Tezos is a decentralized blockchain that governs itself by establishing a true digital commonwealth and facilitates formal verification, a technique which mathematically proves the correctness of the code governing transactions and boosts the security of the most sensitive or financially weighted smart contracts. The Tezos team pronounces it Tay-zos, but you are officially free to pronounce it the way you like. The token is called a Tez (XTZ), when there are many they are Tezzies (tay-z-eez). Unlike proof-of-work blockchains such as Bitcoin, there is no mining in Tezos, but token holders can receive rewards for participating in the proof-of-stake consensus mechanism.
Bitcoin, Ethereum and Tezos are all decentralized ledgers powered by a blockchain. Bitcoin was the first public blockchain and introduced the first truly decentralized form of electronic cash. Ethereum followed suit by including smart-contracts in its platform, allowing a greater range of application to be developed. Tezos takes this concept one step further by letting participants directly control the rules of the network. It is designed to evolve, so that the next generation of ideas doesn’t have to start over as a new blockchain..
One of the most salient aspects of the Tezos ledger is its ability to self-govern by accepting and deploying protocol upgrades, on chain, without hard-forking. Participants in a blockchain protocol typically follow a fixed set of rules. A hard-fork is a procedure in which these participants break some of those rules and start following a different rule set. Hard-forks have been suggested as a way to introduce new features and keep up with innovations in cryptographic ledgers. However, this sudden change of rules potentially creates governance issues. Without a clear procedure for converging on a specific course of action during a hard fork, participants are left guessing as to which rule set other participants will pick. This creates the dynamics of a Keynesian beauty contest in which the winner ends up being selected on the basis of social expectations rather than merit.
The Tezos code base strives to root as many bugs as possible (for instance, all tez amounts are typed and encapsulated in a module which prevents accidental overflow). However, bugs can and do happen. A bug of this nature cannot easily be resolved by a governance procedure which is slow and deliberative in nature. The discovery that billions of coins can be created out of this air is an issue that requires immediate action. It cannot wait for a scheduled vote to be held.
While all blockchains offer financial incentives for maintaining consensus on their ledgers, no blockchain has a robust on-chain mechanism that seamlessly amends the rules governing its protocol and rewards protocol development. As a result, first-generation blockchains empower de facto, centralized core development teams or miners to formulate design choices.
Tezos takes a fundamentally different approach by creating governance rules for stakeholders to approve of protocol upgrades that are then automatically deployed on the network. When a developer proposes a protocol upgrade, they can attach an invoice to be paid out to their address upon approval and inclusion of their upgrade. This approach provides a strong incentive for participation in the Tezos core development and further decentralizes the maintenance of the network. It compensates developers with tokens that have immediate value rather than forcing them to seek corporate sponsorships, foundation salaries, or work for Internet fame alone.
Tezos instantiates new technical innovations but also enforces types of constitutionalism through the use of formal proofs to mathematically verify that key properties are upheld over time. By allowing stakeholders to coordinate on-chain, the network also allows for the creation of bounties to implement specific features or discover bugs. Collectively, the network maintains the decentralized aspect of blockchains while introducing a mechanism to enable collective decision making. Tezos tokens not only power smart contracts in the network, but also allow votes on protocol amendments. The initial Tezos rollout is simple by design, but its self-amending nature means that the rules governing the network can be improved over time.