Bybit Learn
Bybit Learn
9 дек. 2020 г.

What Is Tezos and Is XTZ a Good Investment in 2022?

Tezos is an open-source platform whose native utility token and cryptocurrency, XTZ, burst onto the crypto scene with a phenomenally successful initial coin offering (ICO) in July 2017. Tezos raised $232 million in the process. However, disagreements between the founders followed, which led to delays in the token’s release. Those treacherous days seem long past, and XTZ is now the ”next big thing” in the crypto industry. But of course, it’s far from the only cryptocurrency to have had this assertion thrown its way. Looking ahead to Tezos’s future, is the hype justified — and is it a good investment?

Tezos’s future price is predicted to be bullish in the long-term based on broad factor analysis. Many point to the decentralized nature of the network and the increasing partnership with Ubisoft, Red Bull Racing Honda, and Kolibri will usually translate to higher value of XTZ.

What Is Tezos (XTZ)?

Tezos is a smart contract– and decentralized applications (DApps)-hosting platform that allows peer-to-peer transactions. The native utility token, XTZ, is also referred to as Tez or Tezzie. Tokens are rewarded to XTZ holders when they partake in its Proof-of-Stake (PoS) consensus mechanism. 

However, there are some fundamental differences between Tezos and other blockchain-based cryptocurrencies. For example, on the Tezos platform, there are individuals called “bakers.” Essentially, they perform the same function that miners do on other networks, securing and managing the network, verifying transactions and distributing block rewards. But instead of using expensive mining hardware to perform these actions, they are done virtually through the PoS consensus.

What Makes Tezos Unique?

The on-chain governance model allows users to make decisions and facilitate changes within the ecosystem. Tezos is decentralized, and its fundamental approach is meant to provide transparency and democracy for stakeholders to voice their opinions on protocol changes.

This means that changes can be implemented on the network without forking. A problem with forking is that it can lead to divisions and disagreements among the crypto community and miners. Tezos aims to solve this problem by letting its network participants — the bakers — decide on network changes themselves. 

Unlike Bitcoin, XTZ is rewarded to bakers (validators) who produce new blocks in the Tezos blockchain. Since bakers run on a full node to maintain the network, it also means that XTZ can’t be mined. Another way of earning XTZ is to stake XTZ for rewards. For example, a delegator (token holder) can delegate XTZ tokens to a baker for staking rewards.

Ultimately, XTZ aims to differentiate itself from Bitcoin or Ethereum by preventing hard forks, like Bitcoin Classic or Ethereum Classic, that may tarnish the future development of the blockchain.

How Does Tezos Work?

The idea for Tezos was published in a white paper in 2014, and the platform went online in 2018. It was founded by Arthur Breitman and his wife, Kathleen Breitman. Breitman, formerly a financial analyst, argued that Bitcoin’s biggest flaw was its lack of governance process. Tezos’s proof-of-stake consensus improves its scalability, and its implementation of smart contracts eradicates security concerns concerning the adoption of digital assets.

Unlike many other cryptocurrencies, community involvement plays a significant role in the development of Tezos’s network. It is an open-source crypto network which aims to create the best rewards. Accordingly, token holders receive rewards for taking part in its PoS consensus mechanism.

To understand how it works, first you need to know more about the “baking” process.

To become a baker, one must possess 8,000 XTZ. When an individual becomes a baker, they can then add blocks to the Tezos blockchain — a process known as baking. The more XTZ a baker possesses, the higher the chance they’ll succeed in earning rewards.

However, if someone doesn’t possess 8,000 XTZ (or the computing power to take part in baking), they can delegate their tokens to a baker. Although not on the same level as bakers, delegators can still earn a significant passive income through staking. The delegators lend their tokens to the bakers, giving them a higher chance of baking a block. The baker then usually shares any additional XTZ earned with the delegator. 

A unique feature of Tezos is that it’s upgradeable without needing hard forks. That means changes can be implemented onto the network without forking. A problem with forking is that it can lead to divisions and disagreements among the crypto community and miners. Tezos aims to solve this problem by letting the network participants (bakers) decide on network changes themselves. 

