Controversy is closely linked with cryptocurrency in the minds of the public. From Bitcoin’s early days as the darkweb’s money of choice to the current grey market status as securities, cryptocurrency’s growing pains are numerous. While the major blockchains – Bitcoin (BTC), Ethereum (ETH), Ripple (XRP)– are doing their level best to avoid controversy, one top 20 coin is still struggling.
Tezos (XTZ) came about due to the chaotic governance of the original Bitcoin chain and with the Ethereum hard fork proving as the catalyst. The basic foundation of the Tezos blockchain is self-evolving and governed by shareholders to avoid a similar hard fork situation. The idea itself is relatively benign, but the project suffers from persistent legal issues – including an ongoing lawsuit about whether Tezos would qualify as a security or not. While not yet resolved, the Tezos lawsuit may be the clarifying moment in cryptocurrency’s nebulous relationship with U.S. securities practices.
The Mechanics of Tezos
Tezos is a ‘liquid’ delegated proof-of-stake system that allows users to stake their coins. Referred to as ‘baking’ within the chain’s own terminology, this staking process comes with two major advantages; voting rights and the ability to validate transactions. While there is a minimum amount of ‘baked’ coins – 10,000 in order to create a ‘roll’ – users can choose to delegate their coins to a roll in order to participate.
Through this voting process, the user base can vote on upgrades, decisions and infrastructure changes. In theory, this will prevent scenarios like that seen in the Ethereum-Ethereum Classic (ETC) hard fork – and any number of other controversial decisions that resulted in a community schism. It also allows software upgrades to be performed with relative ease, particularly when compared to the ponderous system used to upgrade Bitcoin’s code base. However, some ‘bakers’ have complained that the system results in nigh-constant updates that often feature patches to security holes. The speed at which they are released requires a very hands-on approach for roll-owners.
Tezos’ Status as a Security
The top two in Tezos’ power structure are the husband and wife team of Arthur and Kathleen Brietman – under the umbrella of Dynamic Ledger Solutions. Their efforts to tip-toe around the ‘Initial Coin Offering’ terminology common to the industry resulted in potentially running afoul of the United States’ Securities and Exchange Commission. While the conversation is still ongoing as to whether cryptocurrency counts as security, the court case surrounding Tezos looks set to decide in at least this instance.
Further, Tezos suffered initial setbacks as a result of conflict between the Brietmans and the president of the Tezos Foundation at the time – Johann Gevers. A series of business slights resulted in an extremely soured relationship, which in turn significantly delayed the distribution of Tezos’ native XTZ tokens. Despite these issues, XTZ continues to be valued at $835 million USD and remains one of the top cryptocurrencies by market cap.
Article By: Adam Stone
