Comprehensive Tutorial on Tezos in Cryptoblockchains

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Posted on | by priteshgeek

Introduction & Overview

Tezos is an open-source, self-amending blockchain platform designed to execute peer-to-peer transactions and deploy smart contracts. Known for its unique governance model and energy-efficient consensus mechanism, Tezos addresses key challenges in blockchain technology, such as scalability, upgradability, and community governance. This tutorial provides a detailed exploration of Tezos, its architecture, setup process, use cases, benefits, limitations, and comparisons with other blockchain platforms, tailored for technical readers interested in cryptoblockchains.

What is Tezos?

Tezos is a decentralized blockchain that uses a proof-of-stake (PoS) consensus mechanism called Liquid Proof-of-Stake (LPoS). It allows stakeholders to participate in governance and network upgrades without requiring hard forks, which are disruptive splits in the blockchain. Tezos supports smart contracts and decentralized applications (dApps), with its native cryptocurrency, Tez (XTZ), used for transactions, staking, and governance.

  • Key Features:
    • Self-amending protocol to avoid hard forks.
    • Liquid Proof-of-Stake for energy-efficient consensus.
    • Formal verification for enhanced smart contract security.
    • On-chain governance for community-driven upgrades.

History or Background

Tezos was proposed in 2014 by Arthur and Kathleen Breitman under the pseudonym “L.M. Goodman.” The project aimed to address limitations in Bitcoin and Ethereum, such as governance disputes and hard forks. In July 2017, Tezos raised $232 million in one of the largest initial coin offerings (ICOs) at the time. Despite early challenges, including legal disputes and delays, the Tezos mainnet launched in September 2018. Since then, it has evolved through multiple protocol upgrades, driven by its community.

Why is it Relevant in Cryptoblockchains?

Tezos stands out in the cryptoblockchain ecosystem due to its ability to evolve without hard forks, ensuring network stability and reducing community fragmentation. Its energy-efficient LPoS mechanism makes it a sustainable alternative to proof-of-work (PoW) blockchains like Bitcoin. Tezos is particularly relevant for:

  • Decentralized Finance (DeFi): Enabling secure, scalable financial applications.
  • Non-Fungible Tokens (NFTs): Supporting low-cost, eco-friendly NFT marketplaces.
  • Enterprise Use Cases: Providing formal verification for mission-critical applications.

Core Concepts & Terminology

Key Terms and Definitions

TermDefinition
Tez (XTZ)The native cryptocurrency of Tezos, used for transactions, staking, and governance.
Liquid Proof-of-Stake (LPoS)A consensus mechanism where stakeholders can bake or delegate tokens to validators.
BakingThe process of creating and validating blocks in Tezos, akin to mining in PoW.
DelegationAssigning XTZ to a baker without transferring ownership to earn rewards.
MichelsonTezos’ stack-based smart contract language, designed for formal verification.
Self-AmendingThe ability to upgrade the protocol through community voting, avoiding hard forks.
Smart RollupsLayer 2 solutions for scalability, allowing high-throughput transactions.

How It Fits into the Cryptoblockchains Lifecycle

Tezos integrates into the cryptoblockchain lifecycle—encompassing creation, validation, governance, and application development—as follows:

  • Creation: Developers write smart contracts in Michelson or high-level languages like SmartPy or LIGO.
  • Validation: Bakers validate transactions and produce blocks using LPoS.
  • Governance: Stakeholders propose and vote on protocol upgrades, ensuring continuous evolution.
  • Application: dApps and NFTs leverage Tezos’ low fees and scalability for real-world use.

Architecture & How It Works

Components and Internal Workflow

Tezos’ architecture is modular, comprising three main layers:

  1. Network Protocol: Handles peer-to-peer communication via a gossip protocol, broadcasting transactions and blocks across nodes.
  2. Transaction Protocol: Defines valid transactions, including smart contract execution, using Michelson.
  3. Consensus Protocol: Uses LPoS to achieve agreement on the blockchain state, with bakers creating blocks and endorsers validating them.

The workflow involves:

  • Nodes: Maintain the blockchain state and sync with the network.
  • Bakers: Produce blocks by selecting transactions from the mempool (pending transactions).
  • Endorsers: Validate blocks to ensure correctness.
  • Accusers: Monitor for malicious behavior, such as double baking, to maintain security.

