Stacks is a decentralized protocol that enables decentralized apps and smart contracts to use Bitcoin as an asset and settle transactions on the Bitcoin blockchain. The platform is driven by the Stacks (STX) token, which is responsible for executing smart contracts, handling transactions, and registering new digital assets. The protocol was co-founded by Muneeb Ali and Ryan Shea in 2013. ^[1][2]

History

Blockstack, now known as Stacks, originated in 2013 as a computer science Ph.D. project at Princeton University. In 2014, the project transformed into a startup and received incubation support from Y-Combinator. ^[3]

Overview

The Stacks layer allows applications and smart contracts to utilize BTC as their currency or asset, and conduct their transactions on the main Bitcoin blockchain.

Proof of Transfer

The Stacks layer utilizes a consensus mechanism called Proof of Transfer (PoX) that relies on both STX and BTC. PoX miners use already-mined BTC and receive STX rewards. PoX operates similarly to Proof of Work (PoW) in that miners bid by spending BTC and the bid weight determines their probability of becoming a leader. The leader election takes place on the Bitcoin chain, and new blocks are written on the Stacks layer. This approach allows PoX to reuse the work done by Bitcoin miners without requiring significant additional energy consumption, as only the cost of running standard laptops or computers for Stacks nodes to bid using BTC is necessary. ^[4]

Stacks records user identity and transactional metadata in each block, which is utilized by all the applications in the Stacks ecosystem. The integration with Bitcoin allows for any changes made to Stacks IDs or wallet balances to be verified on the Bitcoin blockchain. This also applies to Stacks smart contracts, which are programmed using a specialized language developed and tested for Stacks by Algorand. ^[4][5]

Microblocks

As it is connected to the Bitcoin blockchain, the Stacks blockchain is constrained by Bitcoin's 10-minute block time. To address this, the Stacks protocol implements microblocks, which allow numerous transactions to be processed between Bitcoin blocks. The completed transactions within these microblocks are subsequently recorded on the Bitcoin blockchain. ^[6]

Clarity

Stacks utilizes the Clarity programming language for its smart contracts, which is created by the Stacks team. Although it is not as versatile as other languages since it's not Turing complete, Clarity prioritizes security through its predictable code feature. This feature permits developers to precisely determine a program's actions, data usage, and operational cost. ^[7]

Team

Muneeb Ali and Ryan Shea started Stacks during their Ph.D. studies. As the project developed from a research paper to a startup and then to an ecosystem, the team expanded to include computer science experts from various universities like MIT, Harvard, and Stanford. The Stacks protocol is developed and upgraded by Hiro PBC. [3]

STX Token

STX serves as the primary digital currency on the Stacks network, supporting smart contracts for Bitcoin, rewarding miners on the open Stacks network, and facilitating the earning of Bitcoin through Stacking for STX holders. ^[8]

Stacks miners use Bitcoin to participate in leader elections and mine newly minted STX tokens. By locking STX tokens, holders can earn BTC rewards through a process called Stacking. The leader election process uses a verifiable random function (VRF) to randomly select a leader for each round, with more weight given to higher BTC bids. The selected leader then writes the new block on the Stacks blockchain.

In addition to earning BTC rewards, STX miners also receive newly minted STX tokens as transaction and contract execution fees, which are paid in STX. The cost of mining is expressed in BTC and miners spend BTC to participate in leader elections. The BTC bids are sent to a specific address corresponding to STX token holders participating in the consensus. This process ensures that BTC consumed in the mining process is used as a reward based on the Stacks holder's holdings of STX. ^[9]

The Stacks 2.1 upgrade

The Stacks 2.1 upgrade^[11], a significant hard fork of the Stacks blockchain, marked a major step in its evolution. Implemented seamlessly at block 781,551, this upgrade reflects the Stacks community's commitment to decentralized decision-making, with over 80% of Stacks holders voting in favor.

Key features of Stacks 2.1 include:

1. Enhanced Stacking: The upgrade abolishes the "cooldown" cycle between reward cycles, allowing continuous Stacking. It also permits Stackers to increase their STX amount in the pool without meeting the previous minimum threshold.
2. Support for Taproot and Segwit Addresses: Stacks 2.1 supports these addresses, potentially reducing Bitcoin transaction fees. It also facilitates the creation of decentralized Stacking pools, enhancing the blockchain's decentralization.
3. Easier Bridge Building: Post-upgrade, building bridges between Stacks and other blockchains has become more straightforward, thanks to modifications in the Clarity programming language. This opens up possibilities for smoother asset transfers and integration of oracles and other services vital for DeFi applications.
4. Stacks Assets in Bitcoin Wallets: The upgrade allows Stacks NFTs, tokens, and other assets to be sent to Bitcoin wallets, simplifying the experience for both Bitcoin and Stacks users.

Stacks 2.1 serves as a foundational building block for upcoming developments like sBTC^[12] and the Nakamoto Release^[10], promising exciting possibilities for DeFi on Bitcoin and enhanced operational speed for the Stacks blockchain.

Nakamoto Upgrade

The upcoming Nakamoto Upgrade, set to launch in Q1/Q2 of 2024, is a pivotal development for Stacks, aiming to boost performance and strengthen integration with Bitcoin. This enhancement focuses on speeding up transactions and securing the Stacks-Bitcoin link, enriching user experience and functionality. ^[10]

Highlights of the Nakamoto Upgrade

1. Faster Transactions: Reducing confirmation times significantly, aiming for transactions to confirm in seconds, benefiting dApps and DeFi platforms.
2. Bitcoin-Level Security: Aligning Stacks transactions with Bitcoin's security, ensuring robust and irreversible transactions.
3. Handling Bitcoin Reorganizations: Introducing measures for Stacks to adapt to Bitcoin reorgs, maintaining transaction validity.
4. Mining Fairness: Implementing strategies to ensure equitable STX reward distribution among miners.
5. Improved Scalability: Enhancing transaction throughput, making Stacks more capable of handling a larger volume of transactions.
6. Backward Compatibility: Ensuring a smooth transition from Stacks 2.0 to the Nakamoto update.

The Nakamoto Upgrade is set to revolutionize the Stacks blockchain, dramatically improving transaction speed while maintaining Bitcoin’s security standards. It's a significant step towards a faster, more secure, and equitable blockchain environment, enhancing the platform for users and developers. ^[10]

sBTC

sBTC will go live on the Stacks layer approximately 2 months following the Nakamoto release. Network stability, bug fixes, and overall security will be prioritized in determining the exact time to release sBTC. The core of sBTC's innovation lies in its ability to utilize Bitcoin in smart contract applications without the need for centralized intermediaries^[12].

Traditional approaches such as wrapped Bitcoin (wBTC) on Ethereum have been centralized, but sBTC overcomes this limitation by providing a decentralized solution. It operates through a 'peg in and peg out' system that bridges the Bitcoin and Stacks layers, managed by an open and evolving group of signatories within the Stacks ecosystem. This process leverages the Proof of Transfer (PoX) consensus mechanism, allowing for the seamless and feeless conversion of Bitcoin to sBTC and back.

For the broader crypto community, especially investors, sBTC opens up new avenues. It not only extends Bitcoin's utility into the realm of DeFi but also significantly enhances the value proposition of the STX token, the native digital asset of Stacks. sBTC's integration into the Stacks blockchain positions it as an indispensable layer for Bitcoin, potentially leading to increased liquidity and a new wave of Bitcoin-centric DeFi applications.