MT Capital Research Report: Stacks Nakamoto is about to be upgraded to inject new impetus into the Bitcoin ecosystem

• Observing the historical trends, STX consistently lags behind BTC but experiences larger price fluctuations, outperforming other coins within the BTC ecosystem. With the BTC halving approaching and increasing interest in BTC ecosystem concepts, Stacks, as a leading project in the BTC ecosystem, is poised for the Nakamoto upgrade in Q4. The upgrade, featuring 5-second block times and trustless sBTC, is expected to bring DeFi possibilities to BTC, fostering further growth in the Stacks ecosystem.
• Among BTC ecosystem concept coins, STX holds the largest quantity, listed on major exchanges including Upbit, and boasts optimal liquidity. It serves as a benchmark asset to observe the entire BTC ecosystem.
• Stacks utilizes the Proof of Transfer (PoX) consensus mechanism to enable smart contracts and decentralized applications (DApps) based on the Clarity language, building on the security foundation of Bitcoin. Mining involves locking BTC to enhance its functionality as a layer-two solution for Bitcoin, ensuring fast transaction processing and Bitcoin finality guarantee.
• The Stacks ecosystem currently has a TVL (Total Value Locked) exceeding $19 million, with over 120,000 deployed smart contracts and more than 760,000 wallets. The ecosystem is diverse, covering wallets, DeFi, NFTs, DAOs, DID, and social applications.

Introduction

Stacks (STX) is a Bitcoin smart contract layer designed to extend Bitcoin’s capabilities by introducing smart contract functionality and supporting decentralized applications (DApps).

Objectives: Stacks aims to bring smart contract functionality to the Bitcoin blockchain, enabling developers to build decentralized applications (DApps) and smart contracts, thereby expanding the utility of Bitcoin.

POX Consensus: Stacks 2.0 employs the POX consensus, offering participants rewards in a more stable underlying chain cryptocurrency. Compared to cryptocurrencies of new blockchains, rewards in the underlying chain cryptocurrency better incentivize early participants, attracting them to a more robust consensus.

Empowering BTC: By transforming BTC into an asset for constructing DApps and smart contracts, Stacks enhances the vitality of the Bitcoin economy.

Ecosystem: Presently, Stacks has 79 projects, with a TVL of $24.95 million.

1. Team Background

Image Source: Linkedin

Stacks is a project composed of multiple independent entities and communities, initially led by Blockstack PBC and later rebranded as Hiro Systems PBC. According to the latest information on Linkedin, the team, headquartered in NYC, currently comprises 49 members.

Key Figures and Roles:

Muneeb Ali: Co-founder of Stacks, CEO of Hiro Systems. Holds a Ph.D. in computer science from Princeton University, specializing in distributed applications research and development. He has spoken at forums like TEDx, advocating for cryptocurrency, blockchain, and has authored numerous academic publications and whitepapers. Muneeb also serves as the CEO of Trust machine.

Jude Nelson: Stacks Foundation Research Scientist, former Hiro Engineering Partner. Holds a Ph.D. in computer science from Princeton University, was a core member of PlanetLab, and received the ACM Test of Time Award for achieving planet-scale experiments and deployments.

Aaron Blankstein: Engineer who joined the Blockstack engineering team after obtaining a Ph.D. in 2017. Studied computer science at Princeton University and MIT. His research spans various topics, focusing on web application performance, caching algorithms, compilers, and applied cryptography. His research on CONIKS received the Caspar Bowden Privacy Enhancing Technology Award in 2017. He has over 10 years of experience using Emacs.

Mike Freedman: Technical Advisor at Hiro, a distributed systems professor at Princeton University, providing technical guidance to the project. Has received the Presidential Early Career (PECASE) Award and Sloan Fellowship. His research has led to the development of multiple commercial products and the deployment of systems with millions of daily users.

Albert Wenger: Hiro Director and Managing Partner at Union Square Ventures (USV). Before joining USV, he served as the president of del.icio.us and has been an active angel investor, backing companies like Etsy and Tumblr. Albert graduated in economics and computer science from Harvard University and holds a Ph.D. in information technology from MIT.

