Tezos has been on the rise since the start of 2021, but does that make it a good investment?
Eco-friendly cryptocurrency Tezos (XTZ) saw strong gains in 2021, in part because three Swiss companies announced they would use its network to power new digital financial products. Crypto Finance AG, InCore Bank and Inacta plan to use the Tezos platform to create smart contracts that will support anti-money laundering and governance compliance activities.
Tezos has also successfully completed a network upgrade. As a result, its price has risen almost 95% since the start of August.
Understanding Tezos in 4 important points
- What it does: Tezos is a programmable blockchain with smart contract capabilities. It describes itself as a “smart currency”, emphasizing that it is first and foremost a currency.
- Founders: Arthur and Kathleen Breitman, husband and wife, founded Tezos in 2014. Arthur had previously worked developing self-driving cars and was an analyst at Goldman Sachs and Morgan Stanley. Kathleen had worked for Accenture, Bridgewater Associates and the Wall Street Journal.
- Market cap: $4.8 billion (CoinMarketCap, August 30).
- Availability: Most major global cryptocurrency exchanges, such as Coinbase for example.
What are the differences between Tezos and other cryptocurrencies?
One of the main differentiators of Tezos is its governance system. The network calls itself a self-amending blockchain because it is designed to evolve and update. “Bakers” (people who own a good deal of Tezos and participate in the network by adding new blocks to the chain) can propose changes to the system. These are voted on and can then be adopted.
The idea behind it is to avoid a radical upgrade (hard fork) of the Tezos chain, where the system splits due to significant differences in how stakeholders think it should work. For example, Bitcoin Cash (BCH) is a hard fork of Bitcoin (BTC) . Bitcoin Cash has separated from the Bitcoin blockchain, and the new chain processes transactions faster. Hard forks aren’t necessarily a bad thing, but they can create security holes.
Tezos also uses the greener proof-of-stake model to produce new blocks and ensure network security. Additionally, Tezos claims that its smart contract language (Michelson) is designed for security and will prevent funds from being lost or frozen due to bugs in the code.
While many of the platform’s applications will be for finance, Tezos has also seen demand from non-fungible token (NFT) and gaming projects. NFTs are a type of digital collectible where ownership and authorship details are embedded into the token.
Should you invest in Tezos?
If you are considering buying Tezos, here are some questions to ask yourself first.
Do you agree with its governance?
Tezos found itself in business after its initial public offering (ICO) in 2017. Internal conflict significantly delayed the launch of the platform and the issuance of tokens. Legal proceedings followed. Last year, Tezos reached a $25 million settlement, of which $16.5 million will be paid out to investors who lost money.
There is a certain irony that a coin designed to govern itself fails to deliver on its promises due to governance issues. But the team has since worked to put those teething problems behind them. Nevertheless, as an investor, it is important to know what happened, especially since even last year rumors persisted of problems between the Breitmans, who founded the currency, and the Foundation Tezos. That said, Arthur Breitman joined the Tezos Foundation Board in February 2021 for a one-year term.
Are you investing money that you can afford to lose?
Cryptocurrencies can generate high returns, but they are also risky and volatile investments . Before investing in crypto, make sure your emergency fund is well filled and your retirement savings are up to date.
Ideally, cryptocurrencies should only be a small percentage of your overall investments and should be money you can live without. So if the coin – or the entire sector – suddenly loses value, you won’t run out of money. It also means that you can wait for market dips because you don’t need to access that money in the short term.
Will Tezos stand up to the competition?
The programmable blockchain space is full of cryptocurrencies that promise to enhance the Ethereum (ETH) platform. Ethereum was the first crypto with smart contract capabilities and still holds a large portion of the market. Its dramatic growth now means it has to deal with network congestion and high fees until it can upgrade to Eth2.
As this space evolves, the most likely scenario is that five or six main players will emerge, leaving the rest of the pack behind. To be part of this elite group will require both technical prowess and a keen sense of communication and marketing – the race is on for all these players to attract developers and show how their platform stands out.
Investing in Tezos to make money in cryptocurrencies?
Tezos is a well-regarded project that seems to have overcome its initial difficulties. Its governance model and smart contract language have the potential to contribute to its long-term success. However, it would be good to see Tezos attract more projects to its platform, and it is important to compare it to other existing programmable blockchains, such as Solana for example.