Tezos ICO Reviewed

Tezos was one of the hottest Initial coin offerings of 2017. The project raised a whopping $252 million and smashed previous ICO records.

Perhaps because of the caliber of investors who pre-funded the project. Tezos raised money from hedge funds, private investors and institutional capital months before the ICO.

Investors include billionaire Tim Draper and Polychain capital, a hedge-fund-style investment firm backed by Fred Wilson's Union Square Ventures and Andreessen Horowitz.

So why were investors so excited by Tezos?

Tezos’ ambition is to solve blockchain governance, a classic problem that bedevils open source blockchains. It attempts to remedy the failures observed during Ethereum DAO fiasco and the Bitcoin scaling deadlock. Public permissionless blockchains such as Bitcoin and Ethereum lack a governance structure that limits their potential.

Tezos is a protocol level governance mechanism that is redefining the design of blockchain.

This comprehensive review explores all the aspects of the Tezos project and ICO. It is ideal for you as a cryptocurrency investor. Make a better investment decision by going through this review covering:

  • Overview of the project
  • Team
  • Product
  • Features of Tezos
  • Details of Tezos' ICO crowd sale
  • Roadmap, plans, and vision of Tezos
  • Verdict

An overview of the Tezos project

Tezos’s idea is built on the failings of existing blockchain models. Bitcoin and Ethereum are heavily dependent on a network of miners to secure and maintain the network. Both blockchains rely on core developers to make changes to the protocol as they see fit. Unfortunately, core developers and miners have all the control over the protocol.

Who represents users?

Users and holders of cryptocurrencies are the real stakeholders. Left out in the design of existing cryptocurrency blockchains, are the opinions and views of users.

One manifestation of this problem is the Bitcoin scaling debate.

Bitcoin has been unable to scale to meet user demands. Only two groups have a final decision on proposals to increase capacity. Core developer write the code and miners, mostly based out of China, make the upgrade. Bitcoin users have no seat at the table to decide on the future of the protocol.

Tezos describes this as a governance problem. The tezos protocol level governance is a solution to this problem.

Who are the team behind Tezos?

Tezos' co-founders are Arthur and Kathleen Breitman, husband and wife. Arthur is Tezos' technical lead and a technical advisor to the Zcash project. He previously worked as a quant trader at Goldman Sachs and Morgan Stanley.

In 2014, Arthur foresaw the problems today with Bitcoin and the Ethereum DAO and began working on Tezos. He wrote a white paper detailing Tezos, dated August 2014. Bitcoin's scaling debate and the collapse of the Ethereum DAO drew the attention of people to his project.

Tezos' team is led by Kathleen as CEO and features ten other members. 

What product does Tezos bring to the market?

Tezos is a self-amending cryptocurrency ledger, with an in built governance protocol. Its blockchain supports smart contracts with a strong emphasis on privacy. Tezos is designed to offer economic incentives for its ecosystem participants to take part in governing the protocol. Stakers, who hold value in the form of Tezzies, are part of a delegated proof of stake consensus mechanism. All the nodes taking part in the staking process receive new tokens from nominal inflation as rewards.

The Tezos system is flexible, unlike other blockchains such as Ethereum. There is no single source of truth or reference client that everyone has to follow. Instead, Tezos is self-updating. It uses its in built governance model to decide how the system should evolve. By splitting the system into different layers, changes in one layer do not affect another layer.

The Tezos protocol is made up of 3 parts:

  • network layer
  • consensus layer
  • Transaction layer

The consensus layer is agnostic to the rest of the layers. Thus, the occurrence of consensus deadlocks and endless debates drastically diminishes. There are no hard forks on Tezos that can potentially split the network. All stakeholders evaluate and vote on proposals to upgrades. Upgrades are independent of the transaction layer.

The network layer is therefore available for developers to freely build new blockchains. They can define their consensus method and pick their transaction processors. Tezos thus serves as a platform for supporting other blockchains.

So what features make Tezos a great project? 