JP Singh: Hiro Director, Princeton University professor, and undergraduate program director. Primary research focuses on parallel computing systems and applications. Has received the Presidential Early Career (PECASE) Award and Sloan Fellowship, co-founded business analytics company FirstRain Inc. Holds degrees from Princeton University and a master’s and Ph.D. in electrical engineering from Stanford University. Also one of the founders of Trust machine.

Apart from Hiro, several independent entities contribute to the Stacks ecosystem, including Stacks Foundation, Daemon Technologies, Freehold, New Internet Labs, and Secret Key Labs.

Image Source: StacksChina

Hiro: Focuses on providing and maintaining developer tools in the Stacks ecosystem.

Stacks Foundation: Supports the development of the Stacks ecosystem through governance, research, education, and funding.

Daemon Technologies: Concentrates on supporting Stacks mining and staking operations.

Secret Key Labs: Specializes in providing a Chinese mobile wallet directly involved in stacking.

2. Capital Relations

Stacks has undergone five rounds of funding, totaling $88 million.

Data Source: Rootdata

Specific funding rounds and contributors are as follows:

Data Source: Rootdata

Trust machine:

Trust Machine was founded by two Princeton computer scientists (Muneeb Ali, one of the founders of Stacks, and JP Singh, executive director of Hiro) who are both big believers in Bitcoin and believe that the Bitcoin layer can unlock a wide range of new use cases for Bitcoin. Trust machine was co-founded by Muneeb Ali, one of the founders of Stacks, and JP Singh, executive director of Hiro.

Trust Machines has three products: Leather (wallet, formerly known as Hiro wallet), Console (social platform), and LNswap

In April 2022, Breyer Capital, Digital Currency Group, GoldenTree, Hivemind and Union Square Venture announced an investment of $150 M in Trust Machine[1]

In addition, in March 2023, Trust Machine and Gossamer Capital announced a US$2.5 million investment in Alex (the largest dex on Stacks).

Image source: combed by the author of this article

3. Development History and Current Situation

development path

Source: This document is compiled based on publicly available information.

4.Current Situation:

In the first quarter of 2023, Stacks underwent the latest v2.1 network upgrade, including enhancements to stacking functionality, improvements to the Clarity programming language, internal blockchain upgrades, and increased reliability. Additionally, the Hiro developer platform was launched, allowing developers to build and deploy smart contracts on Stacks through a hosted experience.

Currently, the community is actively preparing for the Nakamoto upgrade expected to occur in Q4 2023.

The Nakamoto upgrade introduces a series of technological advancements. Combined with the introduction of the sBTC asset, backed 1:1 by Bitcoin, Stacks will soon achieve writing into Bitcoin in a fully decentralized manner. sBTC serves as a trust-minimized way to move Bitcoin between L1 and L2. Unlike earlier sidechain methods, threshold wallets are managed by a group of permissionless, dynamically changing entities economically motivated to maintain the peg, allowing them to join or exit the peg maintenance freely. Using this mechanism, an asset can be issued on the Bitcoin layer, maintaining a 1:1 peg with Bitcoin. Moreover, the Nakamoto upgrade significantly shortens execution time from minutes to seconds.

The community has previously initiated the trial application for sBTC for developers and actively organized community members to learn about the upgrade’s key points and use cases.

Consensus Mechanism: Proof of Transfer (POX):

Stacks initially employed the Proof of Burn (POB) consensus mechanism proposed by Jude Nelson and Aaron Blankstein at the end of 2018. POB allowed Stacks miners to participate in competition by destroying cryptocurrency rather than consuming electricity, offering transparency without the need for specialized hardware. However, the destructive nature of POB, requiring miners to burn value for blockchain security, led Stacks to transition from POB to Proof of Transfer (POX).

Proof of Transfer (POX):

POX extends the burn-proof mechanism. Instead of burning cryptocurrency, participants in POX transfer committed cryptocurrency to other participants in the network to ensure the security of the new blockchain.

