diff 2014/tezos 2017/tezos

tl;dr:

  • We made a some tweaks to the three year old white paper.
  • Scroll to the bottom of this post for a list

The Tezos position paper and white paper were released in August and September of 2014 and the project has been under active development ever since. They remain, to this day, the best explanation of the goals and design of our cryptographic ledger. We like to think that the papers — which cautioned against the danger of hard-fork politics — have proven to be remarkably prescient.

When newcomers inquire about the project on our Slack channel they sometimes (and naturally) assume that the project follows the white paper exactly.

While we follow the white paper very closely, we do not follow it to the letter. The departures we introduced are primarily changes in a few constants such as block sizes, gas limits, storage costs, number of proof-of-stake endorsements per block, size of bonds, etc. Tuning these parameters correctly is important to ensure a smooth launch. However, in the medium term, they are largely inconsequential. A key aspect of Tezos is its ability to self-upgrade using an on-chain governance procedure. We fully expect these parameters to evolve in a way that improves the value of the ledger.

For instance, to compensate for our synchronous proof-of-stake algorithm being relatively new, we are setting its initial parameters to be fairly conservative. This means small blocks and a full minute between blocks. The block time interval trade-offs in proof-of-stake are very different from the block time trade-offs in proof-of-work. In proof-of-work the transmission time of a block must be negligible with respect to the block interval. In proof-of-stake it need only be shorter. Bitcoin blocks typically propagate in about 6 seconds. Our margin is ten times higher. Casper, Ethereum’s proof-of-stake effort, based on a design similar to the one outlined in our 2014 paper suggests 8 seconds per block.

Large blocks and a short block intervals are of course desirable, but we would much rather introduce them organically when we have a more robust understanding of how our consensus algorithm performs in the wild.

We will strive to follow John Gall’s law

A complex system that works is invariably found to have evolved from a simple system that worked. A complex system designed from scratch never works and cannot be patched up to make it work. You have to start over, beginning with a working simple system.

An important constant in the paper which is not subject to change before the launch is the rate of block reward to proof-of-stake holders. We are still targeting roughly an initial increase in the token supply of about 5% a year. Note that this increase accrues in proportion to token ownership provided the owner participates in the consensus algorithm.

This means that unlike proof-of-work inflation, this expansion of the token supply is non dilutive. If you own 1% of the token supply and participate in the consensus algorithm, you will still own about 1% of the token supply at the end of the year. This is economically equivalent to having a fixed cap, but without introducing a tragedy of the commons when the rewards run out.

However, a fixed cap is a simple proposition to understand while non dilutive inflation isn’t. To that end, we may introduce an asymptotic fixed cap ten years down the line just to check the box; we’re still thinking about it. But, you may ask, isn’t that a huge deal? No, because what really matters is that governance decisions are made in accordance to the interest of token holders. Once we have that, initially targeting a fixed cap or not is inconsequential.

Without further ado, here’s a changelist:

  1. Changes which do not directly impact the economics of Tezos:
  • We’re experimenting with different parameters for the consensus algorithm in terms of block size and block time. We’ll start conservatively and crank it up. Security first, scaling second.
  • The initial extent of the token supply will be the number of tokens issued during the crowdsale and not specifically “10 billion” as proposed in the 2014 white paper. The supply will then grow through block rewards or as payments for protocol upgrades. So if 2,000,000 tokens are sold during the crowdsale, the initial supply will be 2,000,000 and grow to 2,100,000 after a year. The number “10 billion” was arbitrary, this has no impact on the economics of Tezos.
  • The paper suggesting denominating Tezos amounts with two digits after the decimal, like pennies. However, we might end up lacking precision if we do so. Instead, we’ll have 8 digits of precision. This is just a convention, it’s all integers underneath it.

2. Changes which do affect the economics:

  • Block endorsements are bonded, like block creation. This means that endorsers who double endorse will not just forfeit their reward but also a safety bond.
  • Unbonding will happen after one cycle, and not one year as initially suggested. Prolonging the period longer than a cycle did not really improve security at the cost of immobilizing a lot of capital.
  • The total block rewards will still start at about 5% per year, but we may add an asymptotic cap to the total number of tokens. We think it’s irrelevant when the governance model is aligned with the token holder’s interest, but it is important to some people so we’re reluctantly considering it.
  • Inactive addresses will no longer lose their funds after one year as initially proposed in the white paper, they will only lose their staking rights until they become active again. What it means is that if an address is inactive, it will not be selected to create blocks (which would slow down the consensus algorithm), and it will not be allowed to vote until it is reactivated (to avoid uncertainty about participation rate). This also affects governance.

3. Changes which affect the governance of Tezos:

  • Protocol upgrade votes will be much more frequent in the first year in order to allow for rapid iteration.
  • As a security measure, the Tezos foundation will have a veto power expiring after twelve months, until we rule out any kinks in the voting procedure.