Key Takeaways:
- Stacks is a Bitcoin Layer-2 solution, enabling smart contracts and decentralised applications (dapps) to utilise Bitcoin as a secure base layer, without altering Bitcoin itself.
- Aiming to scale Bitcoin by using a layered approach, Stacks adds smart contract functionality and programmability on top of Bitcoin’s secure foundation.
- Stacks uses the Proof of Transfer (PoX) consensus mechanism, where miners secure the network to earn rewards in the native STX token.
- Unlike staking, where users earn rewards in the same token they lock, stacking on Stacks allows users to lock STX tokens and earn rewards in BTC, with no risk of slashing.
- The Nakamoto Release, set to go live on 28 August, will enhance the Stacks network by improving transaction speed and mitigating miner extractable value (MEV) opportunities.
What Is Stacks (STX)?
Launched in 2021, Stacks is a Bitcoin Layer-2 (L2), enabling smart contracts and decentralised applications (dapps) to use Bitcoin as a secure base layer. The Stacks team says it “extends the capabilities of Bitcoin without changing Bitcoin, unlocking billions in latent capital.” As an L2, Stacks has its own token: STX.
The network is currently undergoing a major upgrade — the Nakamoto Release — which, together with other recent expansions to the Bitcoin ecosystem, might bring the token back into focus for many traders. The Stacks (STX) token has already reached several new all-time highs (ATHs) in 2024.
What Is the STX Crypto Token?
STX is the native token of the Stacks blockchain. The smallest fraction is one micro-STX — 1,000,000 micro-STX make one STX.
The STX token is used for stacking, the chain’s lockup reward programme that is similar to staking, and to pay out the fees that miners and signers receive as a reward for smart contract execution, transaction processing, and digital asset registrations on the Stacks layer.
STX has a predefined future supply that is estimated to reach 1,818 million STX by 2050.
The Problem Stacks Is Trying to Solve: Scaling Bitcoin
In the Stacks Documentation, the main utility of Stacks is described as scaling Bitcoin:
“You’ve likely heard of the blockchain trilemma, the problem of trying to balance the decentralisation, scalability, and security of a blockchain network.
Bitcoin is often described as the most decentralised, secure, and immutable blockchain network. However, that comes with a few tradeoffs: Bitcoin is very slow compared to other networks with only one new block created every 10 minutes or so. Bitcoin is also not scalable.”
How Stacks Wants to Scale Bitcoin
Stacks takes a pyramid approach, with a foundational settlement layer at the bottom (Bitcoin), then a layer to add smart contracts and programmability (Stacks) existing alongside other layers on top of Bitcoin like Lightning Network. The layered approach enables Stacks to create the same functionality as chains like Ethereum — without the associated complexities.
Stacks allows developers to build ‘decentralised and censorship-resistant software’ utilising Bitcoin as the foundational settlement layer. It enables Bitcoin to be utilised as a productive asset in a decentralised manner.
Notable Dapps on Stacks
Dozens of dapps have been built on Stacks. Below is a selection of highlighted projects:
- Alex: An open-source decentralised finance (DeFi) protocol modelled on global financial markets.
- GoSats: A Bitcoin cashback rewards system that lets users stack fractional Bitcoin every time they shop.
- Gamma: A marketplace for Bitcoin-based non-fungible tokens (NFTs).
View the full list here.
How Does the Stacks Layer-2 Work on Bitcoin?
Stacks uses the Proof of Transfer (PoX) consensus mechanism to help secure a new blockchain.
Proof of Transfer (PoX)
Proof of Transfer (PoX) improves upon the Proof of Burn (PoB) method by using the Proof of Work (PoW) from an established blockchain to secure a new blockchain. However, unlike PoB, where the cryptocurrency is destroyed, miners in PoX transfer the committed cryptocurrency to other participants in the network.
This allows Stacks participants to help secure the PoX cryptocurrency network and earn rewards in STX, the native cryptocurrency. Similar to staking, PoX relies on both miners and stacking nodes to function.
PoX blockchains are anchored on their chosen PoW chain and, as Stacks uses Bitcoin as its anchor chain, Stacks miners earn rewards in BTC.
The below infographic by Stacks visualises the details of how miners and stackers work together:
The PoX Mining Process
A new Stacks block can be mined every time a Bitcoin block is mined. To be eligible for mining a Stacks block, a miner needs to have a block commit included in a Bitcoin block. Miners get rewards for the blocks they successfully mine, and these rewards are halved in sync with Bitcoin’s halvings. Additionally, miners earn Stacks fees for transactions included in any block they create.