Key Features and Advantages of POX:

• Rewards Based on Underlying Chain Tokens: Participants receive rewards in a more stable underlying chain cryptocurrency. This incentivizes early participants more effectively than the cryptocurrency of a new blockchain, strengthening consensus.
• Initial Value Setting: As new tokens are pegged to the underlying chain cryptocurrency, the new token has a referenceable initial value.
• Addressing Value Spiral Dependence: POX helps address the potential value spiral dependence issue in a new blockchain by providing participants with incentives in the form of the underlying chain cryptocurrency.
• Establishing Developer Funds: POX can be used to establish developer funds to support the development of the new blockchain ecosystem. These funds can use another cryptocurrency, such as Bitcoin, without affecting the value of the new cryptocurrency.

POX Design:

Participants:

1. Miners: Bid to stake BTC to obtain mining rights for the next block, mine, and receive STX tokens as mining rewards plus platform transaction fees.
2. Stackers: Users who lock a certain quantity of STX for a specific period. They can either create their own pool or join other pools, providing an address to receive rewards. The amount of BTC received by miners depends on the staked STX quantity.

Image Source: Stacks Whitepaper

Participant (Network Maintainers) Incentives:

• Reward Cycle: In each reward cycle, miners transfer funds to the address set to receive rewards. Each reward address receives Bitcoin from miners only once in a reward cycle.
• Eligibility Criteria:
  • Stacks wallets must have at least 0.02% of the total unlocked STX tokens, a threshold adjusted based on the participation level in the Stacking protocol.
  • Before the reward cycle starts, broadcast a signed message, including the protocol-specified lockup period for the corresponding STX tokens, the specified Bitcoin address for receiving funds, and a vote supporting a specific block on the Stacks chain.
• Address Validity:
  • Participants must be able to verify the validity of the address receiving funds, as each reward address needs confirmation of validity for the entire reward cycle.

Preparation Phase and Reward Consensus:

• Before the reward cycle, participants undergo a preparation phase determining two critical aspects:
  1. Anchor Block: In the reward cycle, there exists an anchor block to which miners must transfer their funds to the appropriate reward address. This anchor block remains valid throughout the entire reward cycle.
  2. Reward Collection: The reward collection is the set of Bitcoin addresses that will receive funds during the reward cycle. This set is determined by the Stacks chain state at the anchor block.

Reward Address Selection Rules:

• Different rules apply to the selection of reward addresses, depending on whether the blockchain tip established by the miner is a descendant of the anchor block. If a blockchain tip created by a miner is not a descendant of the anchor block, all committed funds of that miner must be destroyed. If a blockchain tip created by a miner is a descendant of the anchor block, the miner must send the committed funds to two addresses in the reward collection.

5. Technical Architecture:

L1 or L2?

Stacks is described as a smart contract layer built on top of Bitcoin. The initial version (released in 2021) of Stacks had a separate security budget from Bitcoin L1 and was considered an independent layer (L1.5). The future Nakamoto version plans to rely entirely on Bitcoin’s hash power, making it a fully subsidiary layer of Bitcoin (L2). This implies that Stacks’ transaction irreversibility will be determined by the security of Bitcoin.

Sidechain?

Stacks interoperates to some extent with Bitcoin but does not conform to the traditional definition of a sidechain. Stacks’ consensus mechanism operates on Bitcoin L1, closely tied to Bitcoin’s finality, and data and transactions on Stacks are automatically hashed and permanently stored on Bitcoin’s blockchain. This differs from traditional sidechains, where consensus operates on the sidechain independently of Bitcoin L1, and data is not stored on Bitcoin L1. Therefore, Stacks does not fit the traditional definition of a sidechain.

