Baking (Tezos)

Baking is the term used on the Tezos blockchain for producing and validating blocks. Participants called bakers lock up tez, the network's native coin, and run node software. The protocol selects bakers in proportion to their stake to propose new blocks and to attest, or vote on, blocks proposed by others. In return they receive newly issued tez and transaction fees. Baking is Tezos's version of the work done by validators on other proof-of-stake networks.

Tezos launched its main network in 2018 and was one of the first major blockchains built around staking from the start. Its design, often described as liquid proof of stake, lets coin holders delegate their baking rights to a baker without handing over their coins. Baking sits at the heart of Tezos's security and of its on-chain governance, since bakers also vote on protocol upgrades.

Think of a neighbourhood that keeps a shared record book of who owes what. Instead of hiring a clerk, residents take turns writing up each new page. The more savings a resident puts in a locked box as a promise of good behaviour, the more often they are chosen. If someone writes a false page, part of their savings is taken away.

Baking works the same way. Bakers put tez at stake and take turns adding blocks to the Tezos chain, while others check and sign off each block. People who do not want to do the work themselves can lend their weight to a baker they trust and share the reward, while their coins stay in their own wallets.

The Tezos protocol divides time into cycles, each made up of many blocks. At the start of each cycle it assigns baking and attestation rights using a random process weighted by each baker's stake. Since the Ithaca 2 upgrade of 2022, Tezos has used a consensus algorithm called Tenderbake, which gives blocks fast deterministic finality: once enough attestations are collected, a block cannot be reversed. A baker's duties include:

• Proposing blocks. When selected, the baker gathers transactions from the mempool, builds a block and broadcasts it.
• Attesting. Bakers sign blocks proposed by others, and a block is final when attestations representing a large majority of stake are gathered.
• Revealing randomness. Bakers contribute to the random seed used to choose future rights.
• Voting. Bakers vote on proposals to amend the protocol, which is how Tezos upgrades itself without a hard fork that splits the chain.

To bake, a participant needs a minimum stake set by the protocol, which was 6,000 tez after the 2022 upgrade, and must keep a node online and secure. Many bakers use dedicated signing hardware such as a hardware security module or a hardware wallet to protect their keys.

Tez holders can take part without running a node. Delegation lets a holder point their account at a baker, adding to that baker's weight; the coins never leave the holder's wallet and can be moved at any time. Later upgrades added a separate option to stake tez with a baker, locking the coins so they share in penalties as well as rewards, and introduced adaptive issuance, which adjusts rewards according to the share of tez staked. Bakers set their own fees and policies for delegators and stakers, and public dashboards rank them by reliability and fees. This model is similar in spirit to delegated staking on other networks but differs from delegated proof of stake, which elects a small fixed set of block producers.

Tezos was proposed in a 2014 whitepaper by Arthur Breitman and funded through an initial coin offering in 2017 that raised about $232 million, one of the largest of that era. The fundraising was followed by disputes between the founders and the foundation and by investor lawsuits, which delayed the launch of the main network until 2018. The coin is covered in the entry Tezos (XTZ). From the start, bakers had a formal role in governance: proposals to amend the protocol pass through several voting periods, and if approved are switched on automatically. Successive upgrades, named alphabetically after cities, have changed block times, rewards and the staking model. This self-amending design means the rules of baking can change over time, so bakers follow each proposal closely.

Rewards, which work much like a block reward elsewhere, come from new tez issued by the protocol and from transaction fees, and are paid for proposing blocks and for attesting. Bakers that are offline miss their rewards. Bakers that sign two different blocks or attestations for the same slot, known as double baking or double attesting, can be denounced by other participants and lose part of their stake, a process often called slashing. Delegators face mainly the risk that their baker performs poorly or stops paying, while stakers can also share in slashing losses. Running a baker involves technical, security and tax obligations, since rewards are commonly treated as income. Holders should treat yields as variable, not guaranteed, and look at a baker's track record before choosing one.

• Tezos
• Octez documentation