Coinbase Earn: How does Tezos upgrade itself? (Lesson 3 of 3)

– [Narrator] Lesson number three. How does Tezos upgrade itself? Tezos is a blockchain designed for safety, open participation and upgradability. Upgrades on Tezos are
handled in a methodical way that allows all Tez token holders to have a say in the network's future. Other blockchain sometimes
struggle with upgrades, they often lack clear processes
for making improvements, causing disagreements among stakeholders and holding back innovation. In some cases, the
blockchains can even fork creating new cryptocurrencies,
splitting their communities and reducing their network effects.

Tezos however, has two features designed to help resolve these issues
and incentivize innovation. A formal governance process
to coordinate upgrades and inflation funding. The formal governance process consists of four different voting periods, each period lasts about 23 days. During these periods the
bakers vote on behalf of their own test tokens as well as any that have been delegated to them. Delegators can change to a
new baker at any time too to better align with
their voting preferences. During the first period,
the proposal period, any Tezos baker can submit a proposal to upgrade or amend the Tezos blockchain. Bakers can then upvote
their favorite proposals. The most upvoted proposal
during this time advances to the exploration vote period. In this period, if the proposal receives
enough support from bakers, then it advances to the testing period. During the testing period, a temporary test chain is
created to help make sure the proposed upgrade works and is safe for the network to adopt. After the testing period, the proposal advances to
the promotion vote period. In this final voting period, bakers vote to determine if the proposal will be implemented. If their proposal receives enough support then it's approved and Tezos
upgrades itself automatically with the new code, it becomes a part of the main Tezos chain.

Thanks to this formal governance process, in 2019, Tezos became the first
blockchain to upgrade itself automatically without requiring a fork. Even the formal governance process itself can be upgraded over time. The second Tezos feature
designed to improve upgradability is inflation funding. During the governance process, bakers can propose
upgrades to improve Tezos but what incentivizes them to do so? Developing and proposing
a blockchain upgrade can be a lot of work. This problem, how to pay for
long-term core development and upgrades is something that affects the blockchain industry as a whole and can lead to slower innovation. Inflation funding is designed
to solve this problem. To incentivize people to create proposals, Tezos allows bakers to attach
invoices to their proposals. If a proposal is successfully approved in the governance process, then the protocol automatically mints the amount of tokens specified
in the invoice and pays it.

This means that upgrading
Tezos over the longterm doesn't rely on altruism
and external organizations to reward innovation. Instead, developers are
financially incentivized by the network itself to improve Tezos. Together, the formal governance process and inflation funding allow
Tezos to evolve openly and methodically without forks
or splits in the community. And because every
stakeholder can participate in this process, it's a
true digital Commonwealth and it's just the start..

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