Smart Contract Language - Clarity:

Clarity is a deterministic smart contract programming language designed specifically for the Stacks blockchain. Its features include:

1. Security First: Emphasis on security and predictability to prevent common vulnerabilities and attacks found in Solidity contracts.
2. Interpretative: Clarity’s code is interpretative, executed line by line upon submission to the chain, unlike other languages (e.g., Solidity) that need compilation into bytecode. This reduces vulnerabilities introduced by compilers and maintains smart contract readability.
3. Deterministic: A deterministic language where you can precisely know what a program will do from the code itself, avoiding issues like the “halting problem.” Clarity ensures no “running out of gas” during execution, guaranteeing program execution within a finite number of steps.
4. No Recursion: Clarity’s design prohibits recursion, a potential source of contract vulnerabilities where one contract calls another, leading to multiple re-entry operations.
5. Preventing Overflow and Underflow: Clarity prevents numerical calculation overflow and underflow, common vulnerabilities leading to abnormal behavior in smart contracts.
6. Built-in Support for Custom Tokens: Clarity inherently supports the creation of custom fungible and non-fungible tokens, a popular use case for smart contracts. Developers need not worry about internal asset management, supply management, or token event emission as these functionalities are integrated into the Clarity language.
7. Post-conditions for Transaction Protection: Clarity supports attaching post-conditions to transactions to ensure that the chain state changes as expected after the transaction completes. If post-condition checks fail, the transaction is rolled back.
8. Mandatory Response Handling: Public calls in Clarity contracts must return a response indicating success or failure, enhancing contract security.
9. Composition over Inheritance: Clarity follows the principle of composition over inheritance, allowing developers to define features and have different smart contracts implement these features for greater flexibility.
11. Access to Bitcoin Base Chain: Clarity smart contracts can read the state of the Bitcoin base chain, allowing the use of Bitcoin transactions as triggers. Clarity also provides many built-in functions to verify secp256k1 signatures and recover keys.

Gaia Storage System:

Gaia is a unique decentralized storage system within the Stacks blockchain, emphasizing user ownership and control of data. It consists of Hub services and storage resources on cloud service providers like Azure, DigitalOcean, Amazon EC2, etc. Gaia currently supports S3, Azure Blob Storage, Google Cloud Platform, and local disk, with a flexible backend support model.

Gaia stores data as a simple key-value store. When an identity is created, the corresponding data storage is associated with that identity on Gaia. Upon user login to decentralized applications (dApps), the authentication process provides the dApp with the Gaia hub’s URL, enabling Gaia to perform storage operations on behalf of the user. A “pointer” in Gaia is saved to the Blockstack chain and the Atlas subsystem. When users use the Blockstack authentication protocol to log into apps and services, this storage location information is passed to the application, which then interacts with the specified Gaia data, ensuring that cloud storage service providers cannot directly see user data, only encrypted data blocks.

Key Features of Gaia:

1. User Ownership and Control: Gaia is designed to prioritize user ownership and control of their data. Users can decide the data’s storage location and have the ability to modify or delete their data, differing from some other immutable blockchain storage solutions.
2. Connection to Stacks Identity: Gaia associates data access with the user’s identity on the Stacks blockchain, allowing users better management and access to their data associated with their digital identity.
3. High Performance and Availability: Storing user application data outside the blockchain provides higher performance and availability since data read/write is not constrained by blockchain performance.

6. Major Upgrades:

Stacks Nakamoto Upgrade:

Upgrade Highlights:

The Nakamoto upgrade introduces several technological advancements. Combined with the introduction of the 1:1 Bitcoin-backed asset sBTC, Stacks will achieve fully decentralized writing into Bitcoin. sBTC provides a trust-minimized bidirectional anchoring, introducing Bitcoin liquidity into smart contracts.

• Bitcoin Finality: Stacks blockchain transactions, once confirmed under Proof of Transfer (PoX) blocks, are considered irreversible.
• Faster Blocks: Stacks blockchain implements faster block confirmation times, with each block confirmed every 5 seconds.

Please note that sBTC introduces a trust-minimized decentralized bidirectional anchoring, bringing BTC liquidity into smart contracts.

Bitcoin finality ensures that Stacks transactions, once confirmed under Proof of Transfer (PoX) blocks, are considered irreversible.

Additionally, faster block confirmation times are implemented in the Stacks blockchain, with each block confirmed every 5 seconds.