In the PoX mining process, a hash of each Stacks block is recorded in the OP_RETURN field of a Bitcoin transaction. The OP_RETURN field allows storing up to 40 bytes of arbitrary data in a Bitcoin transaction.
This method records the history of Stacks on the Bitcoin blockchain, inheriting Bitcoin’s security. To alter the history of the Stacks chain, one would need to change these OP_RETURN values in each corresponding Bitcoin block, effectively meaning one would have to compromise Bitcoin to compromise Stacks’s history.
For more details on the Stacks mining process, check the Stacks Documentation.
How Does Stacking Work?
Different from staking, stacking rewards Stacks (STX) token holders with Bitcoin for providing a valuable service to the network by locking up their tokens for a certain time and participating as signers who validate the blocks produced by Stacks miners.
How Stacking Differs From Staking
While stacking on the Stacks network is conceptually similar to staking on a Proof of Stake (PoS) network, Stacks instead operates as a Proof of Transfer (PoX) network.
In staking, users lock a token and earn their rewards in the same token. In stacking, users lock the STX token and earn rewards in the ‘burnchain’ token, which is BTC (Bitcoin), rather than in the same token they locked.
Moreover, there is no concept of slashing in PoX. If stackers fail to fulfil their duties as signers, they simply cannot unlock their STX tokens and will not receive their BTC rewards.
How to Stack
There are two main ways to participate in stacking on the Stacks network:
- Solo Stacking
- Delegated Stacking
Solo Stacking
In solo stacking, users stack their own STX tokens and run their own signer. To operate as a solo stacker, a minimum amount of STX tokens is required, which is dynamic and can change over time.
Delegated Stacking
The process for delegated stacking is different:
- Permission Granting: Before stacking can begin for a token holder, the delegator must be granted permission to stack on behalf of the account owner.
- Pooling Phase: Delegators need to lock STX tokens from different accounts until they reach the minimum amount required for stacking.
- Finalising and Committing: Once a delegator locks enough STX tokens, they can finalise and commit their participation for the next reward cycle.
The key difference between the two methods is whether a user manages their own stacking or allows a delegator to handle it for them.
How to Buy the Stacks Crypto Token (STX) With Crypto.com
Crypto.com offers a user-friendly platform to buy STX crypto tokens and engage with the Stacks L2 on Bitcoin.
Follow these steps to buy STX on Crypto.com:
- Download the Crypto.com App and create an account.
- Complete the necessary verification process to unlock full access to the platform.
- Deposit funds into the Crypto.com account; users can utilise fiat currency or other cryptocurrencies to fund their accounts.
- Navigate to the ‘Buy’ section of the App and search for the STX token.
- Specify the amount of STX tokens to acquire and review the transaction details.
- Confirm the transaction and wait for the order to be executed.
- Monitor the STX token holdings in the Crypto.com App, which doubles as a wallet.
Crypto.com provides a secure and reliable trading environment, ensuring that users can trade STX tokens with confidence. Take advantage of the platform’s intuitive interface, advanced trading features, and competitive fees to make the most of your trading experience.
The Upcoming Stacks Nakamoto Release
The Nakamoto Release is a major upgrade aiming to make the Stacks network faster and more secure. It is a hard fork designed to bring several benefits, chief amongst them are increased transaction throughput and 100% Bitcoin finality.
Bitcoin block 840,360 marked the start of the multi-phase Nakamoto mainnet rollout, which kicked off a period of signer onboarding. Nakamoto rules will go live on 28 August, completing the launch.
The Nakamoto Release aims to bring many new capabilities and improvements to the Stacks blockchain by focusing on a set of core advancements: improving transaction speed, enhancing finality guarantees for transactions, mitigating Bitcoin miner extractable value (MEV) opportunities that affect PoX, and boosting robustness against chain reorganisations.
Technical details on the upgrade can be found here.
Conclusion
Stacks (STX) represents a significant advancement in the Bitcoin ecosystem, providing a powerful solution to scale Bitcoin while maintaining its core principles of decentralisation and security.
By leveraging a layered approach and the innovative Proof of Transfer (PoX) consensus mechanism, Stacks enables the creation of dapps and smart contracts on Bitcoin, opening up new possibilities for developers and users alike, including with the Nakamoto Release.
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