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Tezos outperforming other Top cryptocurrencies; how far can it go?

Tezos outperforming other Top cryptocurrencies; how far can it go?

Tezos has been one of the best-performing cryptocurrencies of 2019 so far, moving from $0.44 on January 1 to a high of $1.48 on April 23. While it fell immediately following this year-to-date peak, the upward momentum looks likely to be sustained. Tezos’ jump from a low of $1.15 to a high of $1.26 within the past 24 hours has seen it outperform the rest of the top 20 cryptocurrencies. And there are many who believe that Tezos’ breakout year is just getting started.

Tezos launched with a $232 million uncapped initial coin offering (ICO) in July 2017, which set a record for the largest ICO up until that point. The record was edged by Filecoin’s $257 million ICO shortly afterward and the year that followed was full of legal troubles and internal drama for Tezos. The beta version of the Tezos blockchain network launched in June 2018, just one month before EOS’s year-long ICO ended with a staggering $4 billion raised. EOS’s record ICO is unlikely to be topped anytime soon, but a year of quiet development seems to be beginning to pay off as Tezos’ unique consensus mechanism begins to look like an idea whose time has come.

Like EOS and Ethereum, Tezos is a platform for dApps and smart contracts. But while EOS continues to iron out the difficulties in its often-controversial Delegated Proof of Stake consensus mechanism and Ethereum continues to drift slowly toward implementing a hybrid Proof of Work and Proof of Stake, Tezos in March completed the first round of voting in what some predict may provide the answer to the ever-difficult problem of determining the best consensus mechanism: Liquid Proof of Stake.

In a position paper published in 2014, Tezos founder Arthur Breitman boldly claimed that Tezos would be “the last cryptocurrency.” The bio for the official @Tezos Twitter account describes the platform as “a self-amending cryptographic ledger” that “achieves consensus not just about the state of a ledger, but about the state of its own protocol.”

So what sets Tezos apart from the more-established dApp plaforms of Ethereum and EOS? And is its “self-amending cryptographic ledger” truly revolutionary enough to fulfil Breitman’s promise of being “the last cryptocurrency”?

LPoS: Tezos’ killer app

Transactions on the networks of Bitcoin and Ethereum, the two largest cryptocurrencies, are verified by ‘miners’ whose computers solve complex mathematical problems and receive newly-created BTC and ETH for their efforts. As we discussed several months ago, this Proof of Work (PoW) consensus mechanism does a good job of ensuring network security, but it also wastes huge amounts of energy. A Proof of Stake (PoS) consensus mechanism replaces the mining process with network validators, who in a pure PoS model would have votes proportional to the amount of tokens they hold that can be used to verify new transactions. This ‘pure’ PoS model creates a new problem – what if the network is divided across many small token holders who take a very long time to recognize and respond to new transactions?

EOS is one of several major blockchain networks to solve this problem by using a Delegated Proof of Stake (DPoS) model. Others to use some version of DPoS include Cardano, Lisk, and NEO. As this in-depth FAQ on the EOS DPoS system explains in more detail, EOS token holders can elect 21 Block Producers to whom they ‘delegate’ their responsibility for verifying transactions on the network. However, there have been several issues and controversies relating to this consensus mechanism. EOS maintains a blacklist of accounts which have acted fraudulently and these accounts are frozen out of the network. But keeping this accounts frozen requires the agreement of all 21 Block Producers. In late February, one Block Producer incorrectly implemented the account black list and a blacklisted account was able to disperse more than 2 million EOS tokens that had previously been fraudulently acquired.

Block Geeks’ “Ultimate Guide to Tezos” explains in full how Tezos’ Liquid Proof of Stake (LPoS) model works, but one of the key features is that it allows token holders to actively decide whether they want to delegate their role in network governance to EOS-style Block Producers or vote themselves. And even more importantly, the LPoS consensus mechanism allows every token holder a direct democratic vote on updates to the network.

As we explained last month in an article on Ethereum’s move towards the next major platform upgrade, there is often contentious debate among core developers over what the next version of the platform should look like. Figures such as Ethereum and Cardano cofounder Charlie Hoskins have criticized “the lone samurai” approach to network governance represented by powerful figureheads such as Ethereum’s Vitalik Buterin and EOS’s Dan Larimer. And current Ethereum core developer Lane Rettig has been outspoken in arguing against what he described as Ethereum’s “failed” model of governance.

At their most extreme, these types of internal disagreements on the future direction of a project lead to hard forks. The most famous of these led to the creation of Bitcoin Cash as a hard fork of Bitcoin in August 2017. Bitcoin Cash was then itself contentiously hard forked in November 2018, leading to the creation of the Bitcoin Cash Satoshi Vision spin-off and the low point of the 2018 crypto bear market.

By allowing all token holders a free vote on upgrades to the network, Tezos’ system of governance potentially does away with the acrimony and indecision that can plague the development of other blockchain networks.

The first vote on major change to the network was completed in March, with a vote on competing visions for increasing gas limits and making other changes to enable greater network scaling. The first vote passed in favor of the Athens A proposal, with 18,181 votes to 7,674 in favor of Athens B. With the vote passing without controversy, Tezos experienced extremely positive price action. On March 19, one week before the vote, Tezos was trading at $0.48. It hit $0.81 in the run-up to the vote, fell off slightly, then bounced back to hit $1.08 on April 1, a few days after voting had been completed.