7. Token Economy

The total supply limit of the STX token is 1.818 billion, with the current circulating supply at around 1.42 billion. The genesis block of Stacks contains 1.32 billion STX tokens, distributed through multiple issuances in 2017 and 2019. The 2017 issuance was priced at $0.12 per STX, the 2019 issuance at $0.25 per STX, and the SEC-compliant 2019 issuance at $0.30 per STX.

The mining reward distribution is as follows: for the first 4 years, 1000 STX per block; for the next 4 years, 500 STX per block; for the subsequent 4 years, 250 STX per block; and permanently 125 STX per block. The STX allocated to founders and employees follows a 3-year unlocking schedule.

In October 2020, Stacks changed the mechanism for minting and burning STX tokens. Instead of implementing STX minting and burning, Stacks reduced the token issuance. By 2050, the total supply is expected to reach approximately 1.818 billion.

8. Ecosystem Overview

TVL (Total Value Locked) Situation

Wallet Count Trend

Smart Contract Count Trend

Ecosystem Map

Wallets

• Xverse: A crypto wallet built on Stacks supporting the Ordinals protocol. Users can manage both Bitcoin assets (including BTC and Bitcoin NFTs) and Stacks-based assets. The wallet has a clean UI, and the creation process is similar to many EVM-compatible wallets.

• Leather: Formerly Hiro Wallet, now part of Hiro, a development tools company supporting Stacks blockchain developers. Leather is a Bitcoin-based wallet application that supports Ordinals and plans to support the Lightning Network. It allows users to purchase STX using credit cards, debit cards, or bank transfers.

DeFi

• ALEX: A DeFi protocol on Stacks inspired by Balancer V2. It includes features like swap, lending, staking, yield farming, and a Launchpad.

• Arkadiko: An open-source, non-custodial liquidity protocol on Stacks where users can collateralize assets to mint the stablecoin USDA and earn interest on deposits.

• LNSwap: An atomic swap protocol embodying Bitcoin’s fundamentals. It involves users, liquidity providers, and aggregators. LNSwap aims to provide security, decentralization, and stability.

Lnswap is composed of three parties: users, liquidity providers and aggregators.

Users are those who want to exchange assets. Their funds are locked in a very basic Hash Time Lock Contract (HTLC) only for the duration of the exchange, and through the use of smart contracts, direct transactions can be made between the two parties without the involvement of a third party.

Liquidity providers are those who use the assets they own to provide funds to the LNSwap protocol to facilitate swaps on our exchange. In return for providing assets, liquidity providers will be rewarded with fees generated by swaps occurring on the platform.

Aggregators essentially collect the data and information exchanged on a protocol and consolidate them for easy reference and access. Currently, LNSwap’s aggregator is a router that forwards exchange information between users and liquidity providers. But in the future, the aggregator will actually be an on-chain contract, which effectively means that anyone can become an aggregator on the platform through a simple front-end. Additionally, liquidity providers will be able to register to multiple aggregators.

NFT

Gamma

Gamma, the NFT market on Stacks, was originally named STXNFT. On April 27, 2022, it was announced that it would be renamed Gamma. Gamma is the third letter of the Greek alphabet and represents the third phase of the web: Web 1.0, Web 2.0 and now Web3.

The platform is designed to bring collectors, creators, and investors together to explore, trade, and showcase NFTs within the Bitcoin ecosystem. The Gamma platform consists of three core products: NFT market, Launchpad and social platform. Gamma.io supports both primary and secondary markets for Bitcoin NFTs.

Users can use Gamma bot to mint their own unique digital works, collect them or sell them. Users can create a Bitcoin NFT in minutes using a code-free Bitcoin NFT creation tool. Gamma.io solves the technical, complex, and time-consuming pain points of creating NFTs on the Bitcoin network. However, the secondary market still accounts for the majority of platform sales. Each sale includes artist royalties as well as marketing commissions, with percentages varying by artist and collection.

Boom

Boom is Stacks’ native NFT platform, supports Stacks ecological token transfer, and will support Stacks NFT transactions in the future.

