Tezos is a next-generation smart contract platform. Its key features are on-chain governance, self-updating protocol improvements and enhanced safety.
By building a governance layer on top of its blockchain, Tezos aims to increase stakeholders’ governing power by allowing protocol improvements to be tested and democratically voted on a quarterly basis. This allows the community to reach consensus in a standardized way, and voting outcomes are enforced automatically.
Like any other open source software, protocol improvements proposals are submitted periodically by development teams in order to improve aspects of the underlying technology. With Tezos, if an improvement proposal reaches a 60% early approval rating, it is then tested on a parallel test network before being voted upon by the stakeholders. As with voting shares of a public company, voting power in the Tezos platform is proportionate to the amount of XTZ held by each stakeholder. If 80% of stakeholders approve a proposal that has been tested, it is then automatically amended to the protocol and the voting cycle restarts.
Tezos smart contracts will be programmed in Michelson, a programming language that can mathematically prove the accuracy of a contract’s underlying code. Michelson makes it easier for developers to find bugs and was designed to give stakeholders peace of mind when transacting large amounts.
A Proof-of-Stake consensus algorithm will randomly select Tezos stakeholders to engage in validating transactions in the network. Stakeholders that choose to participate will be rewarded proportionally to the amount of coins they hold in their wallets. These rewards are paid with newly minted coins, and the algorithm’s reward schedule implies a 5% annual inflation rate.
The Tezos voting mechanism, in conjunction with Proof-of-Stake, is aimed to align stakeholders’ interests every quarter and allow decisions to be based on actual network tests. However, it is important to note that such characteristics do not entirely eliminate the possibility of a hard fork.