So far, so good. Whether all future votes will pass so smoothly remains to be seen, but Tezos has so far demonstrated that it’s uniquely democratic system of on-chain governance and a “self-amending ledger” is at the very least a viable alternative to the problematic governance of other platforms.

The long road to LPoS

The road to Tezos’ first protocol upgrade vote has been a long one. The original whitepaper was authored by Arthur Breitman, an analyst working at Morgan Stanley. A Bitcoin enthusiast, Breitman’s whitepaper was written completely unbeknownst to his employers. In fact, he kept his identity anonymous by publishing it under the pseudonym L.M. Goodman – a reference to the journalist who famously mistakenly claimed that an elderly Japanese man, Dorian Nakamoto, was the real identity of Bitcoin-creator Satoshi Nakamoto.

In 2016, Breitman left Morgan Stanley to pursue the development of Tezos full-time with his wife, Kathleen Breitman, whom he met at an Anarcho-Capitalist Conference while still employed by Morgan Stanley. A rigorously in-depth piece on the crypto power couple behind Tezos published in Wired in 2018 tells of the Breitman’s printing out the entire Ethereum codebase to read during a honeymoon safari in Botswana. The same piece also details the Breitman’s distaste for the wastefulness of what they refer to as a “Cambrian explosion” of divergent cryptocurrencies that followed Bitcoin’s creation. And despite their clear admiration for the revolutionary upgrades Vitalik Buterin’s vision for Ethereum brought to cryptocurrency’s development, the DAO hack and resulting hard fork convinced them of a need for a more efficient system of cryptocurrency governance.

In Switzerland, the Breitmans met Johann Gevers, who had helped orchestrate the Ethereum ICO. Together with Gevers, they orchestrated the wildly successful ICO that netted the fledgling Tezos platform more than ten times the $20 million the Breitmans had hoped for. Gevers was appointed President of a Swiss foundation established to take care of the Tezos’ platforms enormous ICO windfall. Soon after the ICO’s completion, he tweeted that the funds would help establish Tezos alongside Bitcoin and Ethereum as one of crypto’s Big Three.

But the relationship between the Breitmans and Gevers soon soured, with arguments over access to the funds to develop the platform. Class action lawsuits were filed against all parties as ICO investors grew weary in the months of bitter disputes that followed behind-the-scenes at Tezos. Among the allegations levelled in the lawsuit was an accusation that the Tezos ICO had constituted an unlawful sale of unregistered securities.

The Wired piece details an epic power struggle, full of scammers interjecting with false claims of Russian hitmen being hired to take out the opposite parties on both Gevers and the Breitman’s behalves. The wild tale would make a fine movie someday. But its closing scene has yet to be written: Arthur Breitman regained control of his project. Five years after authoring the Tezos whitepaper, the dream of a “self-amending cryptographic ledger” has become a reality. There’s a long way to go before it fulfils Breitman’s dream of being “the last cryptocurrency,” or even Gevers’ hope of being of crypto’s “Big 3.”

Tezos is now a project with serious momentum behind it, but the trouble may not be over yet. As The Block Crypto reported just last month, the class action lawsuit is still on-going, and a new lead plaintiff has recently been appointed. The line between cryptocurrencies and securities is still ill-defined, with US Securities and Exchange Commission Chairman Jay Clayton telling a Senate committee in February 2018 that he believed he’d yet to see an ICO that didn’t qualify as an unregulated security.

What next for Tezos?

One interesting feature of Tezos’ recent rise is where the volume is coming from. CoinMarketCap shows Tezos’ biggest markets as being Kraken, BitMax, Gate.io, HitBTC, Huobi Global, Bitfinex, and Coinone. That makes Tezos one of just three top 20 cryptocurrencies that doesn’t have Binance as one of its top exchanges. Of the others, Bitcoin Cash Satoshi Vision was recently delisted in a well-publicized response to Craig S. Wright failing to heed Binance CEO Changpeng “CZ” Zhao’s repeated instructions to stop proclaiming himself “the real Satoshi Nakamoto.”

Both Tezos and its fellow non-Binance top 20 crypto Maker DAO’s exclusion from Binance has been the subject of much speculation. Are Binance awaiting the outcome of the class action lawsuit, worried about getting in trouble for listing a confirmed “unlicensed security”? Or is there something else going?

CZ has responded to repeated attempts to “shill” him Tezos on Twitter by stating that he refuses to comment publicly on any coin listings. But Binance doesn’t seem completely opposed to the platform, as it was announced last month that Binance’s Trust Wallet will allow staking of Tezos tokens.

The real long-term tests for Tezos – and all other dApp platforms – will be the quality and popularity of the dApps it offers. Tezos Projects lists 36 Tezos dApps that are either in development or have already been launched. This is a long way behind the likes of Ethereum, EOS, and TRON in pure numbers, but given the current limited use of dApps on any platform, there is still a long way to go before its worth assigning much significance to the current number of dApps available.

Tezos completed its ICO with a blaze of hype just under two years ago. Now that on-chain governance is beginning to approve itself and the price is reigniting hype around the project, its certainly going to be one of the most closely-watched projects in the cryptocurrency space.

About Christopher Williams

Christopher Williams is a British writer based in South Korea with a strong interest in emerging technologies, cryptocurrency, and the development of decentralized apps.

Ledger Nano S - The secure hardware wallet