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Tezos: What is, Mainnet, ICO and Tezos Foundation
STORY
January 03  |  5 min read

The Tezos Story

COIN360 Editorial Team

Tezos was first announced in 2014 by its creators, Kathleen and Arthur Breitman, as a self-governing, self-amending blockchain. Capable of instantiating any other blockchain through a network shell layer, and with a DPoS consensus designed to make hard-forks unnecessary, Tezos would be the cryptocurrency to end all cryptocurrencies. The stuff of decentralized utopian dreams.

The following four years were almost entertainingly dystopic; painful to watch, yet nobody could help it. A controversial, record setting ICO gave way to miscommunication, delays, disputes, and class action lawsuits. Tezos became the paramount saga of the ICO age, and, as 2018 progressed, a cautionary tale on why we should never attempt them again.

What happened after the dust settled? Today we recap the Tezos story and bring you up to speed with its latest developments.

What is Tezos?

Tezos is a generic and self-amending blockchain, designed to fix the governance, cost, flexibility and security problems identified in Bitcoin and other chains. For a complete technical review of Tezos, refer to the 2014 whitepaper. But for our purposes, suffice it to say that Tezos supports smart contracts (in Michaelson programming language), implements a generic network shell that allows it to instantiate any other blockchain, and is self-amending, which actually means that stakeholders can amend it, with complete on-chain governance. How? A seed protocol defines procedures for stakeholders to vote on changes to the code, or to the voting procedure itself. This makes hard-forks unnecessary (though not impossible, as Arthur Breitman would later clarify). Consensus on Tezos is achieved with an alternative delegated proof-of-stake method, which they proposed calling Liquid proof-of-stake.

Who controls Tezos?

Tezos was created by husband and wife Arthur and Kathleen Breitman in 2014. They own the project’s source code and all associated intellectual property through their Delaware-based company Dynamic Ledger Solutions, Inc. (DLS). DLS was founded in August 2015, and is also controlled by some VC partners, Tim Draper among them.

In 2017, after DLS had failed to raise funds from banks and investors, the Breitmans started the Tezos Foundation in Zug, Switzerland in order to do an ICO. Since Swiss law requires that a foundation and its board members be independent, they appointed Johann Gevers, founder of Crypto Valley association, as head of the foundation’s board, with Diego Ponz, and Guido Schmitz-Krummacher as the other directors.

As a consequence, any ICO funds raised by the Tezos Foundation would not be under the Breitman’s control, but under the control of the board led by Gevers – and this would eventually lead to the project’s unraveling.

How did the controversy start?

The source code for Tezos was published on GitHub in September 2016, and the foundation structured an uncapped ICO for July of 2017. A minimum of 8.5% of the funds raised, plus another 10% of the Tezos tokens generated, was set to go to the shareholders of DLS.

The plan was for the foundation to buy DLS and its intellectual property after the token sale. But after the ICO managed to raise $232 million in the form of 65,000 Bitcoin and 360,000 Ether (setting the record for the largest ICO at the time), the Breitmans sought to remove Gevers from his position. According to Reuters, a letter by the Breitmans’ attorney called for Gevers to “give the couple a substantial role in a new structure that would limit the foundation’s responsibilities”, and accused him of “self-dealing, self-promotion and conflicts of interest.” For his part, Gevers called the Breitmans out for character assassination and for trying to control the foundation from DLS, and refused to step down.

This feud delayed the launching of the Tezos network, which meant “contributors” (i.e. investors) were not receiving their coins – but then again, these were the same investors who had initially agreed to the risk that the project “may be abandoned”. Predictably, a chaos fueled by angry investors, suspicious regulators, and the personal spat between the Breitmans and Gevers, ensued.

Adding fuel to the fire

The Tezos ICO had effectively failed to comply with securities legislation, misrepresented how the funds would be spent and when the network would launch, falsely advertised under state laws, and use deceptive trade practices. In the delay of the network launch, ‘Tezzie’ futures lost over 50% of their value. Gevers and a second board member finally stepped down from their positions at Tezos Foundation in February 2018.

