On June 30, almost a year after the widely successful ICO — a project that raised $232 million worth of BTC and ETH back in July 2017, setting a record at the time — which was followed by an internal dispute and several class-action lawsuits, the Tezos Foundation has finally launched its beta network. Here’s how the project started, what caused the infamous delay and why the anticipated launch comes with reservations.

‘The last cryptocurrency’: What is Tezos?

Tezos was developed by Arthur Breitman, who studied applied mathematics, computer science and physics in France and later moved to the U.S. to study financial mathematics. His wife, Kathleen Breitman, a former employee at the hedge fund Bridgewater Associates and at R3 — an enterprise software firm which focuses on distributed database technology — has also contributed to the project. The couple met at a Anarcho-Capitalist Meetup (where Breitman is still listed as a co-organizer) in New York in 2010 and married in 2013.

In August 2014, Arthur Breitman published two white papers, in which he stressed Bitcoin’s defects, predicted the mass production of tokens and outlined his own blockchain solution: the world’s first “self-­amending” cryptocurrency called Tezos — the name was generated via Breitman’s algorithm that sought to find the names of unclaimed domains pronounceable in English. The second paper read:

“While the irony of preventing the fragmentation of cryptocurrencies by releasing a new one does not escape us… Tezos truly aims to be the last cryptocurrency.”

According to the technical papers, Tezos is a distributed, peer-to-peer, permissionless network, whose system is based on smart contracts similar to Ethereum (ETH). However, Tezo’s structure is allegedly more advanced: its protocol has the ability to evolve and implement new innovations over time, without the risk of experiencing a hard fork. Indeed, as Wire points out in a massive longread about Tezo, the DAO incident has reassured Breitman that the future of cryptocurrencies should be based on unity and commonwealth, rather than disputes, community splits and ever-launching coins.

Tezos developers get the ability to propose protocol upgrades and request rewards for their contribution. Tezos token holders (“tezzies,” or XTZ), in turn, can then vote on whether their proposal should be approved.

Thus, Tezos essentially imitates a democracy, in which the more tokens the investor holds, the more voting power he or she possesses. As Olaf Carlson-Wee, the first employee at Coinbase and a Tezos investor, explained to Wired:

"When you vote, even if your candidate doesn't win, you accept that democracy was in action. When people participate in a Tezos network, they're accepting that the democratic vote of the other coin holders will govern the way the protocol moves."

Moreover, Tezos uses proof-of-stake (PoS) instead of a proof-of-work (PoW) system, meaning that all validations are conducted virtually, not physically, and does not require mining hardware and large amounts of electricity — the process is called ‘baking’ as opposed to ‘mining.’

Finally, Tezos has also prioritized security via implementing formal verification — which Ethereum lacks — that essentially allows developers to mathematically prove the correctness of their smart contract code.

Crypto valley and powerful allies

The aforementioned Tezos white papers were published under a pseudonym, "L. M Goodman" — a reference to a Newsweek journalist who tried to deanonymize Satoshi Nakamoto. At the time, Breitman worked at Morgan Stanley in quantitative finance and, as reported by Reuters, “was trying not to be associated publicly with the project at the time,” allegedly because he didn’t want to compromise his position at Morgan Stanley.

In August 2015, Breitman, who was still employed by Morgan Stanley, registered a company in Delaware called Dynamic Ledger Solutions, Inc (DLS), penning himself in as the chief executive. Essentially, DLS controlled the intellectual property — the source code — of Tezos.

Due to the fact that he set up a firm in the U.S., he was required to report that he was involved in "other business activities" — according to the U.S. Financial Industry Regulatory Authority (FINRA) — which he never did. In April 2018, FINRA fined Breitman for $20,000 and barred him from broker-dealer interaction until 2020 because of the incident.

In 2015, Arthur Breitman hoped to gather “four to five banks” to adopt the technology and raise “$5 million to $10 million over two to three years,” as Reuters reports, by pitching a Tezos' 37-page business plan. However, Breitman failed to attract investors that way.