Only bakers can vote on any changes. However, if a delegator doesn’t agree with a baker’s stance, they can delegate to a different baker who is more aligned with their views on an issue. Thus, any bakers who don’t vote in alignment with their delegators’ viewpoints may wind up with reduced delegation power. In addition, only bakers can propose changes to the protocol. 

Hence, Tezos is significantly different from more traditional PoS systems, in which each token holder can participate in the governance process. With Tezos, bakers cast a vote on behalf of their delegators. This is why the PoS system used on the Tezos blockchain is a type of Delegated Proof-of-Stake (DPoS).

However, it is not the same system as other blockchains whichuse DPoS, such as EOS or TRON. More specifically, what Tezos uses is called Liquid Proof-of-Stake (LPoS). This is because delegation is optional, while with DPoS, it is not.

How Does Tezos Keep Users Safe?

The PoS consensus mechanism prevents manipulation. For example, Tezos allows users to move their stake from one baker’s node to another’s, encouraging bakers to be on their best behavior.

Since Tezos doesn’t have a central database, manipulators would require massive computing power in order to take over the network. Even if they did, the manipulator would still need consensus from stakeholders for any protocol changes. Cryptographic encryption adds yet another security layer to safeguard users’ information.

Tezos’s History: The Rise and Fall and Rise

The Tezos white paper was released in 2014 by its founders, giving details about the Tezos project. Their ICO was launched in July 2017 and raised $232 million in Bitcoin and Ether, despite having a target of just $20 million. At the time, it was the most successful ICO ever. The fact that they raised 11 times more than they had hoped for meant they were able to hire the best developers to build up the Tezos blockchain from scratch. 

However, internal squabbling between its founders led to a delay in releasing the token, as well as lost investor confidence. Its mainnet was eventually launched in September 2018. Tezos was trading at around $2.00 in April 2020, but shot up to $4.44 in August, reaching an all-time high.

After this, it regressed to around the $2 mark through the latter stages of 2020, but in early 2021 it surged, hitting an all-time high of $5.58 in February 2021. Tezos was still around the $5 mark at the time of writing (late March 2021).

Is Tezos a Good Investment?

Many analysts in the world of crypto are bullish about the long-term prospects of Tezos. Let’s look at what makes Tezos an excellent long-term investment.

It may come as a surprise to learn that Tezos doesn’t have a maximum supply. Most cryptocurrencies have a supply cap. For example, Bitcoin has a cap of 21 million. There is also a 5.5% annual inflation rate, meaning the number of tokens grows by 5.5% a year. You may think that these factors make for poor prospects. But that is not the case, because of convenience yield. This means that people generally hold onto Tezos as an asset because of the benefits of doing so. Therefore, if Tezos has a valid use, then its lack of finite supply may become irrelevant. Also, the inflation rate can encourage people to stake their XTZ, which in turn can make the Tezos network more secure. 

Additionally, investors and traders have to consider supply and demand. Around 80% of all the XTZ in circulating supply is locked up in staking, meaning there is less XTZ circulating on the order books of exchanges. However, demand for XTZ is on the rise. In May 2020, XTZ had more trading volume relative to the market cap than every other cryptocurrency listed, even Bitcoin. 

Additionally, developer demand on the Tezos blockchain is also on the rise. Michelson, its native smart contract language, facilitates formal verification, which gives smart contracts an extra layer of security by enabling high-value transactions to be tested before they’re published on the blockchain. This has led to an influx of security token offerings (STOs) being launched on the platform. Over $2.5 billion worth of STOs has transpired, making Tezos the primary platform for such tokens.

Another reason to be bullish is the Tezos Foundation. It was set up in 2017 to incentivize developers to come to XTZ and facilitate the Tezos blockchain’s entire ecosystem. This has helped provide grants to developers working on projects in its ecosystem. Like the consensus mechanism, the foundation’s makeup is decentralized, and elections are held to vote for foundation president. 

It has also forged some high-profile partnerships for different projects. These include the Korea University Blockchain Research Institute for smart contact research, and (with BTG Pactual, the largest investment bank in Latin America). These factors are all promising signs for potential developers who are thinking about getting involved in an XTZ project.

