Kathleen Breitman founded Tezos with her husband Arthur back in 2014, just as Bitcoin and the crypto industry was starting to gain some mainstream attention. Tezos is one of the original proof-of-stake blockchains that eschewed the energy-intensive proof-of-work approach to adding transactions to a blockchain popularized by Bitcoin. Tezos is also notable for being the first blockchain to include native governance functions into its platform to provide a process for network upgrades.
In this interview we discuss Tezos’ development but also get into important issues such as why she thinks that blockchain projects have long been too nice with each other, starting with Ethereum which she says went out of its way to avoid antagonizing the Bitcoin crowd. She also explains why she believes that many of the governance tokens popularized by DeFi applications are not much more than marketing ploys.
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Forbes: Let’s talk about how Tezos is different from Bitcoin. One initial observation is the fact that it’s designed to support a wider array of applications. Why did you think it was important to build a universal platform as opposed to something more akin to a payment system?
Breitman: We kind of think that they aren’t mutually exclusive. We think of Tezos as a currency. I think this idea of having a world computer is something that the Ethereum project promoted for itself that we never found very convincing. We think the most interesting applications of any smart contract platform are going to be financial, in the sense that that’s what cryptocurrencies do best. They aren’t great for general computation. Programmatic money is much more powerful than exchanging keys in the sense that you can represent more financial contracts. A lot of the way that Ethereum presented itself in 2014 was as a real computer. Part of that, I think, was to avoid antagonizing Bitcoin and its store of value narrative. You see other versions of this with Polkadot and Cosmos, for example, where they’ll say, oh, we’re not competing with anyone, we’re complementary. But we think the main goal for a blockchain or cryptocurrency is to send value over the internet.
Forbes: A lot of investors group Tezos in with Cardano and Algorand, and perhaps some of the interoperability protocols like Polkadot, as potential Ethereum successors or killers. What do you think will end up on top and do you think we are looking at a winner-take-all scenario?
Breitman: I don’t think we’ve ever called ourselves an Ethereum killer, but I think that’s how the Ethereum community likes to position it. I do think, for the cryptocurrency ecosystem, it’s winner takes most. I think there’ll be four or five protocols that have a tremendous amount of market share, and then there’ll be a long tail of projects that exist in a sort of sad way. I think there’s going to be a culling of the space as the technical requirements become more of a differentiator. Meaning we know, for example, if it turns out that a lot of people who are attracted to NFTs and the arts in general, care a lot about the environment and Ethereum is not, maybe they will say, hey, why wouldn’t we just do something that doesn’t have bad environmental impacts? I think there’s gonna be more of that as the space grows more pervasive.
Forbes: Some of the real core defining features of Tezos from a branding perspective are the governance features baked into the protocol, which are not available in Bitcoin and Ethereum. We saw some of the ramifications of this vulnerability with the Bitcoin blocksize debate years ago that led to a split in the network. Why do you think it is important to put governance into the DNA of Tezos?
Breitman: Blockchains help parties who are potentially contentious come to a consensus on a single source of truth. In the case of Bitcoin that’s the ledger of who owns what. But you can take the idea one step further. If blockchains are so good at coming to consensus on potentially contentious issues, why not come to consensus on the latest version of the software as well. So it’s just basically taking what blockchains do well and taking them to their logical conclusion, which is, allowing the software to upgrade itself.
Forbes: Governance really came to the forefront last summer when Compound launched its token, and many other DeFi platforms followed suit. But those are applications that run on top of blockchains. Tezos is a protocol layer. What do you think the differences are in layer one versus layer two governance programs?
Breitman: I think it’s pretty transparent that most layer two governance tokens are trying to justify their own existence as a token by saying, “Oh, we have a governance token.” You can’t substantively change the protocol that it’s operating under, so the diversity of what you can do with a layer two token that’s trying to have a governance model is significantly less in scope than a layer one. I think the scope and the magnitude of what you can do, what you can represent, is limited by having to ultimately rely on a separate protocol for your security and a few other features.
Forbes: Could you briefly explain how the governance system works in Tezos, and maybe walk us through an example of an upgrade or some sort of proposal that was enacted?
Breitman: There are three different protocols in the Tezos blockchain that work in sync to create a ledger that everyone agrees about. You’ve got the network layer, you’ve got the transaction layer and you’ve got the consensus layer. These things exist in harmony with one another and they’re governed by something called a network shell, which basically points to the most legitimate version of the software. There are four stages of any governance proposal, a proposal period where anyone can submit to a blockchain for consideration of a potential upgrade to Tezos. They can write a little description and they do their own version of politicking around the Tezos ecosystem. Then there’s an expiration period where people either say yes or no. Then there’s a testing period, and finally a promotion period where there’s a higher threshold of participation and affirmation required in order for there to be a formal upgrade of the protocol.
