Tezos Edo Upgrade + Network Effects
Last Saturday, 13 February 2021, around 1 pm Pacific time, Tezos upgraded for the fifth time in less than 2 years. This upgrade, dubbed “Edo,” contained some minor bug fixes, some improvements to performance and gas consumption (thus lowering typical gas fees), the addition of a new period (named the “Adoption Period”) to the Tezos upgrade process, and two important new features that development teams have been working on for some time: Sapling, and tickets. I’ll touch on Sapling later on in this post. To learn more about tickets, check out this introductory post from TQ’s Eli Guenzburger.
The specific features and improvements of the Edo upgrade have been comprehensively covered in a number of different pieces. In this brief post, I will share two high-level and more philosophical reasons why I think this upgrade is especially significant for both the Tezos and larger blockchain ecosystems. This post assumes that readers have some familiarity with Tezos and blockchain technologies.
An Upgradable Upgrade Process
One of Tezos’ primary competitive advantages over other public blockchains such as Ethereum is that it has a built-in mechanism to regularly coordinate and execute software upgrades at scale. The ability to regularly coordinate and execute software upgrades at scale is important because public blockchains risk becoming outdated and abandoned if they do not innovate and incorporate state-of-the-art technologies. If a public blockchain becomes outdated and abandoned, that blockchain’s network effect will be damaged, and a network effect is what gives a blockchain and its native cryptocurrency value.
When dealing with decentralized networks with thousands of different stakeholders and node operators from all sorts of different cultural backgrounds and regions around the world, the costs required to coordinate and execute upgrades can be extremely high or even prohibitively expensive to retain the network effect of a given cryptocurrency.
Tezos’ upgrade process significantly lowers the coordination costs required to 1) coordinate agreement amongst all stakeholders about whether a strong majority of them want a given upgrade proposal or not, and 2) coordinate the execution of an upgrade once consensus is reached amongst all stakeholders.
The exact details of this coordination mechanism are beyond the scope of this post. However, I want to highlight that the Tezos upgrade process (frequently referred to as the “governance” process in the Tezos community, essentially just a decision-making process) is meant to bootstrap more effective mechanisms of decision-making in decentralized networks with thousands and thousands (and someday millions and even billions) of stakeholders from all around the world.
The Tezos upgrade process itself is upgradable. This is important because as new coordination technologies and more effective forms of blockchain governance are discovered, Tezos can evolve to incorporate those innovations. The current Tezos upgrade process is by no means perfect, and it doesn’t pretend to be. Rather, the Tezos upgrade process is just an initial implementation meant to bootstrap more effective upgrade processes for Tezos. Edo is the first step in that direction.
Edo is the first Tezos upgrade to upgrade the upgrade process itself. Based on user feedback from past Tezos upgrades, developers added a fifth period to the upgrade process to give Tezos users (specifically, developers of wallets, indexers, libraries, etc.) some time to prepare their products from the time a proposal is accepted to the time it goes live on the Tezos network.
The Tezos community has set a pragmatic precedent that as Tezos continues to mature and new coordination technologies are discovered, the upgrade process itself can incorporate those innovations. Through this, Tezos can evolve and avoid becoming outdated, thereby retaining its network effect indefinitely.
Follow the Network Effects
Sapling was a primary feature of the Edo upgrade. Sapling is a protocol originally developed by the Electric Coin Company. With Edo, Tezos now allows smart contract developers to easily integrate Sapling in their smart contracts, enabling new types of applications such as voting or supporting asset transactions with selective disclosures.
Technologies in the blockchain ecosystem carry with them network effects of various strengths. Thanks to Tezos’ regular upgrade cadence (upgrades can currently occur about every 3 months), the Tezos community has the luxury to observe the larger blockchain ecosystem, identify technologies (and their communities) that have strong network effects associated with them, and work to adopt those technologies into the Tezos ecosystem.
With the Edo upgrade, the Tezos ecosystem can now begin to build a strong network effect amongst those who value the ability to make digital transactions with selective disclosures. Edo is the first example of Tezos adopting a new technology that carries a strong network effect, and we may soon see a second with the Nomadic Labs team and others in the Tezos community pushing forward on a version of the Tendermint consensus algorithm adapted for Tezos.
The Edo upgrade was significant because it showed that Tezos stakeholders take a non-dogmatic approach to governance and will improve the upgrade process itself when practical to do so. Cryptocurrencies derive their value from network effects, and Tezos is uniquely positioned to be able to quickly evolve and adapt (without sacrificing decentralization) according to the network effects of technologies in the blockchain ecosystem.