Last but not least is something we’ve already covered: the decentralized governance of Tezos. The Tezos blockchain is one of the most decentralized platforms out there. This means that amendments are made based on participants’ votes. Upgrades to the blockchain have included Carthage and Babylon, which have both received high voter participation. This level of involvement and improvement is something that brings stability to a network. Also, if there’s one thing that hardcore crypto enthusiasts genuinely love, it’s staying true to its decentralized nature — just as Satoshi intended. 

How Many XTZ Coins Are in Circulation?

XTZ does not have a maximum supply, since it’s using a PoS consensus. As of June 2021, there are a total of 850,351,373 XTZ in circulation.

However, most of the tokens were sold during the ICO sale in 2017, worth around $232 million. 80% of the initial supply went to investors, while the remaining 20% was delegated to the Tezos Foundation and Dynamic Ledger Solutions, which was the Breitmans’ original venture.

XTZ Price Now

Tezos XTZ Price
CC: CoinMarketCap

After the recent bull run in which Tezos reached a high of over $7 in May 2021, XTZ’s price is decreasing rapidly, corresponding to the BTC dip. In early June, XTZ was trading at around $3 to $4, but the price is still dropping. XTZ was trading at $2.66 on June 24, 2021.

Tezos Price Predictions

Of course, when you’re determining if an asset is a good long-term investment or not, a key factor to look at is long-term price predictions. Luckily, most analysts are bullish about Tezos for the long-term. 

What Do the Analysts Think?

  • Cryptogeek is moderately bullish about XTZ, predicting it could reach $8 by 2025.  
  • WalletInvestor is more bullish about XTZ, predicting it could reach $11.62 by 2025.
  • Digital Coin Price is enthusiastic about XTZ, predicting it could reach $15 by 2025.
  • Crypto Coin Society is the most bullish of them all, predicting XTZ will ”take off” and possibly reach $24 by 2025. It lists the significant advantage of updating the blockchain without forking, which will bring stability and, therefore, attract developers. 

What Do We Think?

What stands out about price predictions for XTZ is that there are very few (if any) bearish price predictions for the next few years. Practically all are bullish in their outlook. As we’ve mentioned, the supply and demand of XTZ points toward price increases in the future.

While most of its circulating supply is taken up in staking, demands are still increasing. Therefore, we think that XTZ could be an excellent long-term investment. How far it goes may depend on several factors.

Will Tezos Overtake Ethereum?

The buzzword “Ethereum killer” is bandied about a lot in the world of crypto, but we think that this is unlikely to happen in the case of Tezos. The market recognition and headwind that Ethereum already has put it at a considerable advantage. Alongside this, the long-delayed Ethereum 2.0 upgrade is likely to address issues such as scalability that have plagued Ethereum for years.

Ethereum has over 200,000 developers working on the platform, which uses different coding languages to maximize the compatibility for smart contracts and DApps development using their blockchain.

Tezos, on the other hand, uses Michelson, which is an entirely new language, made specifically for them. This makes it harder for developers to move over to Tezos’s blockchain.

Nevertheless, Tezos has already carved up a nice little niche as the primary home of STOs. Also, there is the fact that Tezos has unique factors which make it very appealing to developers and investors alike. Its LPoS consensus mechanism makes it truly decentralized in nature. In addition, its self-amending blockchain will prove to be attractive to developers looking for stability without the need to fork. Therefore, while we don’t think that Tezos will be an Ethereum killer, we predict it will be able to live alongside it quite happily.

The Bottom Line

While we’re confident that XTZ is an excellent long-term investment, how high its price will go is difficult to predict. Along with most cryptocurrencies, a lot will depend on how high Bitcoin goes. Bitcoin will still likely have a massive effect on the altcoin market for years to come. However, in order for XTZ to be a good investment, it also needs to be a success in its own right. We’re very confident that this will be the case. 

It is, of course, impossible to predict what will happen with 100% certainty. It is difficult enough to make predictions based on what we think may happen, let alone when considering unpredictable world events that can hit, affecting market prices. The best recent example of this is what happened in March 2020, when markets crashed amid the onset of the COVID-19 pandemic.

However, things bode well for XTZ. It is picking up momentum at the right time and growing in popularity, slowly but steadily. It has enough redeeming features to make it stand out from the crowd, and we think that it can be a success in the long run. We believe this makes Tezos an astute addition to your cryptocurrency portfolio.