9. Competitors

Stacks differs from Lightning Network, RSK, Liquid, and Rollups by focusing on introducing new smart contract functionality. It has its miners and mining process rather than relying on Bitcoin miners. Stacks is an open, decentralized network not solely focused on financial applications.

Why Has BTC’s Ecosystem Been Discovered This Year?

This can be attributed to two crucial technical updates:

Segregated Witness (SegWit) Upgrade in 2017: Expanded BTC’s block data from 1MB to 4MB, improving scalability. However, the expanded part was reserved for signature storage. The Taproot upgrade at the end of 2021 allowed for advanced script writing within SegWit, enabling the introduction of more complex protocols.

1.Ordinals & BRC20:

The Ordinals protocol and the subsequent development of BRC20 ignited the BTC ecosystem. The rapid development is intertwined with the adoption of Taproot. Ordinals allowed NFT data encoding into the extended space of SegWit (4MB per block).

Atomics & ARC20

Atomics is another derivative protocol that engraves data on UTXO to implement Token.

Different from Oridnals, which was originally designed for NFT, it rethinks how to issue tokens on BTC in a centralized, non-tamperable and fair manner from the bottom up.

When verifying an Atomics transaction, you only need to query the UTXO of the corresponding sat on the BTC chain. The atomicity of ARC20 Token is consistent with the atomicity of BTC itself. The calculation of ARC20 transfer is completely processed by the BTC basic network.

The design of Atomics binding UTXO cleverly avoids the complexity faced by BRC20, making it more decentralized, more native to BTC, and most importantly, more in line with the culture of the BTC community.

Rune & Pipe

Under the general trend of hype, Casey also proposed an inscription implementation method specifically for issuing FT, namely Rune.

The idea of Rune was just an idea, and the founders of #Trac wrote the first usable protocol based on it and issued $PIPE. Due to Casey’s high popularity, $PIPE took over the hype that continued from BRC20 and quickly completed the first wave of hype.

Rune’s legitimacy is stronger than BRC20, but it is still difficult to be accepted by the BTC community.

Lightning Network

The Lightning Network is the king of legitimacy in the BTC community. Starting in 2016, over a long period of time, more than half of the developers in the BTC ecosystem have been engaged in the development of the Lightning Network.

The basis of the Lightning Network is a payment channel. This concept was first proposed by Satoshi Nakamoto. Both parties to the transaction lock BTC through multiple signatures, and both parties maintain an off-chain ledger to record the transaction.

Payment channels connected in pairs form a network, and two parties who are not directly connected can also jump to the channel to complete transactions. The Lightning Network has indeed expanded the performance of BTC transfers, giving users a better experience.

The final BTC settlement can only be carried out on the BTC main network, and all coins are still saved by the public and private key system.

Taproot Assets (Taro)

Unlike BRC20 and others, Taproot Assets only writes the Token information in the UTXO output script of the BTC main network, and does not store the Token’s transfer, mint and other functional codes.

Taproot Assets only regards the BTC main network as a registry of Tokens and does not completely rely on the BTC main network to operate. Therefore, these assets must be deposited into the Lightning Network before they can be traded.

Therefore, the Tokens of Taproot Assets must rely on a third-party storage indexer. Without the storage indexer, these tokens will be lost forever.

RGB

RGB is a smart contract system based on BTC and Lightning Network. It is the ultimate expansion method, but its progress is slow due to its complexity.

RGB converts the state of a smart contract into a short proof and engraves the proof into the BTC UTXO output script.

Users can check the status of the smart contract by validating this UTXO. When the smart contract status is updated, a new UTXO is created to store the proof of this status change.

RGB can be regarded as the L2 of BTC. The advantage of this design is that it uses the security of BTC to guarantee smart contracts. However, as the number of smart contracts increases, the demand for UTXO encapsulated data will also increase, which will eventually become unavailable. Avoid creating a lot of redundancy in the BTC blockchain.

RSK&RIF

RSK can be regarded as the L2 of BTC, which is essentially a smart contract chain with an EVM structure.

RSK just cross-chains the main network BTC to itself through the Hash lock and uses it as network gas.

