One of the main characteristics of blockchains is that, in order to evolve, they must resort to implementing hard forks. This effectively takes the chain off in a new direction while adding the necessary upgrades. Forks can be controversial since they have the power to rewrite the blockchain’s previous path. So, what are self-amending blockchains and can they offer an alternative to forks? Tezos cryptocurrency thinks so, but not everyone is in agreement.
Forks can be controversial
For a fork to be successful, the majority of miners in the network must be on board. Otherwise, there’s the possibility of a new blockchain forming and the old one continuing. We’ve seen this happen plenty of times, most notably after the DAO hack in 2016 when Ethereum split in two and Ethereum Classic was born.
In this instance, a hacker was able to exploit a programming vulnerability and steal some 3.6 million ETH. To save Ethereum from collapsing, the majority of the community agreed on a hard fork that would abandon the old chain and make the hacker’s ETH worthless.
However, the idea of simply creating a new chain to erase the hack was not acceptable to all. Those who believe that “code is law” did not agree with the majority of the Ethereum camp. They continued with the old chain, which became Ethereum Classic.
More recently, the drama over the Bitcoin Cash (an already contentious hard fork of Bitcoin) and Bitcoin SV fork flagged up the perils of hard forks once again.
Tezos cryptocurrency and self-amending blockchains
Tezos cryptocurrency aims to do away with hard forks for good by making their blockchain self-amending. They see this as key to the continued growth of their network. Much like Ethereum, Tezos is a smart contract platform. However, Tezos has many differences from Ethereum, including on-chain governance and self-amendment.
Tezos cryptocurrency avoids the need for hard forks when the network needs to upgrade by implementing on-chain governance into its platform. This basically means that all Tezos stakeholders put amendments to vote, so they can effectively approve or veto any changes in code or protocol. In other words, they collectively decide on Tezos’ growth.
Liquid Proof of Stake
Transaction consensus in Tezos cryptocurrency is achieved through what they call “Liquid Proof of Stake”, which is similar to a Delegated Proof of Stake method (DPoS). They claim that this allows for decentralisation, security, and accountable governance.
One similar cryptocurrency to Tezos is EOS, which focuses on scaling through DPoS, but at the cost of both security and decentralisation. Tezos cryptocurrency then aims to apply their own version of DPoS to ensure the above benefits as they grow.
It’s not clear why Tezos refers to the staking process as “baking”. Perhaps its founders, Arthur and Kathleen Breitman, have a penchant for muffins and cookies. Whatever the reason, the baking process is certainly not about grams or ounces.
In Tezos cryptocurrency, bakers make deposits and are rewarded for publishing blocks. Bad actors will lose their deposits. There are currently around 450 bakers in the Tezos blockchain contributing to the network’s security.
Tezos has become known as a controversial coin
From lawsuits over its mismanaged record-breaking ICO, which raised a whopping $232 million in June 2017, to raised questions over KYC, Tezos has had its fair share of controversy so far.
Still in the throes of litigation, Tezos attempted to sidestep the SEC by characterising their ICO as soliciting “contributions” or “donations”. The SEC thinks otherwise.
The Tezos Foundation also underwent internal power struggles when the founding partners asked Johann Gevers to act as president. He then tried to take over, which didn’t go down well with either partner.
Their June 2018 announcement of KYC/AML implementation also came like a slap in the face to many investors. Since the ICO was held long before KYC requirements were in place, many were caught off-guard.
Moreover, plenty of industry heavyweights, including Ethereum creator Vitalik Buterin, have been vocal in their criticism over Tezos and the EOS style of on-chain governance.
Buterin has spoke out about the dangers of DPoS, saying that he did “not consider it wise for Ethereum (or really, any base-layer blockchain) to start adopting these kinds of mechanisms in a tightly coupled form in any significant way”.
To add insult to injury, when Tezos announced the launch of its mainnet in September 2018, the markets were meant to respond positively. However, Tezos cryptocurrency managed to lose some 20% ($170 million) of its market cap upon the news that the beta was completed. The struggles for the self-amending blockchain continue.
Tezos is still a top cryptocurrency
Despite the controversy, Tezos cryptocurrency (XTZ) is still performing respectably, currently sitting in 24th place on CoinMarketCap.
XTZ reached a historical peak of $10.50 in December 2017, although it has since followed the trend of the rest of the market and is currently trading at $0.03. It has a market cap of $226,683,767 and around 763 coins in supply.
Wrapping it up
Can self-amending blockchains like Tezos offer a solution to forks? Not yet, at least not if you ask the majority of the industry. But if the Tezos model continues to grow and prove itself, it may provide an alternative in the future. However, like so many projects in the blockchain world, that’s still a very big “if”.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.