  1. Tezos is an independent blockchain built from the ground up. It is not a fork of Ethereum or any other blockchain. The alpha release is built from scratch inculcating its unique model.
  2. Tezos implements a modular approach to its blockchain protocol. It is divided into three crucial layers with a clear distinction and separation of functions between the network, consensus and transactions protocol.
  3. Tezos uses a Delegated Proof of Stake (DPOS) consensus mechanism. A voting process by stakers or proxy representatives of token holders vote on changes and upgrades to the network
  4. Nodes on the Tezos network will run a brand new form of a virtual machine. It operates a functional language known as Michelson that is both functional and verifiable. Michelson makes it easier to identify bugs necessary for filtering out malicious smart contracts. It could have potentially prevented the DAO loss by identifying the bug that led to a $60 million hack.
  5. Tezos formally verifies all smart contracts built on its blockchain. This verification provides guarantees via strong mathematics that any smart contract will behave as expected. The Ethereum DAO suffered a loss at the hands of a hacker exploiting a bug. Formal verification eradicates frequently encountered bugs in smart contracts.
  6. Through a bounty program, Tezos has inculcated incentives for programmers who catch bugs or implement new features.
  7. Tezos' greatest feature is the ability to adapt and evolve in line with the community. Community stakeholders continually participate in a voting process that resembles a democracy. The outcome of majority consensus determines the shape and form of Tezos.

What are the details of the Tezos ICO crowd sale?

Native tokens of the Tezos network are known as Tezzies (XZT). They serve three functions in the Tezos ecosystem and beyond as defined in the Tezos Overview

  1. A store of value similar to other cryptocurrencies such as Bitcoin, Litecoin, and Ethereum
  2. Paying fees for processing transactions and running smart contracts just like Ether on Ethereum
  3. As voting tokens in proof of staking consensus processes. One token equal one vote for holders. 

Tezos was first made available to 10 institutional and private investors between September 2016 and March 2017. Private individuals and hedge funds made bids for Tezzies before the official ICO. The project raised $893, 200.77 before the official ICO.

The ICO was launched on July 1 and lasted till July 14th. The number of Tezzies available for the crowd sale was uncapped and only limited by time. A minimum of 0.1 BTC or ETH equivalent was required to participate. The crowd sale ran for 2000 blocks.

Tezos managed to raise:

  • 65,627 BTC, roughly $156 million
  • 361,122 ETH roughly $76 million

A total of $232 million was enough to smash the previous highest record of an ICO sale by Bancor.

8.5% of the total cash raised will go to the creators, in addition to a 10% allocation of all tokens in circulation. Another 10% of Tezzies in circulation will go to the Tezos foundation.

Because the number of tokens available for distribution was uncapped, the amount of Tezzies for token holders remains a known. The uncertainty over allocation should change once the network is live. Tezos did not set a clear date for listing on exchanges, so it might be a while before Tezzies are free floating.

Tezos roadmap, plans, and visions

The Tezos project is still in alpha phase and is yet to be battle tested in real world applications. Before putting it out in the wild, the team plans to work on improving the resilience of its self-amending crypto ledger against DDoS attacks and malicious forks.Testing and release of security upgrades and intensive testing are top of the list under a broader security objective.

As soon as the protocol starts handling real world applications, the focus will shift to scaling the protocol. Tezos' proof of stake algorithm scales better than proof of work. But, it is currently limited to initial conservative parameters. Increasing block size capacity, packing more transactions per block, and reducing the time it takes to process a block will scale the protocol.

Transactions and smart contracts on Tezos plan to use privacy enhancing features. The development team will incorporate zero knowledge proofs and ring signatures for privacy purposes.

Finally, Tezos intends to enhance usability by launching light client libraries that support the most popular programming languages. Conventional languages will make it easier to on board developers on the Tezos network. An additional certified compiler will bridge high-level languages to Tezos VM functional language Michelson.

Verdict on Tezos 

Tezos is certainly an interesting project taking a different direction from the ubiquitous proof of work blockchains in use today. There is no doubt governance is severely lacking in current blockchain models. A general shift in the industry is unraveling, taking variations of proof of stake models and prioritizing sane governance models. 

In this regard, Tezos is up against Ethereum, QTUM, Aeternity, Dfinity, EOS, Ethereum Classic, Lisk, and NEO.

Tezos remains unlisted on exchanges. The supply of Tezzies is yet to be determined. However, comparing Tezos with other projects in the same category, it is at least worth $2 billion in market cap valuation.

Tezos will perform well because there is still no clear winner. Delegated Proof of Stake governance models are still not battle tested. Therefore it is likely to benefit from overall market sentiment on governance. Only time will tell if the project succeeds.