Architecture Diagram

Below is a textual description of the Tezos architecture (as images cannot be included):

[Tezos Network]
    |
    |---- [Nodes]
    |       |---- Syncs blockchain state
    |       |---- Connects to P2P gossip network
    |       |---- Interacts with clients (wallets, dApps)
    |
    |---- [Bakers]
    |       |---- Creates blocks (~1 per minute)
    |       |---- Requires 8,000 XTZ stake
    |       |---- Earns block rewards
    |
    |---- [Endorsers]
    |       |---- Validates blocks
    |       |---- Ensures consensus integrity
    |
    |---- [Accusers]
    |       |---- Detects double baking
    |       |---- Reports malicious behavior
    |
    |---- [Smart Rollups (Layer 2)]
            |---- Processes high-throughput transactions
            |---- Communicates with Layer 1 for verifiability

This modular design ensures scalability and upgradability, with Layer 2 solutions like Smart Rollups enhancing transaction throughput.

Integration Points with CI/CD or Cloud Tools

Tezos nodes and bakers can be integrated into modern DevOps pipelines:

  • CI/CD: Use tools like GitHub Actions or Jenkins to automate node deployment and smart contract testing. SmartPy and LIGO support unit testing frameworks.
  • Cloud Tools: Deploy Tezos nodes on AWS, Azure, or Google Cloud using Docker containers. Kubernetes can manage node clusters for high availability.
  • APIs and SDKs: Tools like Taquito (JavaScript) and PyTezos (Python) enable integration with web applications and cloud-based backends.

Installation & Getting Started

Basic Setup or Prerequisites

To set up a Tezos node, you need:

  • Hardware: A server with 8 GB RAM, 100 GB SSD, and a stable internet connection.
  • OS: Ubuntu 20.04 LTS or later (recommended for Linux).
  • Software: Docker, Git, and a Tezos client (e.g., Octez).
  • Wallet: A Tezos-compatible wallet like Temple or Kukai for managing XTZ.

Hands-On: Step-by-Step Beginner-Friendly Setup Guide

Follow these steps to set up a Tezos node on Ubuntu:

  1. Install Dependencies: 
sudo apt update
sudo apt install -y build-essential git python3 python3-pip

2. Install Docker:

sudo apt install -y docker.io
sudo systemctl start docker
sudo systemctl enable docker

3. Clone Octez Repository: 

git clone https://gitlab.com/tezos/tezos.git
cd tezos

4. Build the Octez Client: 

make

5. Run a Tezos Node:

./tezos-node config init –data-dir ~/tezos-node –network mainnet
./tezos-node run –data-dir ~/tezos-node

6. Set Up a Wallet:

  • Download the Temple Wallet browser extension.
  • Create a new wallet and fund it with XTZ (e.g., via exchanges like Binance).
  • Import the wallet’s private key into the Octez client:
./tezos-client import secret key my_wallet <private_key>

7. Verify Node Status: 

./tezos-client get balance for my_wallet

8. (Optional) Become a Baker:

  • Ensure you have 8,000 XTZ.
  • Register as a baker:
./tezos-client register key my_wallet as delegate

    Troubleshooting Tips

    • Sync Issues: Ensure port 9732 is open for P2P communication.
    • Low Disk Space: Increase storage or prune old blockchain data.
    • Wallet Errors: Verify private key format and network selection.

    Real-World Use Cases

    Tezos’ versatility supports various cryptoblockchain applications. Below are four real-world scenarios:

    1. NFT Marketplaces:
      • Example: Hic et Nunc (now Objkt) allows artists to mint NFTs for ~$0.20, leveraging Tezos’ low fees and energy efficiency.
      • Industry: Digital art, collectibles.
      • Impact: Democratizes NFT creation for artists globally.
    2. DeFi Applications:
      • Example: Kolibri enables users to mint kUSD, a stablecoin pegged to the USD, backed by XTZ.
      • Industry: Finance.
      • Impact: Provides scalable, low-cost DeFi solutions.
    3. Enterprise Tokenization:
      • Example: Societe Generale used Tezos to issue tokenized securities, leveraging formal verification for regulatory compliance.
      • Industry: Banking, real estate.
      • Impact: Enhances security and trust in financial assets.
    4. Digital Collectibles:
      • Example: Manchester United issued NFT collectibles on Tezos in 2022, offering fans unique digital assets.
      • Industry: Sports, entertainment.
      • Impact: Engages fans with verifiable digital ownership.

