What is Tezos?

In 2017, Tezos made headlines for its then record-breaking uncapped ICO which closed at around $230 million within two weeks, according to CoinDesk, among others. However, it didn’t officially launch until September 2018, due to internal conflicts and legal battles (explained in detail below).


If there’s anything to know about Tezos, it’s how it found its way into the space.

In 2017, Tezos made headlines for its then record-breaking uncapped ICO which closed at around $230 million within two weeks, according to CoinDesk, among others. However, it didn’t officially launch until September 2018, due to internal conflicts and legal battles (explained in detail below).

Arthur, who studied mathematics, computer science, and physics in France and later moved to the U.S. to study financial mathematics. His wife, Kathleen, is a former employee at Bridgewater Associates, a hedgefund and R3, an enterprise software firm which focuses on distributed database technology.

On its website, Tezos is described to be a distributed, peer-to-peer (P2P) permissionless network, whose system was based on smart contracts, similar to Ethereum’s, but with a slightly more advanced infrastructure: its protocol would have the ability to evolve and implement new innovations over time, without risking a potential hard fork.

The problem with Ethereum, based off Buterin’s 2014 whitepaper, according to Arthur, only further emphasized the need for a system of participatory governance. Bitcoin had its defects, which is why proposing Tezos, a self-amending cryptocurrency, whose name was generated via Arthur’s algorithm that sought to find the names of unclaimed domains pronounceable in English.

While Ethereum was more pliable than Bitcoin, its updates were only disseminated by a core development team which was overseen by Buterin, not a participating, democratic body.

In response, Arthur wrote a pair of whitepapers, under the pseudonym ‘LM Goodman,’ a snide reference to Leah McGrath Goodman, the Newsweek journalist who notoriously misidentified the person behind ‘Satoshi Nakamoto.’ In summary, the whitepapers recognized what Arthur believed to be the flaws of Bitcoin and certain issues that would soon impact Ethereum, which in turn, the digital world would soon face in a new age of “fly-by-night currencies”.

By creating a rival network that had formal provisions for a truly “decentralized administration”, which power and control could be given to a community that required competence and merit.

The best way to describe Tezos is the environment it aims to create. Tezos, according to its website, is a decentralized blockchain that governs itself by establishing a true digital commonwealth. Its digital token, “tez” or “tezzie” (XTZ) is solely based upon token holders receiving a reward for taking part in the proof-of-stake consensus mechanism.

A $230 Million ICO In 3 Days

On July 1, 2017, Tezos’ ICO was heard ‘round the world. The industry debated prior to its launch, that this could be the start to a “new Ethereum”. The initial retail price for 5,000 tezzies was put into place ($0.50/tez). For two weeks, through an early participation program, there was no limit to the quantity of tezzies that individuals could order.

On the close of business on July 13, over 607 million had been reserved for eventual distribution. After the ICO came to a close, the Tezos Foundation collected $232 million in alchemical exchange for a currency that didn’t actually exist...yet.

Gevers immediately tweeted out: “TEZOS RAISES RECORD-BREAKING $200 MILLION IN THREE DAYS...giving it the resources to grow into one of the Big 3 blockchains”.

Which caught the attention of course, with the SEC and those who felt they were entitled to those funds.

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The Drama Begins

At its most fundamental level, the drama surrounding Tezos requires an understanding of Tezos-founding company, Dynamic Ledger Solutions (DLS) and the Tezos Foundation, which held all the funds collected during the ICO.

So, what exactly happened? What started as a utopian ambition, turned into one of the world’s biggest cryptocurrency scandals. And it can be broken down into three separate, yet intertwined tragedies, which Wired Magazine does an excellent job of breaking down. It’s very long.

In short, Gevers and the Breitman’s got entangled over a contract dispute, where the Brietmans claimed Gevers drew up his own contract, granting himself excessive compensation from the ICO sale. Gevers believed this to be defamation. As a result of the contract dispute, as Gevers essentially had control over the funds raised to support Tezos project, the $232 million at the then-current prices, were placed into limbo and couldn’t be touched.

