What is Tezos coin (XTZ)? - Tezos Guide

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A beginner's guide to Tezos coin, the security focused, layer-1 blockchain that’s built to evolve.

Tezos is a relatively new blockchain network that has been making waves in the cryptocurrency space.

It was launched in 2018 with the goal of offering a more efficient, secure, and flexible platform for building decentralised applications (DApps) and executing smart contracts.

Tezos is a layer-1 blockchain designed to evolve and adapt to the needs of its users.

With a focus on innovation, scalability and security, Tezos is a future-proof layer-1 choice for projects looking to build.

In this Tezos guide, we’ll dive into what it is, how it works and why it's worth paying attention to in the ever-evolving world of cryptocurrency.

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Introduction to Tezos

Tezos was launched just 5 years ago by Arthur and Kathleen Breitman.

The duo saw the need for a more efficient, scalable and self-governed blockchain platform.

Each with a background in finance and technology, they wanted to create a blockchain network that would be able to adapt and evolve over time.

A key component being that they wanted to build a blockchain that could upgrade without requiring ever disrupting hard forks.

Tezos has gained a following among developers looking to build DApps and execute smart contracts in a more secure and efficient way than the competition such as Ethereum or even Cardano (ADA) can offer.

Its unique self-governance model, which allows token holders to vote on upgrades and changes to the network, has also attracted many investors who want to have a say in the direction of the platform.

Tezos has already been used for a variety of applications, including gaming, social media, and supply chain management.

Its flexible programming language and low transaction fees make it an attractive option for developers looking to create innovative new DApps.

Overall, Tezos is a promising blockchain platform that has already made significant strides.

Let’s now dig a little deeper.

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How does Tezos work?

As we’ve mentioned above, Tezos is a security-focused, layer-1 blockchain that's built to adapt over time, in order to meet the changing needs of its users.

It achieves this through a unique proof-of-stake (PoS) consensus mechanism that allows the network to process transactions more efficiently and securely than many other blockchain networks.

In a PoS system, validators (known as "bakers" in Tezos), are selected based on the amount of XTZ cryptocurrency they are willing to stake as collateral.

These validators create new blocks and verify transactions, earning transaction fees and newly minted XTZ as a reward for their efforts.

Compared to a proof-of-work (PoW) system, where miners must perform complex calculations to validate transactions, PoS allows for a faster and more energy-efficient consensus mechanism.

This approach also makes the network more resilient to centralisation and 51% attacks, as the cost of obtaining a majority stake in the network is prohibitively high.

Tezos also has a self-governance model that allows token holders to vote on upgrades and changes to the network, making it a truly decentralised and democratic platform.

This unique feature means that Tezos can evolve and adapt over time without requiring hard forks.

A massive selling point for devs looking for a network that can just get things done without disruptions or conflicts within the community.

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What is Tezos baking?

The validators who create new blocks and validate transactions on the network are known as "bakers".
Bakers are responsible for adding new blocks to the Tezos blockchain and verifying that transactions are legitimate.

In return for their services, bakers are rewarded with newly minted XTZ coins and transaction fees.

To become a baker on the Tezos network, users must first have a minimum of 8,000 XTZ tokens.

They must then stake their tokens as collateral, effectively locking them up as a security deposit.

This stake is used to ensure that bakers act in the best interests of the network and do not attempt to manipulate transactions or engage in malicious behaviour.

Once a user becomes a baker, they are responsible for maintaining a "baker node" on the network.

This obviously requires a reliable internet connection, adequate hardware and the latest version of the Tezos software.

Bakers must also monitor their node and ensure that it is always up-to-date and functioning correctly.

Is it worth baking Tezos?

Baking on the Tezos network can be a profitable and rewarding experience, but it also comes with risks and responsibilities.

Before deciding to become a baker, it's important to consider the costs, rewards, and potential risks involved.

One of the primary benefits of baking on Tezos is the potential for significant rewards.

Bakers can earn transaction fees and newly minted XTZ coins, which can be worth a considerable amount of money if the price of XTZ increases over time.

However, becoming a baker on Tezos also requires a large upfront investment.

Bakers must have a minimum of 8,000 XTZ tokens to stake, which can be a significant amount of money for many people.

Additionally, bakers must invest in reliable hardware and a strong internet connection to ensure that their baker node remains online and functioning correctly.

Furthermore, baking on Tezos comes with risks.

If a baker's node fails to perform correctly or engages in malicious behaviour, their stake may be slashed and they may lose some or all of their XTZ.

Bakers must also be prepared to monitor their node continuously and respond to any issues that arise promptly.

Whether becoming a baker is right for you will depend on your individual circumstances and tolerance for risk.

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What is the XTZ coin used for?

The XTZ coin is a fundamental part of the Tezos network and has several use cases.

Firstly, XTZ is used to pay for transaction fees on the network.

