CoinMarketCap Academy takes a deep dive into Stacks, a Bitcoin layer building on top of Bitcoin’s proof-of-work consensus mechanism.
Stacks has generated a lot of attention ever since Bitcoin Ordinals have appeared in crypto. Stacks is a Bitcoin Layer anchored to the Bitcoin network. This deep dive will explain:
- What is Stacks
- Who is the Stacks team, investors and roadmap
- How does Stacks work
- Stacks and Bitcoin Ordinals
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What Is Stacks?
Stacks is an open-source blockchain with security based on the Bitcoin network. Stacks enables the deployment of DApps and smart contracts secured by Bitcoin. Its native STX token is used to process transactions and execute smart contracts. The Stacks project started in late 2017 as a Bitcoin layer. Early developers Muneeb Ali, Ryan Shea, and others were building on Bitcoin L1 and realized how separate Bitcoin layers are needed to scale use cases on Bitcoin.
Stacks went live on the mainnet at the beginning of 2021. With its launch, it pioneered several new developments:
- The settlement of transactions on Bitcoin L1
- The Clarity programming language for smart contracts. It enables atomic swaps of assets with BTC. Clarity allows smart contracts to be safely used in a Bitcoin layer. A decision made to prevent many of the exploits and bugs of smart contracts.
The Stacks layer is secured by a new mining consensus mechanism called Proof of Transfer (PoX). Unlike proof-of-work, PoX does not require an energy-intensive mining process. For example, PoX does not need specialized hardware like ASICs to participate, but rather uses BTC capital. One of the unique components of PoX mining is that participants who participate in consensus by locking their STX can earn BTC rewards from the protocol.
The Stacks Team, Investors and Roadmap
The Stacks ecosystem consists of developers, researchers, community leaders and entrepreneurs that have been a part of the Bitcoin ecosystem for years. Stacks ecosystem decentralized a lot after the mainnet launch in 2021. It now has 30+ independent entities and the protocol upgrades are governed by the ecosystem. Some of the early contributors are:
- Muneeb Ali: Co-creator of the Stacks project. Muneeb is now CEO of Trust Machines which builds Bitcoin applications and contributes to Bitcoin L1 and L2 infrastructure.
- Ryan Shea: Co-creator of the Stacks project. Ryan is now an individual contributor and serves as advisor to the Bitcoin Frontier Fund.
- Jude Nelson: Stacks Core Blockchain Engineer. He is one of many engineers responsible for designing and implementing key components of the Stacks protocol, such as the Clarity smart contract language, the PoX consensus mechanism and microblock mining.
- Brittany Laughlin: Executive director of the Stacks Foundation. She manages the foundation’s operations, grants, partnerships and community initiatives.
- Ken Liao: CEO and founder of the Xverse wallet, and early engineer and contributor to the Stacks open-source project.
The Stacks investors include some of the prominent names in the crypto space, such as:
The 2019 Stacks offering was the first-ever SEC qualified offering and more than 4,500 independent entities and people participated in it.
The next big upgrade of Stacks is the Nakamoto release. According to Stacks, this upgrade will give Stacks more power as a Bitcoin execution layer by including a way to move Bitcoin in and out of the layer and write to Bitcoin. Furthermore it will all be in a decentralized, 1:1 Bitcoin asset. Stacks promises secure transactions thanks to Bitcoin finality and lightning-fast execution between Bitcoin blocks. This will turn Bitcoin into a fully programmable and trustless asset, a first in its history.
How Does Stacks Work?
The Stacks Bitcoin layer allows for smart contracts and decentralized apps that use Bitcoin as collateral. The final settlement of transactions is done on the Bitcoin blockchain, which ensures security and durability. This opens up potential DeFi applications like decentralized Bitcoin lending and Bitcoin-backed stablecoins, where users can use Bitcoin as money and the Bitcoin blockchain for settlement of identity or application data.
Stacks works like a layer-two solution for Bitcoin and following the Nakamoto release, transactions will be secured by 100% of the hash power of Bitcoin (reorg protection through Bitcoin L1). The release will also include a decentralized Bitcoin peg called sBTC, and atomic BTC swaps and assets owned by BTC addresses. Moreover, its secure programming language called Clarity allows for reading and writing Bitcoin state. Transactions are thus ultimately indirectly secured by Bitcoin.
The PoX consensus mechanism used by Stacks involves miners who spend Bitcoin to bid for becoming the leader in mining the next block and earn new Stacks tokens. There are also stackers who signal their support by stacking STX tokens and earning bitcoins. The leader election happens on the Bitcoin blockchain. Mined BTC serves as proof of computation.
The upcoming sBTC peg (to be released later in the year) for Stacks offers economic security with 1:1 BTC backing and incentive engineering. It enables a decentralized peg system with open membership for signers and relies on PoX consensus, Bitcoin finality, and BTC rewards for safety, incentive compatibility and liveliness.
In summary, upon launch of the upcoming Nakamoto release, Stacks will offer several advantages over other blockchains, including being secured by the entire hash power of Bitcoin, a trust-minimized Bitcoin peg mechanism, atomic BTC swaps and assets owned by BTC addresses, a safe programming language for smart contracts, knowledge of the full Bitcoin state, and fast, scalable transactions that settle on Bitcoin.
The Stacks Token
STX is the native token of the Stacks network. STX is used to pay transaction fees and can be locked directly on the network to earn BTC rewards. This process is called stacking (not staking) and it helps secure the network by signaling consensus.
The total supply of STX is 1.82 billion tokens, with 1.37 billion unlocked.
STX has a fixed, predictable future supply that halves every 4 years (like Bitcoin). The total STX supply will reach 1.82B by year 2050.
Stacks and Bitcoin Ordinals
Bitcoin Ordinals are a type of quasi-NFT that made the rounds in February 2023. Although Bitcoin doesn’t have NFTs as a functionality, Ordinals inscribe satoshis with a piece of information, such as text or an image. This “marks” the satoshi as unique and creates an NFT-like token on the Bitcoin blockchain.
STX surged in the aftermath of the hype around Bitcoin Ordinals. Stacks has native functionality to mint NFTs and is tipped to become a lot more popular if Bitcoin Ordinals are here to stay.
In the upcoming Nakamoto release, further speed and scalability upgrades will be introduced, especially speed of confirmation related improvements. This will improve scalability and reduce latency for transactions on Stacks. Stacks proponents are betting on the blockchain to channel a lot more users to the Bitcoin ecosystem. For example, crypto VC fund North Rock LP is building a position in Stacks because it sees Stacks like a Bitcoin layer-two that can increase the utility of Bitcoin as a settlement layer and solve the Bitcoin security dilemma:
Furthermore, there are several DeFi and NFT projects building in the Stacks ecosystem:
The future of Stacks and Bitcoin Ordinals looks promising as they offer new possibilities for innovation and creativity on top of Bitcoin. However, they also face some challenges, such as low uptake and skepticism in the crypto community:
It remains to be seen whether Stacks and Bitcoin NFTs can maintain their positive momentum in the long run.
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