As the dispute continued, investors filed four different class-action lawsuits against the Tezos Foundation and DLS, which held the Tezos source-code, and the company’s most precious intellectual property.

The lawsuits alleged that Tezos’ ICO was a violation of the U.S. Securities Act because it was an “unregistered securities sale”.

After three years, the investors won, where in a $25 million class-action settlement agreement was proposed in March 2020 in U.S. District Court in San Francisco, which was finally approved by a federal judge at the beginning of September. Negotiations between six legal firms over $8.3 million in attorney’s fees awarded from the settlement got very dirty, very fast.

On October 7, 2020, the two law firms asked U.S. District Judge Richard Seeborg to deny a motion for counsel fees, filed in September by Hung G. Ta Esq. PLLC (HGT), LTL Attorneys LLP, the Restis Law Firm PC, and Lite DePalma Greenberg LLC, according to CoinTelegraph. According to HGT, B&L’s distribution would allocate 25% of the total fees to itself, and 50% to Robbins Geller — a firm that was involved with the case but not docketed in the matter.

But attorneys representing the Block group described HGT’s motion as being “devoted to unseemly mudslinging, inaccurate accusations of deceit, and unfounded claims of violations of the rules of professional conduct," claiming that HGT Law group had been aware of fee distribution since December 2019.

B&L claims it is willing to resolve the matter through informal discussions or formal dispute resolution mechanisms should HGT withdraw their motion without prejudice.

It’s important to note that Gevers eventually left the company, having received more than $400,000 in severance.

How It Works?

Tezis blockchain, according to its whitepaper, uses the Network Shell, which allows for a self-amending ledger. The blockchain is comprised of three parts. The Blockchain Protocol behind Tezos is comprised of the Transaction Protocol and Consensus Protocol.

1. Network Protocol

This protocol helps communicate between the network protocol and the blockchain protocol and is agnostic to the transaction and consensus protocols.

2. Transaction Protocol

This is the transactional lawyer which defines the accounting model that the Tezos blockchain implements.

3. Consensus Protocol

This is the consensus protocol that brings home the notion of the “participatory governance” that Arthur Breitman envisioned.

Don’t Get Scammed / Types of Scams

In Tezos, there are two types of accounts: implicit accounts and originated accounts.

Implicit Accounts

These are the most commonly used accounts in Tezos, designated as tz1, followed by random letters and numbers, to describe the account.

Ex: tz1cJywnhho2iGwfrs5gHCQs7stAVFMnRHc1

This account is generated from a pair of public and private keys. Every tz1 account has its own private key, with an account owner and balance. For funds to be delegated, they need to transfer funds to an originated account and then a delegate must be set.

Originated Accounts

The second half to implicit accounts. Originated accounts are the smart contracts. These are designated as KT1, followed by random letters and numbers, to describe the account.

Ex: KT1Wv8Ted4b6raZDMoepkCPT8MkNFxyT2Ddo

When we refer to Tezos smart contracts, it’s important to know that they have been coded using OCaml. The smart contracts runs through Michelson, a functional coding language.

There are two types of languages in the industry, functional and imperative. For more information on this, please click here.

In Ethereum, smart contracts are written in Solidity or Viper and they get compiled to EVM byte code, which then is executed on Ethereum virtual machine (EVM).

In Tezos, there are no additional steps--the Michelson code itself is run in Tezos virtual machine (TVM).

How Tezos Addresses the Hash War

Through self-amendments and on-chain governance (voting), Tezos help mitigate highly-debated hard forks, by upgrading the blockchain without undergoing a hard fork.

The voting process can of course be modified, or amended, as needed, allowing for a smooth evolution of the blockchain, rather than having a hard fork. The very solution to Ethereum’s current challenge.

A Competitor to Ethereum?

Tezos differs from Ethereum in a variety of ways, making it an extremely attractive contender in closing the gap with Ethereum. But as you can see, its overall appeal has been lost and absorbed through enormous amounts of legal drama.

But it seems as of October, that Tezos could perhaps have some ground to stand on in the DeFi landscape. Time will tell.

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