezos

Built In Governance

Tezos will be the first Cryptocurrency smart contract platform which will allow upgrading of the protocol over time through on-chain governance. This on-chain governance over time allows for smooth upgrades to the protocol without the need for Hardforks. Linda Xie wrote a great write up on Tezos over on medium, here’s a great explanation of how this governance works in simple terms:

In Tezos, developers are able to independently submit proposals for protocol upgrades wherein they include a request for compensation for their work. Tezos token holders can then vote on whether the proposal should be approved. Adding this compensation structure provides incentives for developers to continue improving upon Tezos rather than having to work for free, relying on donations, or being sponsored by a centralized entity. This innovative structure is intended to enable Tezos to support independent developers that contribute to the protocol over time.

Total Number Of Tezos In Circulation?

So browsing through the Tezos Whitepaper here are some highlights of the paper which are worth keeping in mind:

There are initially 10 000 000 000 (ten billion) coins.

Though it does then go onto say that this value of 10 Billion tokens does not mean we should expect to see 10 Billion tokens as the total tokens created, the actual amount of tokens will be the total coins sold in the Tezos ICO, or should we say ‘Crowd Sale’ for legal reasons:

(the initial extent of the token supply will be the number of tokens issued during the crowdsale and not specifically “10 billion”, which was merely a placeholder. This change in size has no effect on the principal at hand), divisible up to two decimal places (for the sake of precision we may in actuality be using eight digits after the decimal).

There seems to be much debate about how many tokens will actually be generated, we know the amount raised in the crowdsale as it is clearly stated on the website. So 65,627 BTC  and 361,122 ETH were raised. The amount of Tezos gained for your cash dropped every 400 blocks for a period of 2,000 BTC transaction blocks.

To get a rough calculation we can get the average Tezos issued for 1 bitcoin, which is 5500, then convert the Ethereum raised in the crowdsale into Bitcoin at the time of the crowdsale.

I ended up with a figure of 540,116,500, so just over half a billion tokens. So if we were to just assume each token was worth $2 once it became tradeable on major exchanges this would give you an initial market capital of $1,080,233,000 – This would put it at number 13 on Coinmarketcap.com at time of writing.

Is $2 a reasonable value for us to expect from Tezos upon it’s release, well yes I think it is. If you consider it’s futures trading on HitBTC has reached levels of $2.70 already, initially it entered the futures market at levels as low as $0.45, over time since HitBTC launched the trading this valuation of Tezos has risen to where it sits now at $2.58.

Mining And Signing Rewards

Unlike Bitcoin or Ethereum, Tezos is not using a Proof-of-Work(POW), instead the protocol relies on a Proof-of-Stake (POS) mechanism. Token Holders can receive rewards for participating in this consensus mechanism.

The mechanism for rewards is far more complex than the simple explanation above implies, if you’d like to look at any of this information in greater detail we suggest you take a look at the Whitepaper. The whitepaper indicated a 33% reward for those holding a stake, however, this part of the whitepaper does now have a side note indicating that this value is being revised.

Each block is mined by a random stakeholder (the miner) and includes multiple signatures of the previous block provided by random stakeholders (the signers). Mining and signing both offer a small reward but also require making a safety deposit to be forfeited in the event of a double mining or double signing, this safety deposit is held for the length of one cycle.

Lost coins we initially according to the Whitepaper be Burnt after a year of inactivity, however, this has been revised, thankfully, so that just it’s ability to be staked is lost after a year. Staking rights will re-activate once activity is made again with the coin/wallet in question.

Michelson Programming Designed For Tezos Smart Contracts

This stack based language has been specifically designed for the creation of Tezos smart contracts.

A Michelson program receives as input a single element stack containing an input value and the contents of a storage space. It must return a single element stack containing an output value and the new contents of the storage space. Alternatively, a Michelson program can fail, explicitly using a specific opcode, or because something went wrong that could not be caught by the type system (e.g. division by zero, gas exhaustion).

Michelson being a new language specifically built for Tezos will of course take a little time for developers to get their head around, anyone who’s worked with Forth, Scheme, Ml and CAT will see similarities in the language design.

For a quick overview of the language, commands and it’s usage click here

Smart Contracts

In reality every single Tezos account is in fact a contract, however as standard an account has no executable code and therefore does nothing. It is when there is executable code though things get interesting and the point at which we would call it a ‘Smart Contract’.

Each account has a manager which is just the owner of the account. If the account is marked as spendable then the manager/owner can spend the tezos contained within the account. A standard newly created account would have spendable set to true. But whether an account is spendable or not can be determined by the code of the ‘smart contract’.

You can see an example of a multisig contract written in Michelson here.

Delegation Of Stake

As previously mentioned the Tezos protocol works on a Proof-Of-Stake, however just holding your ‘stake’ in a wallet will not allow you to gain rewards. To be rewarded a full node would need to be kept running at the token holders end. This is obviously not something everyone is likely to be able to do, whether it be due to lack of technical know-how or just the cost of running a node from home full time.

Fortunately Tezos developers took this into account and allowed for token holders to delegate their stake to someone else to gain rewards on their behalf. Of course this will be less profitable then running a node yourself as a fee will be subjected by the delegated for holding the stake on your behalf.

To better explain here is a video featuring Mike Monohan from Mycryptodelegate.com, his service is offering a delegation service for Tezos token holders once the Genesis block has been completed.

Expected Release Date For Tezos Genesis Block

No exact date has been given to the launch of Tezos but estimates are being thrown around that we can expect it to be early in the new year, definitely within the first quarter, manu suggest as early as early January.

For those who want to follow the progress of the Tezos development you should follow the Tezos Github project.

Will Tezos Be a Real Competitor For Ethereum

Well the Tezos team clearly state that they believe their is room in the market for multiple smart contract platforms and they would just like a ‘piece of the pie’, so to speak. However in reality this would still make them competition for the Ethereum protocol, Tezos if delivered to the extent that the White paper promises would be by far a superior platform to develop smart contracts, however, Ethereum has a huge head start, with a huge existing userbase. Ethereum is known almost as well as Bitcoin now, with mainstream recognition and a total market capital of just under $30 Billion at time of writing Ethereum is going to be a difficult competition to out perform.

There is also another smart contract platform in the works from the developer of Steemit and Bitshares, Daniel Larimer. EOS is currently in development also, their whitepaper promises far more technically than Tezos is offering, however, EOS has suffered from much criticism due to the unprecedented uncapped 1 year long ICO. The ICO is still running to this date and will not end to the middle 2018. But ICO aside, if EOS can present us with the platform they have promised then it would offer another competitor for both Ethereum and Tezos. You can read our review on EOS here

I would agree with the Tezos team that their is plenty of room for multiple platforms in the market, each will offer different functionality, some will prefer Ethereum because it’s a solid proven platform and it’s smart contract language is already familiar to developers, meanwhile others may prefer Tezos because of it’s development stability and it’s proof of stake algorithm. EOS looks like it’s being targeted towards high end systems, so where huge quantities of transactions are required to be made every second, EOS maybe, if what’s being promised is accurate, the ultimate platform for enterprise users.

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Disclaimer: Statements contained within this post do not represent the views or policies of anyone other than the writer. The information contained within this article is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.


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