Whenever a user wants to transfer funds or execute a smart contract on the Tezos network, they need to pay a small fee in XTZ.

These fees are then collected by bakers, who validate the transaction and add it to the blockchain.

This process ensures that the network remains secure and efficient.

Secondly, XTZ is used for network governance.

As we mentioned earlier, Tezos has a unique self-governance system that allows token holders to propose and vote on protocol upgrades and changes.

To participate in these votes, users need to have a minimum amount of XTZ.

The more tokens they hold, the more voting power they have.

Thirdly, XTZ is used for staking.

As a PoS blockchain, Tezos rewards token holders who participate in the network by staking their XTZ as collateral.

By staking their tokens, users contribute to the security and stability of the network.

All while receiving a portion of the newly minted XTZ and transaction fees as a reward.

In summary, you can see that the XTZ cryptocurrency has several use cases.

By playing an essential role in the Tezos ecosystem, XTZ will become an increasingly valuable asset as Tezos grows as a part of the wider crypto industry.

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Who uses Tezos?

Tezos has already been used for a variety of applications, including gaming, social media, and supply chain management.

Its flexible programming language and low transaction fees, actually make it an attractive option for developers looking to create innovative new dApps.

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Tezos pros and cons

As with any technology or investment, Tezos has its advantages and disadvantages.

This section of our Tezos guide takes a look at some of the key pros and cons of the network.

Pros of Tezos

• Built to Evolve: Tezos is a layer-1 blockchain that's designed to be flexible and evolve over time, allowing for seamless upgrades and innovation.
• Security-Focused: Tezos places a strong emphasis on security, making it a reliable and trustworthy platform for DApp developers and users.
• Efficient Consensus Mechanism: Tezos uses a unique consensus mechanism that allows for high transaction throughput and low fees, making it more efficient than some competing networks.
• Community-Driven: Tezos has a large and active community of developers, bakers, and users who are dedicated to the network's success.
• Built-In Governance: Tezos has a built-in governance system that allows stakeholders to vote on proposed upgrades and changes to the network, ensuring that decisions are made in a decentralised and transparent way.

Cons of Tezos

• Complexity: Tezos is a complex system, and it can be challenging for new users to understand and navigate.
• High Staking Requirements: Becoming a baker on Tezos requires a significant upfront investment of at least 8,000 XTZ tokens, which can be a barrier to entry for many people.
• Potential Centralisation: While Tezos is designed to be a decentralised network, there is a risk of centralisation if a few large bakers dominate the network.
• Limited Adoption: While Tezos has a dedicated community, it has yet to achieve the widespread adoption of some competing networks.
• Price Volatility: Like all cryptocurrencies, the price of XTZ can be volatile and subject to sudden changes, which can be a risk for investors.

As you can see, Tezos offers a range of benefits while at the same time also has its challenges.

Ultimately, whether the pros outweigh the cons depends on your individual circumstances and goals.

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Tezos vs Ethereum

Tezos and Ethereum are both smart contract platforms that allow developers to build decentralised applications (dApps) on a blockchain.

However, there are several key differences between the two networks that have led some to label Tezos as a potential 'Ethereum killer'.

One of the main advantages of Tezos is its unique consensus mechanism.

Tezos uses a Proof of Stake (PoS) mechanism that allows for faster transaction processing and lower fees.

Additionally, Tezos' on-chain governance system allows for more efficient upgrades and decision-making, while Ethereum relies on a more decentralised, but often slower, governance process.

Another key difference between the two networks is their approach to security.

Tezos places a strong emphasis on security, with formal verification built into its design to ensure that smart contracts are bug-free and tamper-proof.

Ethereum, on the other hand, has had several high-profile security issues in the past, including the infamous DAO hack in 2016.

Despite these advantages, it remains to be seen whether Tezos will truly live up to its hype as an 'Ethereum killer'.

While Tezos has a growing community of developers and bakers, Ethereum remains the most widely adopted smart contract platform.

It has such a vast ecosystem of DApps and developers already, that it's hard to see it being overtaken any time soon.

In the end, whether Tezos will be able to compete with Ethereum will depend on a range of factors, including the efficiency of its development, the adoption of its platform by developers and the continued evolution of the wider blockchain ecosystem.

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Should I buy Tezos coin in 2023?

Looking to the future, the Tezos team has ambitious plans for the platform.

They are working on improving the network's scalability, security and interoperability, as well as expanding its use cases beyond just DApps and smart contracts.

They are also exploring the potential of non-fungible tokens (NFTs) on the Tezos platform and partnering with other blockchain networks to create a more interconnected and efficient ecosystem.

While this guide to Tezos has shown the project has several advantages over other smart contract platforms, the decision to invest in Tezos will ultimately depend on your individual goals.

As with any investment, it's important to do your own research and assess the potential risks:reward ratio, before deciding whether to buy Tezos coin.

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