Tezos (XTZ) outperforms Bitcoin, it’s time to understand its governance – Bitcoin – Bitcoin 2020

While Tezos (XTZ, which has never been so close to Bitcoin) has seen an obvious bull run in recent days, the project is once again gaining attention. Indeed, beyond the fluctuations of its course, it is difficult to deny that the project is solid, dynamic and that everything indicates that the XTZ is there to register durably in the crypto-ecosystem. If cryptocurrencies and smart-contract platforms are sometimes based on technical innovations, it is in their governance that we find their true relevance. Today I invite you to immerse yourself in the functioning of the governance of Tezos, a major player in the cryptocurrency ecosystem.

What is blockchain governance?

There are many questions and studies around the conceptualization of the governance of a blockchain, and more particularly in the context of direct processes. But the governance of a distributed network also constitutes a potential vulnerability, allowing dishonest actors to potentially take control of it and hijack it.

The governance of a blockchain is therefore a crucial question, and sometimes underestimated.

As with the technical choices, each project in the ecosystem has a different approach and brings diversity to the ecosystem. For example, the community and actors revolving around Bitcoin have a very conservative approach and Bitcoin modifications are rare. Ethereum is different, to meet the needs of protocol developments for Ethereum 2.0, updates are frequent even if the process remains similar to Bitcoin. We will see in this article that Tezos detaches itself from these, and what are the direct consequences.

The peculiarities of Tezos

Tezos governance

It is relatively easy to do a parallel between Ethereum and Tezos, both of platforms smart-contracts. But the functioning of the governance of Tezos stands out of Ethereum in different ways.

So if Ethereum evolves by through hard-forks, the Tezos process allows for more flexible modifications and each improvement can be integrated individually without requiring updating the nodes “Backers”(the name of the Tezos “miners”).

By creating Tezos, Arthur Breitman wished put project governance at the heart of the process of creation of the latter.

The Breitman couple, the two brains behind Tezos
Arthur and Kathleen Breitman, the couple behind Tezos

He had noticed at the time that ecosystem projects had many difficulties in effectively coordinating its participants. So, we will find differences such as the rejection of the use of hard-forks or the use of proof of stake.

Tezos governance players

If everyone can theoretically participate in the governance of Tezos, you will in reality be part of the network and the possibilities of influencing it are mainly determined by your XTZ holdings. Let’s take a look at Tezos’s governance players and their roles within it.

The backers

Tezos is a blockchain with proof of stake. In other words, the validator of a new block is not selected on its ability to provide proof of work like on Bitcoin, but on the funds they blocked within the system. So if he acts dishonestly, he loses access to these funds.

As part of Tezos’ governance, the backers have different major roles. In fact, during normal network operation, the latter validate the transactions carried out. But they are also at the heart of protocol evolution, since they have voting rights proportional to their frozen funds. Thus, a Tezos ballot is equivalent to a voter roll (one roll is equivalent to 8000 blocked xtz). It is therefore necessary to have different rolls to be able to give your opinion on the proposals.

The endorsers

The endorsers represent additional security for block validation. Indeed each block is validated by a unique backer, but co-signed by 32 endorsers! The number of XTZs guaranteed by each endorser is lighter, but so are the rewards.

The owners of tezzies

You do not have enough XTZ, nor the necessary equipment to become a backer / endorser but you still want participate in the governance of Tezos ? This is possible since Tezos also has a delegation system, allowing any user to transfer the voting weight of his tezzies to another trusted user.

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A system of amendments for the governance of Tezos

The Tezos Amendment System (XTZ)
The different stages of the procedure

Yes Bitcoin has them BEEP and Ethereum his EIP, the proposed changes to the Tezos protocol are soberly baptized “amendments“. These can be offered by anyone, but may or may not be validated by the community.

Each amendment must undergo a dedicated process, divided into different phases which can lead to its adoption within the protocol. So a complete process lasts about 3 months, according to the following four phases:

  • The proposal phase. The bearer of the modification can propose a certain number of proposals, up to a maximum of 20. Only one modification in this proposal will be validated and may be submitted to the next phase.
  • The initial voting phase. The backers of Tezos will be able to vote at first on the proposal selected in the next phase. The goal here is only to determine if the proposal is worth testing. The objective is therefore not to obtain a majority, but more simply to fill the quorum, the minimum number of supporters of the fixed proposal. The latter is not fixed and depends on the quorum of the previous vote and the participation in the latter, having an original quorum of 80% within the Genesis block.
  • The testing phase. Before applying changes to the system, they will be tested on a secondary network. This period is divided into two parts, 48 ​​hours of tests on a testnet and the rest of the 8 cycles on a marginal network.
  • The voting promotion phase. Last validation for the modification of the protocol. If the minimum number of positive votes is obtained by the proposal, the latter is definitively validated. So the test network used now becomes the main network of Tezos, without having to resort to a hard-fork.

Holders of amendments may decide to charge for their changes. So, it’s a real funding opportunity for developer studios around Tezos. For example, the first amendment that I present to you afterwards was invoiced by Nomadics labs up to 100 XTZ (about $ 300 an hour as I write this article).

Tezos’ first amendment: Athens

An illustration of Catenae

Nothing better to understand how a process works than to take an example. I therefore suggest that you take an interest in the case of first amendment of Tezos, which was worn by the studio Nomadic Labs. Athens is therefore an amendment containing two proposed changes:

  • The increase in the gas limit.
  • Increasing the gas limit and reducing a roll to 8000 XTZ.

If you were careful during this reading, I have disclosed a little about the future of these proposals. Indeed the second proposal has been selected and has passed the different phases before to be included in the protocol.

Since then, there have been new proposals that have not necessarily been validated by the network. Among them we find Athens B, Brest or Babylon. The community’s choice was to follow the example of Nomadic and name the proposals by the name of anglicized cities, in alphabetical order.

Weaknesses and vulnerabilities of Tezos governance

One of the points of attention of Tezos supporters must be the study of concentration of tezzies in the hands of a small group of actors. Indeed, they offer a certain leverage on the control of the governance of Tezos, and the distribution of these within the community is essential to maintain equity.

You have to keep in mind that decentralization is a spectrum and that each protocol evolves on it. The multiplication Tezos stacking services through centralized platforms ((Coinbase, Binance) could be damaging in the long term for the governance of the latter for example.

As part of Tezos, hard-forks are extreme procedures. Indeed the thinking of Arthur the creator of Tezos on the subject is that the protocol must be attractive enough for developers to prefer to work on improving the existing rather than starting on a new project. So, a hard fork is a very strong measure and asks questions about the political health of the protocol. This is what happened in 2019 with the split DUNE worn by the team of OcamlPro, behind the development of Tezos. This news has caused a lot of ink to flow and raised questions about the future of these two protocols.

A point shared with Bitcoin and Ethereum, and more generally common to decentralized projects is that Tezos does not have a clear roadmap. Indeed, the modifications being made and validated by the community, it is difficult to predict their acceptances. Thus, we can only rely on the roadmaps of the development studios revolving around the project as Nomadics Labs to get an idea of ​​Tezos’ future potential.

So much for this presentation of Tezos’ governance, which brings a different vision on the subject compared to existing major projects. If you have any questions or comments regarding this article, please let us know on social media!

Tezos (XTZ) outperforms Bitcoin, it’s time to understand its governance – Bitcoin – Bitcoin 2020
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