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ICO Analysis: Tezos

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ICO Analysis: Tezos


A spate of new blockchain-based technologies are getting support from bigger names. Tezos is among them, having received vocal and financial backing from Tim Draper, the famed billionaire who bought a massive stack of coins from the federal government at auction following the Silk Road seizures. A Hacked reader asked us to take a look at this new venture, which will be Tim Draper’s first ICO – having previously been skiddish about such things due to their high likelihood of failure. Of course it makes sense that traditional financial people will be weary of ICOs, for they are even less likely to become unicorns than are the most crackpot ideas thrown at venture capital firms.

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There is but one true unicorn in cryptocurrency to date, and it had to grow into such. It goes by the name of Bitcoin and you may have heard of it. There are those who believe it has over-leveraged its first-mover advantage, and those who believe its growth has only just begun. It is, though, a good thought experiment to wonder what happens when real money gets behind something from the very beginning. Unfortunately, we’ve seen this before, and before we dig too deeply into the ideals, technology, and purpose of Tezos, we must go through a short history lesson on something called Maxcoin.

Max Keiser is a legendary advisor, veteran trader, and in some respects a financial guru. He was an early supporter of Bitcoin and frequently talks about it on his television show, The Keiser Report. During the first real altcoin rush (~2014), Keiser backed a coin called Maxcoin. Keiser leveraged his audience to promote the coin, claimed that the coin would see a $20 million market capitalization, and then, one day, after a serious pump, stopped talking about Maxcoin altogether. Today, Maxcoin enjoys just under half a million dollars in market capitalization, almost no community, and probably no actual liquidity in that figure. In essence, despite the backing of a rich guru who has a large crypto and traditional financial audience, Maxcoin went precisely nowhere. Keiser once said:

I’ve said all along that my mission, if you will, is to put the tools of free markets into the hands of people, so they can empower themselves.

This was an interview with the Daily Dot, during which he put most of the responsibility for MaxCoin on the heads of the developers. However, they developed the coin with an eye toward Max Keiser from the beginning.

Contrast this with Tim Draper’s recent interview with Reuters, in which he said:

Over time, I actually feel that some of these tokens are going to improve the world, and I want to make sure those tokens get promoted as well. I think Tezos is one of those tokens.

All of this is to say: simply because a smart financial magnate and/or legendary trader supports something, it is not a guaranteed success. Satoshi Nakamoto was anonymous, after all, and one bitcoin is worth many million Maxcoins.


Tezos is a decentralized blockchain that governs itself by establishing a true digital commonwealth.

Reading their overview document, it seems that part of the problem they aim to solve is that of politically-charged debates like are currently ongoing in the Bitcoin world. On a daily basis, people on both “sides” of the argument make vitriolic and often inane statements about people on the other. While people may interpret the recent price spikes in Bitcoin as some sort of reward for “holding the line” or what have you, a longer view would suggest that big money is really waking up to the realities of cryptocurrency.

According to the same document, the base idea for Tezos was originally floated in December of 2013, and work began early the following year. It also rightly points out that the current situation amounts to “core” development teams being charged with too much power and responsibility over the future of potentially large scale economic systems. It is arguably the one drawback of the cryptocurrency world: whereas central bankers are ultimately accountable to their subordinates as well as powerful governments, “core” developers are essentially answerable to none, and when rifts occur, they can go on for a long time.

In the case of pioneers like Bitcoin and Ethereum, those challenges have manifested themselves in situations that put too much power in the hands of core development teams or miners.

As Ryan X. Charles sarcastically says, the fourth commandment of Bitcoin Core is:

We have consensus that consensus should be on the list somewhere, but we do not have consensus about where. #4 is the least contentious positioning.

The Tezos team spent a lot of time assessing and addressing the problems of Bitcoin, Ethereum, and beyond. Novelty is important when it comes to releasing new technology, especially financial technology. People will tend to stick with the known and tested unless there is something radically different about the newly offered alternative. So what is novel about Tezos? Well, in their own words, self-governance. But how does that work?

Tezos is earning huge points with the author for the following:

[…] first generation blockchains tend to 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.

Ethereum and others sought to address this problem by allowing anyone to create a token with its own rules of distribution and usage. Tezos is even more open than that because 1) it can do that too and 2) further expansion can be added later with a suggestion and a vote by the stakeholders.

Tezos also takes lessons from failed initiatives that have tried to do some of what it is doing. Its Smart Contract language focuses on “correctness” and its initial version avoids some of the problems already experienced by smart contract languages in the past.

At a technical level, Tezos’ design intends to thwart networking problems such as denial-of-service attacks through a resilient approach to peer-to-peer connectivity. From the whitepaper:

To protect against certain denial of service attacks, the protocol provides the shell with context dependent bounds on the size of blocks and transactions.

There are other notable differentiations with Tezos. One is that inactive addresses will not be able to stake coins. It appears in the original rendition of the whitepaper, inactive addresses would simply be destroyed along with their coins – an interesting if extreme way to limit supply. Eybrow-raising at first, the concept makes a lot of sense by comparison to more traditional staking coins, which continually reward older addresses in perpetuity. Although some proof-of-stake systems have mechanisms to deal with inactive older addresses, limiting of supply has never been a priority for PoS systems and does not, either, appear to be such for Tezos. This is not necessarily a negative factor.

Who Is Behind Tezos

While mass media credit the husband-wife team of Arthur and Kathleen Breitman, both with backgrounds in institutional finance, they are not solely to credit for the work being done. In the overview document, Gordon Mohr and L. M. Goodman are credited with the spearheading of the thought leadership. (Mohr once worked for Archive.org and Goodman comes from good, legitimate crypto-anarchist stock).

