Updated: We’ve updated this post to align with the latest Tezos update (Florence) and market prices.

The year 2020 shook the world in several ways, but cryptocurrencies came out stronger than what many expected.

However, a challenging part of the crypto revolution is to ensure similar progress in the utilitarian aspect of distributed ledger technologies (like blockchain).

Key takeaways

• Tezos and Ethereum are two remarkable projects, with each having their own strengths and limitations.
• Tezos has the potential of evolving faster than Ethereum 2.0.
• Enterprises planning to use blockchain for their business have to analyse which of these networks are suitable for their industry and make a decision accordingly.

In the context of crypto utility, Ethereum leads the way as the first blockchain-based platform designed for creating decentralised applications (dApps).

Ethereum introduced the ability to create smart contracts, build dApps, and above all, it provided access to a decentralised network that makes it possible to utilise computational resources with little upfront investment.

And since we’re focussing on platforms that support smart contracts and the development of dApps, it’s impossible to leave out Tezos.

Tezos shot to popularity with its huge ICO, raising over $232 million in as short as 13 days.

It is among the leading decentralised networks both in terms of utility and market cap.

So, how do Tezos and Ethereum differ from each other? Let’s find out.

Tezos Vs Ethereum: A Brief History

So, how do Tezos and Ethereum differ from each other? Let’s find out.

Ethereum breakdown

What is it?: Ethereum is a decentralised platform for application development and value transfer.

Ticker symbol: ETH

Circulating supply: Unlimited supply: 115,856,431 (May 2021)

Launch date: July 30, 2015

Consensus mechanism: Proof of Work; Proof of Stake (Ethereum 2.0)

Governance structure: Off-chain governance through EIP & ERC

Transaction throughput: ~15 TPS

Current price: $3,873 (May 2021)

There is no definite supply of Ethereum. Its annual cap for new token release is limited to 18 million ether.

Vitalik Buterin published Ethereum Whitepaper in 2013.

Ethereum ICO concluded in August 2014, raising over $18 million. Ethereum Testnet was launched in July 2015.

Ethereum 1.0 uses Proof of Work consensus mechanism.

With its upgrade, Ethereum 2.0 will adopt the Proof of Stake consensus algorithm.

Ethereum has an off-chain governance structure under which the core team discusses the technical feasibility of Ethereum Improvement Proposals (EIPs).

The other option is through Ethereum Request for Comments (ERCs).

Tezos breakdown

What is it?: Tezos is a decentralised network for dApps development that supports smart contracts.

Ticker symbol: XTZ

Circulating supply: 876,072,816 XTZ (May 2021)

Launch date: September 2018

Consensus mechanism: Emmy+ – Liquid Proof of Stake

Governance structure: On-chain governance; self-amending blockchain

Transaction throughput: ~50 TPS

Current price:$ 6.21 (May 2021)

Tezos’s current supply is 876,072,816 XTZ.

The concept of Tezos was published in September 2014 by Kathleen and Arthur Breitman.

Tezos had one of the biggest ICOs in history, raising over $232 million. There were some hiccups in the top leadership, but the Tezos Test network came into life in September 2018.

Tezos uses liquid Proof of Stake (LPoS) consensus mechanism (Emmy+), under which users can directly stake their tokens or allocate their tokens to bakers (randomly selected nodes).

Tezos is self-amending in nature, which means any changes in the blockchain must be approved by token holders through voting.

Tezos Vs Ethereum: An Apple-to-Apple Comparison

Ethereum and Tezos both support the development of dApps, smart contracts, and are undergoing regular upgrades to boost their utility.

However, there are fundamental differences between these platforms that give them an edge over the other.

Consensus Algorithm: PoW and PoS

Ethereum 1.0 or the current functioning Ethereum network uses Proof of Work (PoW) consensus mechanism.

Proof of Work (Ethash) relies on solving complex mathematical puzzles. Here is how the process works.

• Miners create a bundle of transactions for inclusion in a block.
• Miners start finding the solution (called nounce of the block) for the block problem or puzzle.
• The solution of the problem (mixHash) should be below the target nounce for a block to be accepted.
• As soon as a miner finds the solution that is below the target nounce, he broadcasts the same to the entire network.
• The miner receives the block reward (2 ETH) for solving the block problem along with the transaction fees.

However, considering the excessive use of energy and computational resources in PoW, Ethereum is shifting to PoS in Ethereum 2.0.

The platform has already launched the Beacon Chain that will bring PoS to the Ethereum network.

Tezos also uses a Proof of Stake consensus mechanism called Emmy+.

