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Tezos Overview

Tezos launched in June 2018 as one of the world’s first major Proof of Stake networks. Today, Tezos has a vibrant ecosystem of network validators (bakers) and diverse public delegation services internationally. 

Tezos is an open-source, community governed blockchain supporting complex smart contracts which enjoy censorship resistance, decentralization and user-control. Tezos maintains a form of on-chain governance which doesn’t require hard forks, meaning the protocol can upgrade gracefully over time. The Tezos consensus mechanism relies on Proof of Stake, in which nodes participate in reaching consensus on the state of the blockchain using user owned tokens as the resource for doing so. The Tezos consensus approach has been described as Liquid Proof of Stake, as stake can flow easily between bakers, requiring no lock-up or freeze to participate. 

Tezos smart contracts are written in the language called Michelson, designed for security and formal verification first. Formal verification means that high-value, high-assurance decentralized applications (dApps) can be run on Tezos with confidence. 

XTZ – The Tezos Token 

XTZ is the native token of the Tezos blockchain. Ownership of XTZ grants holders the right to participate in consensus and also governance decisions. XTZ is commonly referred to as ‘stake’ in the Tezos ecosystem. It is issued as a block reward for those that participate in consensus. 

Tezos’s Proof of Stake Ecosystem 

The Tezos consensus protocol called Emmy+ is a Nakamoto-style Proof of Stake (PoS) consensus algorithm. Proof of Stake removes the heavy environmental load required to maintain Proof of Work (PoW) blockchains such as Ethereum or Bitcoin, while also encouraging community participation in the consensus process. 

Tezos block creation relies on a process called baking. Baking is the act of signing and publishing blocks to the Tezos blockchain. Baking achieves the same result in achieving consensus as Bitcoin’s mining, yet it relies on users’ stake rather than an external resource such as electricity. Bakers can create blocks if they have at least 8,000 ꜩ (the symbol for the native Tezos XTZ token), which is one roll. A roll represents a set of coins delegated to a given key.

Bakers with more rolls have a higher percentage chance of producing the next block, as they represent a bigger stake in the system. Bakers have the opportunity to produce blocks during a cycle. A cycle consists of 4,096 blocks, lasting 2 days, 20 hours and 16 minutes. Roll snapshots are taken every 256 blocks, to determine the baking rights of every baker. This is 16 times per cycle. Bakers who perform their duties well are rewarded with block rewards, earning them the XTZ token. 

The Tezos blockchain grants the right to mint a block by selecting a random roll in a randomly selected roll snapshot. The protocol generates a random seed for each cycle, which is used in the secure lottery to grant baking rights during a given cycle. It is possible that the same public key will appear multiple times in the list of keys selected to mint the blocks in a cycle. As time moves on, those selected in a list for block production are granted the opportunity to mint a block during their allocated slot. If one baker misses their opportunity, the next delegate can bake the block. The indexes of these slots are called priorities. 

Participants in Tezos can also endorse blocks rather than baking. At every block, 32 random rolls are selected randomly to endorse a block. Endorsing a block is seen as a vote of confidence. They are included in the next block. The more endorsements a block contains, the healthier the chain. Similar to baking, endorsing is also rewarded with newly minted ꜩ.