To make matter worse, although investors who had bought Tezzies were never asked to provide any personal information, the Tezos Foundation announced it would be carrying out KYC/AML checks. Needless to say, this caused rage in the community. In addition, "contributors" who wished to access the mainnet and their tokens would be required to verify their share not only through their public key of their wallet, but also s Tezos Password and active email (both provided at the time of subscription)

Beta net and grantmaking process

The Tezos beta net finally launched and “baked” its first block on June 30th, 2018. Investors who managed to comply with the list of requirements accessed their Tezzies, and the token became available on HitBTC, Gate.io, and other small exchanges.

Despite the positive feedback, the net raised more questions than it answered. Why wasn’t Tezos listed on most major exchanges? Why did 8 bakers start baking competition-free (i.e. earlier than others), and use invested tokens to get more rewards and control over the network? They obviously were not required to pass KYC and remember their old emails and passwords, as ordinary Tezos bakers did.

Another issue relates to the destination of the Tezos Foundation’s money. Since the launch of their grantmaking process in August 2018, various grants have been given out generously to developers, supporters and community builders, including Cryptium Labs, MyTezosBaker, Simple Staking, and KZen Networks. They are supposed to support the expansion of international baker (“validator”) communities, the development of tools and services related to baking, the integration of Trezor hardware wallets with Tezos, and the creation of a universal mobile wallet featuring secure multi-party computation. The Tezos Foundation also supported Clause Inc, who will be developing a smart legal contract layer on top of the Tezos blockchain. There has also been a grant issued to support the establishment of the Tezos Southeast Asia Community.

Mainnet

According to Tezos officials, “the (beta) network was operating smoothly and efficiently,” so they launched its much anticipated mainnet on September 17th 2018. Their currency (XTZ) settled for a bearish trend, and the company hired PWC as an external financial auditor in the hopes of fixing some of the damage. Not much more attention was paid to Tezos, until rumors that Coinbase might be considering listing XTZ began to circulate. By the time of writing, XTZ is still in a downward trend.

Financial analysis: September through December

Tezos experienced a spike in price during the days following the mainnet launch, from $1.18 to $1.66, propelling it to #16 on CoinMarketCap. The following two months saw Tezos rise and fall, with a price range between $1.22 and $1.67 and market cap between $739M - $1B. On October 16th the cryptocurrency was listed on Kraken exchange, and it led to a price bump from $1.26 to $1.47. The series of drops and recoveries ended in November, when Tezos began plummeting.

On December 8th its price hit $0.35, which, compared to its 2018 maximum of $6.90, was a 95% loss, and a 75% slump in just a month. At the time of writing Tezos has slightly recovered with $0.51-0.53 price and the market cap around $300M, which only allows it to take #22 place on CoinMarketCap.

Tezos is still not listed on most major exchanges, but it is traded on HitBTC, UEX, Gate.io, Kraken, Bitfinex and Coinone. On December 7th, Coinbase announced that they were exploring Tezos, Ripple, Zilliqa and 28 other cryptocurrencies, and would list them if they met exchange’s standards and local laws.

On December 19th Obsidian Systems announced that voting on Tezos protocol upgrades will soon be possible with Ledger Nano hardware wallet. Voting is a crucial advantage of Tezos blockchain, and voting with Ledger Nano will make the process easy and secure. The other big news of the day was Nomadic Labs launch. A new research and development company was created by Tezos lead architects: Benjamin Canou, Grégoire Henry, and Pierre Chambart, to focus on “contributing to the development of the Tezos core software, including the smart-contract language, Michelson.” Tezos Foundation claims that they are going to train 1,000 Tezos-oriented software developers in 2019, and Nomadic Labs will be useful in this development expansion.

It is too soon to tell, but, with plenty of projects underway, it does look like Tezos is at least attempting a recovery. Will all their goodwill be enough to make up for a bad reputation?