Terminology in Tezos Vs Ethereum

Here is how PoS works:

• The blockchain chooses a validator or baker randomly to validate or bake a block.
• The selected node locks a portion of their tokens as stake before beginning the process.
• The chosen node must check transactions and approve them before the other nodes can verify or attest.
• All the nodes that are not selected for validation or baking should attest/notarize the block, whether it’s good or bad.
• The block receiving the majority of votes from validators or rolls is added to the blockchain.
• The baker or validator receives transaction fees as a reward for their work.

How is Liquid PoS different?

While the underlying PoS mechanism functions the same way in Tezos, the platform allows delegation of voting rights without transferring ownership.

It means individual nodes can delegate their voting rights to bakers.

Bakers, in turn, distribute the mining rewards with individual token holders.

Also, bakers have the choice to delegate their voting rights to other bakers and receive compensation for doing so.

Blockchain Governance: On-Chain or Off-Chain

Tezos: On-Chain Governance

Tezos uses an on-chain governance mechanism, and that’s why it is called a self-amending chain.

The process of introducing a change to Tezos is as follows.

• Developers propose changes to Tezos protocol and request compensation for their work.
• The network users test the proposed changes and suggest any possible issues or recommendations.
• After testing the upgrade for a specific period, the entire network votes on the proposal. If the majority of voters approve the proposal, the amendment is accepted.
• The Tezos chain undergoes a ‘hot swap’ to upgrade the chain, thereby avoiding the problem of a hard fork.

Ethereum: Off-Chain Governance

Unlike Tezos, Ethereum has an off-chain governance mechanism, which means the proposal or request for any updates goes through a panel of core members.

These members hold extensive discussions about the proposed upgrades.

If the stated upgrade passes these discussions, along with trial runs, it’s implemented on the Ethereum blockchain.

Here is how the governance process works on Ethereum.

• An Ethereum improvement proposal (EIP) is submitted with a detailed technical explanation and its benefits. Ideally, the author of an EIP must have a decent standing within the Ethereum community to gather sufficient support for the EIP to go through.
• The developer community discusses the scope of the EIP, its benefits, any potential limitations, real-world usage, and technical specifications.
• If an EIP is considered technically sound, receives sufficient support, it is implemented within the Ethereum ecosystem.

Another mechanism to include a change with the Ethereum ecosystem is through Ethereum Request for Comments (ERCs).

If an ERC holds through different technical parameters, it is converted into an EIP and taken through the same procedure.

Smart Contract: Language

Smart contracts are self-executing codes that can be automatically executed on a blockchain network once their underlying conditions are met.

Both Tezos and Ethereum support smart contracts; however, there some are differences in terms of the language used for coding smart contracts on each of these platforms.

Ethereum uses Solidity, which is an object-oriented, high language programming language.

Solidity provides support for custom user types, libraries, and inheritance qualities.

Tezos, on the contrary, uses Michelson for writing smart contracts.

Michelson is designed specifically for Tezos, with unique features, such as data structures, functions, and stack-based programming.

It is critical to understand that Michelson supports formal verification, which is critical for transactions (escrow smart contracts) involving substantial financial resources; Ethereum doesn’t support formal verification.

In short, Tezos offers the security enterprises may seek before conducting business over the blockchain.

Additionally, Michelson produces a bytecode that can be easily understood or made sense of, making it a suitable option for escrow smart contracts.

Ethereum bytecode, on the contrary, resembles assembly output, making it hard for non-programmers to introspect.

New Developments

Ethereum

Ethereum is upgrading to Ethereum 2.0, which brings in multiple features to the network.

• Beacon Chain: Introducing PoS in Ethereum (launched)
• Shard chains: Ability to scale Ethereum by splitting the computational workload horizontally, thereby boosting transaction throughput. (To be launched)
• Docking: Mainnet Ethereum docking with the Beacon Chain to migrate the network to PoS.

Tezos

Tezos is constantly improving its underlying protocol by introducing upgrades and features.

Florence: The Florence upgrade has increased the maximum operation size to 32kB. The new gas optimizations and arithmetic have improved the execution cycle performance of the Michelson interpreter by 35%. Florence upgrade changes smart contract execution to depth-first execution order, making it developer-friendly. Also, the upgrade removes the Test Chain feature in the Economic Protocol for a streamlined implementation.

Use case: Escrow Smart Contracts

Escrow smart contracts have a huge utility for businesses and individuals alike.

They allow two parties to transact without having to know each other, thereby providing a trustless channel for business transactions.

• Using Ethereum for Escrow smart contracts: It is possible to use Ethreum smart contracts for escrow, but these contracts will not support formal verification. A single error or loophole can lead to a huge financial loss for either party.
• Using Tezos for Escrow smart contracts: Tezos supports smart contracts, and since these contracts can be formally verified, enterprises can rely on them for high-value transactions.