Forbes: What are the types of proposals or amendments that have come through?
Breitman: To date, it’s been primarily technical upgrades, which are, as you might imagine, a little less contentious, if it’s just about making the blockchain faster or the virtual machine more efficient or something like that. Where things get a little bit more contentious are more on economic fronts. So the first proposal upgrade was a pretty simple one, which was basically changing the amount of tokens necessary to create what’s called a roll, which is one of the ways that the governance process is measured.
The more recent proposal, which is Grenada, has a proposal within it, called liquidity baking, which has been the most controversial to date, but still looks like it will be ratified. Liquidity baking basically takes part of the block reward and puts it into a smart contract that acts as a market maker of contracts. So it has a buy and a sell order attached to it that will basically create a contract to buy and sell Tezos or wrapped Bitcoin on Tezos.
Forbes: Couple more questions on governance. What are your thoughts on people staking through exchanges, given the fact that most exchanges are not set up to support voting and governance? How might that technical gap impact your roadmap or just any effect that it may have on Tezos?
Breitman: You have a few different flavors of people who come to cryptocurrencies. You’ve got the hardcore OGs who are sitting at home with their safety deposit boxes across the world. They’re extremely good at security hygiene and maintenance on the web. Then you have the less paranoid and technically savvy people as you go further down the curve. Then there are people who use exchanges like Coinbase and Kraken as their default for both buying and selling but also custodying their tokens who are either not technically sophisticated enough to do this themselves or simply just don’t care that much, which is completely valid.
We saw a little cottage industry spread up around Tezos when it first launched to do staking, and a lot of it was community run, which I think is a testament to both the diversity and the sort of hacker culture that naturally came around the Tezos project. But I think the average, non technical holders of Tezos were very intimidated by the prospect of delegation and having to set out between all these different cryptocurrency and delegation providers, and for them, you go onto Coinbase. Delegating their Tezos that way allowed them to participate in the network and receive baking rewards, which obviously was a very popular thing. But it is, to your point, in an ideal world, everyone would run their own software and they’d have their own roll, and they would participate in the governance processes, but that’s just not the reality of what we’re dealing with right now.
Forbes: One of the other reasons why I find Tezos particularly interesting is because you really spearheaded the proof-of-stake consensus approach, which is becoming popular today due to concerns about bitcoin’s carbon footprint, and its overall impact on the environment. Why did you choose the proof-of-stake route?
Breitman: A lot of the recent hubbub about proof-of-work and its environmental impact has been born of people’s realization that Ethereum has yet to upgrade to proof-of-stake. If you read the position paper for Tezos, we talk about motivations for doing proof-of-stake as opposed to proof-of-work. I care about the environment and think man-made climate change is real. I don’t wish to burn more fossil fuels if we don’t have to. But if you read the primary motivation, it’s actually about security and aligning interest between token holders and people who validate the network. So it came from a game theoretic perspective; it didn’t come from necessarily a greater love of trees. I think the Bitcoin community in particular has a very visceral reaction to anyone making observations about proof-of-work energy consumption.
Forbes: Talk to me a little bit about the activity on Tezos for now. How many transactions per day do you average? What’s the typical number of users? What are a couple of the applications or use cases that are the biggest or you’re most excited about?
Breitman: We recently hit 10 million contract calls in the network, and that can range from anything from people making transactions or using smart contracts or depositing or selling or whatever. What’s crazy about that number is that while 5 million of those contract calls came in the first three years, the other 5 million came in the last eight weeks. So use of the network has exploded since the beginning of the year. A lot of that was motivated by surging demand for non-fungible tokens (NFTs). Other projects that are probably going to drive usage of the network are in gaming. We’re working on two projects that haven’t yet been announced. But then on top of that, there’s a new website called Play with BRIO that does very simple skills games, using Tezos as a currency for basically buying and selling gaming. And also wagering on games, which is very similar to Skills.com, which is a very popular website that has less favorable economics. And later this year, we’re going to have a tradable collectible card game called Emergence debut. That was something I was heavily involved with, towards the beginning, which is basically a bunch of Magic the Gathering OGs making the card game that they wish they could have had when magic was going to a digital model. It’s using the Tezos blockchain to represent assets in the game.
Forbes: Thank you.