What Is Tezos (XTZ)? The Advantages and Disadvantages of Tezos (XTZ)

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Blockchain247

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I. What Is Tezos (XTZ)?

Tezos (XTZ) is a programmable blockchain with smart contract capabilities. It is described as "smart money," stressing that it is first and considerable a currency. Arthur and Kathleen Breitman founded Tezos in 2014. Arthur had previously worked on developing self-driving cars and was an analyst at Goldman Sachs and Morgan Stanley. Kathleen had worked with Accenture, Bridgewater Associates, and the Wall Street Journal.

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

Tezos (XTZ) is the native cryptocurrency for the Tezos blockchain, and it is the 40th largest crypto (Feb. 8, 2022). Tezos coin uses a proof-of-stake (PoS) consensus mechanism, which means miners are not needed 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”).

II. How Does Tezos (XTZ) Work?

The Tezos platform was created as a self-amending blockchain network, which means, 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.​

1. Community Governance

Thanks to its democratic design, the Tezos community has greater control over changes to the network, which makes it become much different 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.

2. 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.

III. Advantages and Disadvantages of Tezos (XTZ)

Tezos (XTZ) offers investors a number of advantages that set it apart from other crypto. However there are some potential drawbacks to this crypto as well.​

1. Advantages

The PoS consensus mechanism is a more energy efficient way to create new coins, and using a liquid PoS allows greater and better 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. Tezos (XTZ) is a programmable blockchain, therefore it allows the use of smart contracts, NFTs, and other DeFi features.​
  • Uses an eco-friendly proof-of-stake consensus mechanism.​
  • Permits delegating of XTZ to earn partial rewards.​
  • Bakers can propose and vote on changes to the Tezos protocol through a formalized system.​
  • Tezos is a programmable blockchain that allows for the creation of smart contracts and NFTs.​

2. Disadvantages

While Tezos (XTZ) builds itself as a programmable blockchain with smart contract capabilities, it faces competition from bigger players like Ethereum, Cardano, Solana, Polkadot.

As a result, XTZ is not seeing widespread commercial adoption relative to some other forms of crypto. Tezos (XTZ) tends to be concentrated among a smaller percentage of users.

This might be a common issue on many crypto platforms but it can indicate a potential security risk.​
  • Tezos faces stiff competition from emerging smart contracting platforms.​
  • Tezos is not seeing widespread commercial adoption​
  • Tezos has a high Gini coefficient, indicating a potential security risk.​

IV. Why Does Tezos (XTZ) Have Value?

Tezos (XTZ) 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.

V. 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 XTZs 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%).​

VI. The Future of Tezos (XTZ)

Being a self-amending blockchain, the Tezos (XTZ) network will adapt and be able to navigate through the never-ending maze of crypto. Future problems are guaranteed to arise, but the protocol is built to withstand obstacles that come its way.



Tezos is continuously upgrading, with many of its developers exploring different ways to improve the network in terms of privacy, better consensus algorithms, and scalability.

Some of the planned protocol enhancements include Tenderbake, Avalanche, sharding, and some Layer 2 (scaling) solutions.​

Conclusion

Hope our article has helped you have a better overview of Tezos (XTZ) What do you guys think about XTZ? How will XTZ grow in the future? Do not hesitate to comment below the article to discuss with us!​
 

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