What is Stacks (STX)? A Comprehensive Overview of Its Fundamentals and Functionality
As the competition among smart contract-driven projects intensifies, Bitcoin has maintained its status as a reliable transaction network, devoid of excessive complexity. However, recent trends indicate a growing interest in leveraging the Bitcoin ecosystem, evidenced by the increasing visibility of terms like Layer 2 Bitcoin and BRC-20. In this article, we will explore how the Stacks network utilizes the STX cryptocurrency to enable users to earn Bitcoin through its unique framework.
Stacks began in 2013 when Munib Ali and Ryan Shea initiated the Blockstack project during their time at Princeton University. Subsequently, in 2014, they established a startup focused on creating a blockchain-based decentralized ID system. Over the years, the project has undergone numerous upgrades, culminating in the release of STX 2.1 in March 2023. Stacks has successfully secured substantial funding, raising over $50 million during its ICO, and attracting investments from notable firms such as Winklevoss Capital and Digital Currency Group.
The Stacks network offers a robust framework for smart contracts and decentralized applications, but its standout feature is its indirect utilization of Bitcoin’s security. To understand how Stacks achieves this, we need to delve into its consensus mechanism known as Proof of Transfer.
At the core of this network are two types of participants: miners and stackers. Just like Bitcoin miners, Stacks miners earn rewards by creating new blocks. To participate, each miner must transfer Bitcoin to stackers, which serves a function akin to bidding in an auction for mining rights. While a higher Bitcoin bid generally offers a competitive advantage, a random factor, known as the Bernoulli Random Factor (BRF), is also employed to select miners. Once chosen, the miner generates a block that aggregates transactions from the Stacks network, and if there are no issues, they receive STX, the native token of Stacks, as a reward.
It’s important to note that the STX rewards for miners will be halved approximately every four years, mirroring Bitcoin’s halving schedule. For stackers, the process begins with locking up a certain amount of STX tokens. Depending on the amount locked, they can choose to stake their tokens individually or join forces with other stackers to form a collective group. Each stacker earns Bitcoin as a reward, distributed proportionally based on the number of STX tokens they have staked. Once their staking commitment period is over, the locked STX returns to the stacker.
In summary, miners gain STX tokens by bidding Bitcoin and creating new blocks, while stackers contribute to network security by staking STX and earn Bitcoin in return. A noteworthy aspect of this system is that when miners bid Bitcoin, they also include the hash of the newly created Stacks block. This mechanism links Bitcoin transactions with Stacks blocks, thereby enhancing the security of the Stacks network through its integration with Bitcoin.
Recently, the Stacks ecosystem has been expanding into areas such as DeFi, NFTs, wallets, and domains. Key examples include a decentralized exchange called Alexx, an NFT project named APCLUB, and a liquid staking platform known as Stacking DAO, which is leading in the DeFi space.
An impending upgrade of significant importance is the Nakamoto Release, which aims to bring substantial benefits, including faster transaction finality and shorter new block generation times. Until now, the Stacks network had a block generation time analogous to Bitcoin’s, which was every 10 minutes. The upcoming upgrade will enable one miner to mine multiple blocks per round, reducing the time needed for block creation to around 5 seconds.
Additionally, after the upgrade, users who previously only stacked STX will have the opportunity to become validators, taking on the role of verifying the legitimacy of each block. During Stacks mining, as mentioned earlier, miners record hashes in Bitcoin transactions when creating new blocks. The Nakamoto Release will enhance this by incorporating indexed hashes, ensuring that the initial blocks produced by all miners are accounted for. This innovation strengthens record-keeping, making it more difficult to alter past transactions.
Another critical improvement involves strengthening safeguards against Miner Extractable Value (MEV), which can compromise the network’s integrity. MEV refers to the profits miners may gain by manipulating or censoring transactions to their advantage. In Stacks mining, participating miners must engage in Bitcoin bidding first to gain entry, but there have been instances where miners exploited both Bitcoin and Stacks mining by purposefully omitting some transactions to gain a competitive edge. The Nakamoto Release will amend this by requiring miners to have participated in recent bids.
Moreover, an innovative feature to be introduced post-Nakamoto Release is SBT, a token set to act as a bridge between Bitcoin and smart contracts. Users can send Bitcoin to effectively lock it up and receive equivalent SBT tokens to engage in complex smart contract transactions on the Stacks network, akin to Wrapped Bitcoin on Ethereum. However, this mechanism operates without a central authority, leveraging the existing Stacks infrastructure for efficient one-to-one issuance and redemption.
As the discourse around Bitcoin evolves, with movements like Ordinals and rising interest in Layer-2 projects, it’s apparent that Stacks is carving out a notable niche in this landscape. The capacity to stack STX and earn Bitcoin rewards is likely to appeal to many users. As Bitcoin continues its upward trajectory, the Stacks network is poised to attract increased attention and engagement in the foreseeable future.