At the same time, RSK adopts the same POW consensus algorithm as BTC, so BTC miners can also mine in RSK at the same time and earn transaction fees of $RBTC.

BitVM

BitVM is currently the most BTC-native, most promising, and most technically hard-core smart contract expansion solution.

Without modifying the BTC network, Optimistic Rollup runs a VM virtual machine that supports calculations to implement BTC smart contracts. The BTC network is used to run Optimistic Rollup’s fraud proofs.

Using the most basic Hash lock and BTC script operations OP_BOOLAND and OP_NOT, a simple logic gate is implemented. By combining the logic gates of BTC, a circuit that can operate is formed, and fraud proof is processed on the BTC chain through this circuit.

10. Innovations & Risks

Innovations (STACKS):

• S (Secured by the entire hash power of Bitcoin): Stacks’ security is supported by the entire hash power of Bitcoin, ensuring high security and decentralization.
• T (Trust-minimized Bitcoin peg mechanism; write to Bitcoin): Stacks uses a trust-minimized Bitcoin peg mechanism, allowing information to be written to the Bitcoin blockchain. This ensures interoperability between Bitcoin and Stacks while minimizing trust requirements.
• A (Atomic BTC swaps and assets owned by BTC addresses): Stacks allows atomic Bitcoin (BTC) swaps, ensuring that assets in smart contracts belong to Bitcoin addresses.
• C (Clarity language for safe, decidable smart contracts): Stacks uses Clarity, a language designed for secure and decidable smart contracts, reducing errors and uncertainty.
• K (Knowledge of full Bitcoin state; read from Bitcoin): Stacks’ smart contract layer has knowledge of the complete Bitcoin state, enabling it to read information from the Bitcoin blockchain.
• S (Scalable, fast transactions that settle on Bitcoin): Stacks’ smart contract layer supports scalable and fast transactions, settling on Bitcoin while benefiting from its finality and security.

Risks:

• Security: Stacks faces potential security threats, including vulnerabilities and hacker attacks, despite transaction batching and hashing on the BTC mainnet. Questions about Stacks’ decentralization may also arise.
• Complexity: The Clarity language’s complexity may lead to potential errors and inefficiencies, deterring some developers from using it.
• Interoperability: While closely tied to BTC, Stacks may face challenges in efficient interoperability with other BTC ecosystem projects, potentially hindering efficiency and innovation.

11. Secondary Market Liquidity

Listed Exchanges:

The charts for STX/USDT and BTC/USDT show that STX’s performance lags behind BTC, both in uptrends and downtrends. STX appears to act as a leveraged version of BTC.

From the STX/BTC chart, it is evident that STX behaves as if it has leverage compared to BTC.

Comparing STX with other BTC ecosystem tokens (REN, BADGER, RIF, ORDI), STX appears relatively resistant to downtrends, while ORDI shows higher volatility as a newer token.

Conclusion

Stacks serves as a second-layer solution built on Bitcoin, addressing scalability challenges and fostering the development of new applications. It enhances Bitcoin’s capabilities by introducing smart contracts and decentralized applications (DApps) while leveraging Bitcoin’s security and consensus mechanism. Stacks provides a trust-minimized two-way Bitcoin anchoring mechanism and uses the Clarity smart contract language designed for safety and determinism. It offers a programmable asset layer for Bitcoin, unlocking its potential across various use cases.

The upcoming Nakamoto upgrade and other critical developments position Stacks as a pioneer in the cryptocurrency space. As the broader crypto community recognizes the importance of second-layer solutions for Bitcoin’s future, Stacks is poised to play a crucial role in the evolving industry. Collaboration, technological innovation, and exploration of new use cases are shaping the Stacks ecosystem, aiming to unleash the $600 billion Bitcoin liquidity into decentralized finance (DeFi). The goal is to provide a cheaper, faster way for Bitcoin transactions, continuously develop DApps, and integrate cutting-edge technologies. This demonstrates the significant potential in the development process of Stacks with the Nakamoto version.

Disclaimer：

1. This article is reprinted from [techflowpost]. All copyrights belong to the original author [Will 阿望；Diane Cheung]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.