In April 2016, Arthur left Morgan Stanley. By September, the Breitmans had developed another strategy to obtain funds for Tezos; they decided to conduct an ICO. Over the next half year, they managed to get $612,000 from 10 early backers — including several cryptocurrency hedge funds — in order to organize a presale. The pair decided to hold the Tezos ICO in Zug, Switzerland, the famous ‘Crypto Valley.’

“[Switzerland has] a regulatory authority that had a sufficient amount of oversight but not like anything too crazy,” Kathleen Breitman told Reuters in a comment. According to the Swiss Civil Code, an independent foundation can be founded to support an open-source software platform in the public interest, as Wired points out — which is why the Breitmans established the Tezos foundation and asked their acquaintance Johann Gevers, a South African entrepreneur and founder of the Swiss-based fintech company Monetas, to become its president. He agreed, warning that he would continue Monetas’ operations, and received single-signature access to Tezos Foundation’s bank accounts and safety-deposit boxes.

Thus, the Breitmans planned to raise money via the ICO — which they hoped to gather $20 million, at best — and then make the Tezos Foundation purchase DLS, a Delaware-based company where Arthur was registered as the chief executive, via a contract.

Prior to holding an ICO, which was initially scheduled to be held in May 2017, the project started running out of funds, as Kathleen Breitman explained to Reuters. After she contacted Tim Draper — a pioneer of business ventures in the U.S. and co-founder of Draper Fisher Jurvetson Venture Company (DFJ) — he invested $1.5 million through his firm, Draper Associates, and received a minority stake in DLS.

Around that time, the Breitmans had additionally hired Strange Brew Strategies, a U.S.-based PR company to represent their project. According to Reuters, John O'Brien, a principal of Strange Brew, told the news outlet that Tezos had been “adopted” by “industry giants Ernst & Young, Deloitte, LexiFi” in their “development environments and labs,” a claim that was dismissed — either fully or partially — by all of the mentioned parties when they were contacted by Reuters.

Successful ICO, unsuccessful communication

The Tezos ICO was held on July 1 and lasted for 13 days. As a result, the project has received about 66,000 Bitcoins and 361,000 Ethers, worth approximately $232 million at the time. That is the second largest ICO to date — in September, a Filecoin startup topped that number with a $257 million sale. Notably, Tezo’s terms called the funds "a non-refundable donation" and not a "speculative investment.” Moreover, Tezos warned the investors that the token might not be issued at all.

All of the gathered funds went to the Tezos Foundation, while Tezos’ intellectual property, in turn, was controlled through the Breitmans’ company in Delaware. According to the initial plan — as per the "Transparency Memo" on the Tezos website that is no longer accessible — after the foundation would have purchased the Breitmans' company, the blockchain itself would be released under a free software license. If it operated successfully for three months, the DLS's shareholders (the Breitmans and Tim Draper) were supposed to collect 8.5 percent (around $19.7 million) of the fundraiser proceeds in cash, plus 10 percent of the all the Tezos tokens issued.

However, months after the ICO, the tokens still hadn’t reached their investors.



In October 2017, Gevers — the Tezos Foundation president at the time — told Reuters that they had a contract, according to which the Breitmans would sell DLS to the foundation "within a reasonable point of time" or else the Tezos Foundations would acquire it free of charge, although he declined to provide a copy of the agreement.

The delay could be explained by the fact that the relationship between Gevers and the Breitmans was compromised. A dispute began after the couple was opposed to the recruiting of some people the foundation indicated it wanted to hire, as Gevers told Reuters — and the information obtained by Wired confirms it. Moreover, according to Gevers, DLT kept control over “the foundation's domains, websites and email servers,” adding fuel to their conflict.



On October 15, one of the Breitmans’ lawyers sent a 46-page letter to remaining board members — excluding Gevers — claiming that Gevers was guilty of “deception and self-dealing,” and that he wanted to acquire a “license to print money.” Thus, the Breitmans called for Gevers’ prompt removal. In response, Gevers claimed he became the target of a “character assassination” and reportedly filed a complaint with Swiss regulators regarding an email from the foundation's two other board members, in which they asked him to step down. He had also halted all payments within the company so that his contract would be settled — Gevers demanded the settlement for being “de-facto executive director” of Tezos Foundation.