The launch of Bitcoin XT is also credited with fomenting the governance aspects of the project. This is a de facto nod to former Bitcoin developer, thought leader, and founder of the first Bitcoin faucet, Gavin Andresen, who with Mike Hearn founded the alternative implementation of Bitcoin in an effort to sidestep the “blocksize debate” which remains ongoing and has now devolved into a disgusting politicized mess of competing solutions.

As for Kathleen and Arthur Breitman, both actively identify as crypto-anarchists, a long-standing tradition of people who believe that technology should set people free and that cryptography is the best way to ensure this (to overly simplify the philosophy). They actually met at a gathering of such in New York City and fell in love shortly thereafter. They own and have to date funded the company which is primarily developing the technology for Tezos at present, Dynamic Ledger Solutions. This means they bear more than a short mention, but it is worth reiterating that part and parcel to the concept of Tezos is that they can easily be replaced by competitor development firms and others with a simple vote of the stakeholding class in the Tezos economy.

Kathleen appears to be less technical in nature, more financial, which is not a liability in any sense, for despite all the over-glorification of Bitcoin developers, it is the users, investors, and miners who have kept the thing going over the years despite attacks by world governments and traditionalist financiers. Arthur, on the other hand, has some interesting stuff on Github. One of the things he has there is a Python script called Vectornet which “introduces vector valued neurons of symbolic length n, and a dot product in an attempt to learn efficient gradient descent algorithm for small problems that will generalize well when used on very large problems.” High-level problem-solving like this is the kind of work you want to see in a leader of a project such as Tezos. To be blunt: it’s really neat.

Also working on the project are a number of experienced developers, including Guillem Rieu, who wrote his own wiki software and has worked on parts of the Ripple project.

Most successful businessmen will tell you: finding the right people for the right jobs is one of the most important parts of leading. The Breitmans seem to be doing this in good style, and the open nature of the platform will only attract even more potent and useful talent in the future.

The Verdict

The author came into this with a very, very skeptical view. Hype bubbles are the worst and often the most damaging cautionary tales in investing happen as a result. Yet, having reviewed the whitepaper and other requisite documents, it’s hard to disagree with Tim Draper: Tezos could definitely make the world a better place. The Breitmans, who have openly credited those who deserve credit and identify with a philosophy of absolute freedom as well as aiming at a democratic platform which will never experience the road blocks to expansion and scaling we are seeing in Bitcoin and will eventually see in similar platforms, not only have their hearts in the right place, but they’ve put their money where their mouth is and have designed a platform which solves far more problems than it could potentially create.

One drawback is that they do not intend to cap the coin supply. Limited supply is part of the high value of Bitcoin and gold alike, but it is not the only value-creator out there. (Ethereum also did not limit the number of ether initially introduced into the ecosystem, and they are currently valued near $100.) The actual initial supply of coins will be based on public interest, rather than a set figure. This is in contrast to other ICOs, where often part of the remainder of the initial offering are returned to the development team and second rounds are offered and such. Instead, initial supply will be based on demand (awesome) and future coins will be created through staking. Later changes to the ecosystem can be made with the governance protocols of Tezos, so nothing is set in stone – perhaps the truest implementation of a decentralized vision to date.

As such, the author is prepared to give his highest safety rating yet: a solid 8.7 on a scale of 0 to 10. Much of the reduction from 10 here is based on the private presale that took place last year as well as the above noted potential problems. The recipe is there, a failed execution can be recovered by outside parties with interest in doing so (perhaps funded by Tim Draper, if need be), and the spirit of Satoshi is alive and well within the founders.

Investment Details

The initial cost of each Tez, the base token, is intended to be around one cent each. It seems the initial funding goal, therefore, was 10 billion cents, or $100 million. Instead, there will be no specific goal, and development will continue regardless of the amount raised. Coins will subsequently be distributed to the world through the sale of them at exchanges, one assumes, because in order to recoup at least their initial investment, investors will need to sell coins. Every “cycle,” which is defined as “about three months” and is based on a mathematical formula, interest of ꜩ512 will be awarded to staking stakeholders who have the requisite amount of coins to mint blocks (ꜩ1536). This will happen every minute or so, and any staker has a chance of minting the next block.

The Tezos Foundation, which is separate from Dynamic Ledger Solutions and is based in Switzerland, will oversee the actual crowdsale which begins on May 22nd, 2017. While the original idea was to raise a penny per ꜩ, the crowdsale price will actually be ꜩ5000 per Bitcoin – today that means a price of about 36 cents each. You can buy as much as you want. If you want to stake, you’ll need at least 1536 of them, as mentioned above. That would cost you about $560 or .3 bitcoins. You can currently sign up for e-mail alerts, but the open sale will be conducted by Bitcoin Suisse AG and information on the specifics will become available on the 22nd.

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P. H. Madore

P. H. Madore


P. H. Madore lives in Arkansas with his wife and children. He has covered the cryptocurrency beat over the course of hundreds of articles for Hacked's sister site, CryptoCoinsNews, as well as some of her competitors. He is a major contributing developer to the Woodcoin project, and is currently nearing the completion of a cryptocurrency exchange in concert with the firm he primarily works for, Vermont Secure Computing Consultancy.

  • user

    AUTHOR [email protected]

    Posted on 11:23 am May 12, 2017.

    Any feedback/opinion on Etherbits ICO ending tomorrow?

  • user

    AUTHOR roobroo

    Posted on 2:58 pm May 12, 2017.

    is this going to be a direct competitor to ripple? quickly read thru the thread.

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    I'm a "born entrepreneur". I always think of new solutions,…