    Benefits & Limitations

    Key Advantages

    AdvantageDescription
    Self-AmendingUpgrades without hard forks, maintaining network unity.
    Energy EfficiencyLPoS consumes ~2.5g CO2 per transaction, far less than Ethereum’s PoW.
    Formal VerificationMichelson enables mathematical proof of smart contract correctness.
    Low FeesTransaction costs are minimal, e.g., ~$0.20 for NFT minting.

    Common Challenges or Limitations

    LimitationDescription
    Learning CurveMichelson is complex for developers unfamiliar with stack-based languages.
    Baking RequirementsRequires 8,000 XTZ (~$6,000 at $0.75/XTZ) to become a baker, limiting access.
    Market AdoptionSmaller ecosystem compared to Ethereum, with fewer dApps and users.
    KYC/AML IssuesEarly ICO required KYC, causing delays and user dissatisfaction.

    Best Practices & Recommendations

    Security Tips

    • Use hardware wallets (e.g., Ledger) for storing XTZ and baker keys.
    • Enable signer authentication and restrict node connections via firewall.
    • Monitor for double baking to avoid penalties (e.g., loss of 33,408 XTZ).

    Performance

    • Deploy nodes on high-availability cloud infrastructure (e.g., AWS EC2).
    • Use Smart Rollups for high-throughput dApps.
    • Optimize gas limits in smart contracts using tools like SmartPy.

    Maintenance

    • Regularly update node software to incorporate protocol upgrades.
    • Monitor disk space and sync status daily.
    • Backup configuration files and review security logs.

    Compliance Alignment

    • Implement KYC/AML for tokenized assets to meet regulatory standards.
    • Use formal verification for smart contracts in regulated industries (e.g., finance).

    Automation Ideas

    • Automate node deployment with Ansible or Terraform.
    • Use CI/CD pipelines for smart contract testing and deployment.
    • Integrate monitoring tools like Prometheus for node performance.

    Comparison with Alternatives

    How It Compares with Similar Tools

    FeatureTezosEthereumCardano
    ConsensusLPoSPoS (post-merge)Ouroboros PoS
    GovernanceOn-chain, self-amendingOff-chain, EIPsOn-chain, voting
    Smart Contract LanguageMichelson, SmartPy, LIGOSolidity, VyperPlutus, Marlowe
    Energy Efficiency~2.5g CO2/tx~0.02kWh/tx (post-merge)~0.5kWh/tx
    Transaction FeesLow (~$0.20 for NFTs)Moderate (~$1-5)Low (~$0.15)
    Ecosystem SizeModerateLargeGrowing

    When to Choose Tezos Over Others

    • Choose Tezos for:
      • Applications requiring frequent upgrades without forks (e.g., DeFi, NFTs).
      • Energy-efficient and low-cost transactions.
      • Formal verification for high-security smart contracts (e.g., banking).
    • Choose Ethereum for a larger ecosystem with more dApps and developer tools.
    • Choose Cardano for research-driven applications with a focus on scalability.

    Conclusion

    Tezos is a pioneering blockchain platform that addresses key challenges in cryptoblockchains through its self-amending protocol, energy-efficient LPoS consensus, and formal verification capabilities. Its modular architecture and governance model make it a strong contender for DeFi, NFTs, and enterprise applications. While it faces challenges like a steep learning curve and smaller ecosystem, its low fees and sustainability make it attractive for developers and businesses.

    Future Trends

    • Layer 2 Scalability: Smart Rollups and Etherlink will enhance transaction throughput.
    • NFT Growth: Continued adoption in art, sports, and entertainment.
    • Enterprise Adoption: Increased use in tokenized securities and CBDCs.

    Next Steps

    • Explore the Tezos Developer Portal for tutorials and APIs.
    • Join the Tezos community on Discord or Reddit for support.
    • Experiment with dApp development using SmartPy or LIGO.

    Resources

    • Official Tezos Website
    • Tezos Developer Portal
    • OpenTezos Documentation
    • Tezos Foundation