Overview of the economic protocol

Tezos overview

Tezos is a distributed system in which nodes agree upon a chain of blocks of operations. Tezos is also an account-based crypto-ledger, where an account is associated to a public-private key pair, and has a balance, that is, a number of tokens. Tezos is a proof-of-stake system in which any account that has a minimal stake amount has the right to produce blocks, in proportion to their balance.

A Tezos node has mainly three roles: it validates blocks and operations, it broadcasts them to (and retrieves them from) other nodes, and it maintains a main chain and its associated state (i.e. the ledger), which includes accounts and their balances, among other things. Note that, as blocks only specify a predecessor block, exchanged blocks do not necessarily form a chain, but rather a tree. Nodes communicate over a gossip network.

A Tezos node acts as a server, which responds to queries and requests from clients. Such queries and requests are implemented via RPC calls. A client can query the chain’s state and can inject blocks and operations into a node. One particular client is the baker daemon, which is associated to an account. In particular the baker has access to the account’s private key and thus can sign blocks and operations.

The main reason for using such a client-server architecture is safety: to insulate the component that has access to the client keys, i.e. the baker, from the component which is exposed to the internet, i.e. the node. Indeed, the node and the baker can sit on different computers and the baker does not need to be exposed to the internet. So nodes manage communication and shield bakers from network attacks, and bakers hold secrets and bake blocks into the blockchain.

Another advantage of this architecture is that bakers can more easily have different implementations, and this is important, for instance because different bakers may want to implement different transaction selection strategies.

Tezos is a self-amending blockchain, in that a large part of Tezos can be changed through a so-called amendment procedure. To this end, as mentioned in the big picture, a Tezos node consists of two components:

  • the shell, which comprises the network and storage layer, and embeds

  • the economic protocol component, which is the part that can be changed through amendment.

The role of the economic protocol

At a very high level, a protocol must:

  • implement protocol-specific types, such as the type of operations or protocol-specific block header data (in addition to the shell generic header),

  • define under which conditions a block is a valid extension of the current blockchain, and define an ordering on blocks to arbitrate between concurrent extensions.

Validity conditions are implemented in the apply function which is called whenever the node processes a block—see the dedicated protocol validation and operation entry for further detail into the validation and application process for blocks and their operations.

Shell-protocol interaction

In the Tezos architecture, the economic protocol and the shell interact in order to ensure that the blocks being appended to the blockchain are valid. There are mainly two rules that the shell uses when receiving a new block:

  • The shell does not accept a branch whose fork point is in a cycle more than PRESERVED_CYCLES in the past. More precisely, if n is the current cycle, the last allowed fork point is the first level of cycle n-PRESERVED_CYCLES. The parameter PRESERVED_CYCLES therefore plays a central role in Tezos: any block before the last allowed fork level is immutable.

  • The shell changes the head of the chain to this new block only if the block is valid, and it has a higher fitness than the current head; a block is valid only if all the operations included are also valid.

The support provided by the protocol for validating blocks can be modulated by different validation modes. They allow using this same interface for quite different use cases, as follows:

  • being able to apply a block, typically used by the shell’s validator component;

  • being able to construct a block, typically used by the baker daemon to bake – that is, to produce – a new block;

  • being able to partially construct a block, typically used by the prevalidator to determine valid operations in the mempool; and,

  • being able to pre-apply a block, typically used in the validator to precheck a block, avoiding to further consider invalid blocks.

Blocks, Operations and their Validation

A block consists of a header and operations. A block’s header is composed of two parts: the protocol-agnostic part and the protocol-specific part. This separation enables the shell to interact with different protocols. Each Tezos economic protocol can specify different kinds of operations, which are described further in detail in Blocks and Operations.

The semantics of, respectively, operations and blocks is indeed also dependent on each economic protocol. The Validation and Application entry explains the internals of validation – that is, how to determine whether operations and blocks can be safely included in the Tezos blockchain – and application – that is, how the effects of operations and blocks are taken into account – for this economic protocol.

Protocol constants

Protocols are tuned by several protocol constants, such as the size of a nonce, or the number of blocks per cycle. One can distinguish two kinds of protocol constants:

  • fixed protocol constants, such as the size of a nonce, are values wired in the code of a protocol, and can only be changed by protocol amendment (that is, by adopting a new protocol)

  • parametric protocol constants, such as the number of blocks per cycle, are values maintained in a read-only data structure that can be instantiated differently, for the same protocol, from one network to another (for instance, test networks move faster).

The list of protocol constants can be found in the OCaml APIs:

The values of protocol constants in any given protocol can be found using specific RPC calls:

Further documentation of various protocol constants can be found in the subsystems where they conceptually belong. See, for example:

See also

An in-depth description of the internals of developing a new Tezos protocol can be found in the blog post: How to write a Tezos protocol.