Consequently, the distribution of tokens was delayed, and Tezos — namely, DLS — became the target of several class-action lawsuits after Reuters obtained the aforementioned letter and published an investigation regarding Tezos, arguing that the startup was falling apart amid internal power struggle. The legal action concerned compliance with U.S. Securities and Exchange Commission (SEC) regulations. The lawsuits claimed that Tezos tokens should be considered securities under U.S. law, meaning they would have had to be registered with the SEC to be sold legally to investors. Notably, in February 2018, the SEC refused to release Tezos documents, after it was requested by attorney David Silver via the Freedom of Information Act (FOIA), arguing that it could hurt “enforcement activities.” In April, SEC Commissioner Robert Jackson famously claimed that he hadn’t yet seen an ICO that wasn’t a security.

Nevertheless, at a UCLA conference in the same month, Kathleen Breitman promised to “[go] rogue in the next few weeks” and release the “tezzies” tokens (XTZ) on their own terms, despite legal troubles. “Things needed to move forward. It’s unfair, but we need to ship the code,” Breitman claimed.

Soon after her speech, two board members of the Tezos Foundation — including its president Johann Gevers — left their positions, and Ryan Jesperson — the founder of T2 Foundation, which is a community-driven outfit that supported the Bretimans in their conflict with Gevers (WSJ points out that he had spent more than $50,000 of his own money to launch it — became president of the board. It is unclear under which terms Gevers left, although he wrote on Twitter that he was “happy” with the reshuffle.

The delayed launch came with more complexities

On June 10, Tezos Foundation unexpectedly announced the implementation of Know Your Customer/Anti-Money Laundering (KYC/AML) checks for contributors, essentially asking the participants of the ICO — which happened almost a year ago — to authorize themselves. The statement read:

“The Foundation values and respects the privacy of its contributors, and along with countless others around the world, it opposes the unnecessary collection of personal information that has become pervasive on the Internet. However, it is important to comply with a rapidly evolving regulatory landscape. To that end, performing KYC/AML checks – as has become the norm for blockchain projects – is the best way forward.”

The move was met with negative reaction from the community, while it could be argued that Tezos is preparing to work with the regulators. Notably, in a Reddit thread discussing the KYC check, Arthur Breitman wrote that it was not his “call”. Ethereum’s founder Vitalik Buterin commented on the news as well, asking on Twitter:

“This seems backwards. Why can't third parties just run a script to scan the BTC/ETH blockchains, see how much everyone contributed, calculate how much XTZ everyone should get, and generate the genesis block without Tezos Co involvement? That's how the Ethereum launch worked.”

Ironically, the KYC check prompted the Tezos community to split even before the actual launch, despite the emphasis on unity that was postulated in the original Tezos white papers: nTezos — the self-described “instantiation of Tezos” — and the “independent and self-governed” network with an emphasis on the lack of KYC checks emerged, essentially signaling an incoming fork.

On June 30, in an official statement, Tezos Foundation announced the launch of its beta network, calling the move an “inflection point” for the project. Now the users can start validating — ‘baking’ — blocks after the first seven cycles, which the Tezos team estimates will be in about three weeks. However, no block rewards will be issued during this period “as baking rights are unassigned,” the announcement warns.

In their announcement, the company asked community members to take precautionary measures to ensure the security of their tokens while interacting with the betanet, as the project is still in beta. Sticking to its principles, Tezos also warned that there is nothing they can do if “tezzies” tokens (XTZ) are lost or stolen, and that all transactions performed on the betanet will be merged onto the mainnet.



Accordingly, the betanet is reportedly being introduced in anticipation of a broader main network launch in the future, supposedly in the third quarter of 2018. Some exchanges, including Gate.io and HitBTC, have already listed XTZ for trade. Currently, XTZ is the third most traded coin on Gate.io, with a volume of 9.34 percent.