Tezos is a decentralized blockchain network that supports smart contracts and has its own cryptocurrency, XTZ. Like Ethereum, the network provides a platform on which developers can deploy decentralized applications — or DApps.
However, unlike previous blockchain implementations that risk a chain split whenever a hard fork upgrade is implemented, Tezos introduces an on-chain governance mechanism. Proposed upgrades are tested and discussed before XTZ holders vote on them. If a majority approves, the protocol automatically switches to the new software version — eliminating the risk of a chain split.
Tezos consists of a distributed network of nodes. To ensure these nodes come to agreement on previous ledger updates, the network uses a consensus mechanism known as liquid proof-of-stake, or LPoS. The system is similar to EOS's delegated proof-of-stake, or DPoS, in that it allows token holders to delegate their tokens to a block validator — known in Tezos as a "baker."
However, unlike DPoS systems, the delegator retains ownership of their XTZ and their delegated funds can move between bakers whenever they choose. Similarly, there is no chance of delegators losing their XTZ. The stake at risk comes from the baker in the form of a security deposit. Should they attempt to validate dishonestly, they forfeit part of this deposit.
The current Tezos price depends on the volume of XTZ buying versus selling at any given time. When demand exceeds supply, the XTZ price increases.
At the network's launch in 2018, those investing in the Tezos initial coin offering, or ICO, received a share of 608 million XTZ. Continued supply inflation via block rewards is intended to incentivize bakers to secure the network for as long as it exists. Therefore, there is no cap on the number of XTZ that can be created.
The network rules stipulate that bakers must hold at least 8,000 XTZ, but there is no minimum number of XTZ required to delegate. While this inflationary monetary policy creates downward pressure on the price of XTZ, the potential of LPoS to generate passive income all but ensures continued demand for Tezos. The fact that participation in the consensus mechanism is open to all further encourages the buying of XTZ.
An additional driver of demand is actual network usage. Developers and users must pay fees in XTZ to deploy or interact with Tezos smart contracts. Whereas some XTZ goes to the baker validating a transaction or computation, the protocol also burns any fees required to store data permanently to the blockchain. Continued future adoption of Tezos and the DApps built on it could, therefore, have a positive impact on Tezos price.
Believing Bitcoin to be capable of much more and taking issue with Ethereum's reliance on a core team of developers, husband and wife team Arthur and Kathleen Breitman conceived of Tezos in 2014. They began working on it the following year.
The pair wanted to combine Ethereum's smart contract functionality with a decentralized, on-chain governance mechanism. Over two papers, Arthur described a cryptocurrency capable of integrating new ideas without risking network splits. At the end of the second paper, he stated: “Tezos truly aims to be the last cryptocurrency.”
After meeting Johann Gevers, one of those behind Ethereum's ICO, the Breitmans set about generating $20 million to develop the network. The Tezos sale actually raised $232 million, making it the largest ICO at the time. Despite concluding in mid-2017, disagreements between the Breitmans and Gevers delayed the launch. The mainnet eventually went live in September 2018.
Arthur worked as a quantitative analyst at Goldman Sachs and Morgan Stanley. He co-founded Tezos, a security-conscious smart contract platform.