Boosting Bitcoin: the complete guide to the Stacks (STX) ecosystem

Smart contracts on the Bitcoin blockchain have limitations affecting their functionality and usability. One major limitation is the syntax — the rules underpinning the structure of the programming language. Bitcoin's design intentionally made it Turing incomplete, which means it lacks logical loops and conditionals, making complex transactions and contracts challenging to implement.

Another limitation is scalability and speed. Bitcoin's encryption and transaction complexity result in slow processing times. It can handle only around 7 transactions per second (tps), while Ethereum can take around 30 tps.

Enter Stacks — a fix for the limitations mentioned above. Stacks is a Layer 1.5 blockchain that connects to Bitcoin using Proof of Transfer (PoX) consensus. It uses a language called Clarity for smart contract development, which addresses the syntax limitations of Bitcoin.

Clarity is an easy-to-read language, allowing developers and users to understand the program's functionality in near plain English. Additionally, Stacks employs microblocks, which improve transaction speed and make it faster than the Bitcoin blockchain.

By anchoring blocks to the Bitcoin blockchain, Stacks combines the security and capital of Bitcoin with the improved capabilities of its blockchain. This opens up opportunities for various applications like decentralized finance (DeFi) and non-fungible token (NFT) marketplaces to leverage Bitcoin's security while enjoying faster transactions and increased scalability.

TL:DR

• Bitcoin’s design limits smart contracts and transactions.

• Stacks uses Bitcoin’s security and PoX consensus for better scalability and smart contracts.

• Clarity on Stacks offers transparent, secure, and easy smart contract development.

• Stacks bridges Bitcoin with DeFi and NFTs, opening new opportunities for Bitcoin.

• The Nakamoto upgrade speeds up Stacks transactions from 10-30 minutes to five seconds.

How does Stacks work?

Consensus algorithms are crucial for securing blockchains and typically require computing or financial resources. The aim is to make it practically infeasible for any single malicious actor to have enough power or ownership stake to attack the network. Popular consensus mechanisms include proof of work (PoW), proof of stake (PoS), and proof of burn (PoB).

Stacks blockchain relies on the Proof of Transfer (PoX), an extension of the PoB mechanism, which utilizes the PoW cryptocurrency of an established blockchain to secure a new blockchain.

How does PoX work?

When it comes to PoX, miners participating in the consensus mechanism transfer the committed cryptocurrency instead of destroying it. By leveraging Bitcoin's PoW, PoX enhances the security and integrity of the new blockchain, such as Stacks.

This transfer of value makes sure the network remains secure, and the Stacks blockchain benefits from the value and security of the established blockchain.

PoX + Bitcoin + Stacks

Now you understand how PoX works, here's how it all comes together for Stacks and Bitcoin.

Bridging Bitcoin and Stacks: PoX enables the Stacks blockchain to leverage the security and stability of the Bitcoin network. It achieves this by allowing participants to transfer Bitcoin to the Stacks chain to mine new blocks and secure the network.

Transferring value: With PoX, participants can transfer the value of Bitcoin to the Stacks chain, which is used as a form of collateral to participate in block creation. By transferring value, participants demonstrate a commitment to the security of the Stacks chain.

Mining Stacks blocks: Participants who transfer Bitcoin to the Stacks chain can mine new blocks by submitting proofs of the transferred Bitcoin. This process is called 'stacking'. The more Bitcoin transferred, the higher the chances of mining a block and earning Stacks tokens as a reward.

Decentralized consensus: PoX enables a decentralized consensus mechanism by allowing any participant to contribute and mine blocks. This helps distribute power and decision making across the network, making it resistant to centralization.

Security and immutability: Using Bitcoin's robust PoW mechanism, PoX provides strong security and immutability from the Stacks blockchain. This makes the Stacks network highly resistant to attacks and ensures the integrity of transactions and smart contracts.

Enhancing Bitcoin's utility: PoX enhances the utility of Bitcoin by enabling developers to build decentralized applications (DApps) and smart contracts on the Stacks blockchain. This expands the use cases of Bitcoin beyond a mere store of value, unlocking its potential as a programmable currency.

STX and tokenomics

STX is the native token of the Stacks blockchain. It has a unique feature called 'stacking', (not to be confused with staking), which allows STX holders to earn rewards by participating in the PoX consensus mechanism. Those who engage in this process are known as 'stackers'.

When a block is mined, Bitcoin that miners have committed is sent to stackers as a reward. This Bitcoin reward is given to stackers as a recognition of the value they contribute to the Stacks network. These rewards are distributed once every seven days.

To become a stacker and participate in the blockchain, STX holders must possess a minimum amount of holdings, approximately 100,000 STX. However, for crypto traders who don't meet the minimum STX requirement, you have an opportunity to participate in stacking STX tokens with us - starting at 50 STX.

STX has a circulating supply of 1.39B coins and a maximum supply of 1.82B STX.

How Stacks empowers Bitcoin with smart contracts

For beginners, learning a programming language can be daunting, especially if you don't have a coding background.

Clarity is a smart contract language designed explicitly for the Stacks blockchain. It focuses on predictability and security, aiming to optimize the development of reliable and trustworthy smart contracts. Clarity draws lessons from the Solidity programming language, making it purpose-built for safety and security.

What makes Clarity different?

Clarity prioritizes security and transparency, distinguishing itself as an ideal choice for developers who require the utmost security in their smart contracts. Many real-world examples demonstrate the consequences of developer failures, leading to the loss or theft of significant token amounts. Clarity addresses these issues through its design, aiming to prevent such vulnerabilities from occurring.

Key features of Clarity

Clarity is interpreted: Unlike other smart contract languages, Clarity code is interpreted and committed to the blockchain precisely as written. This approach reduces complexity and ensures human readability. When dealing with smart contracts, it's crucial to understand what you're signing, and Clarity's transparent nature allows for just that.

Clarity is decidable: Clarity is a decidable language, meaning the program's behavior can be determined with certainty from the code itself. It eliminates issues like the halting problem and provides accurate cost analysis before execution.

Clarity does not permit reentrancy: Reentrancy occurs when a contract calls back into itself, potentially leading to vulnerabilities. Clarity considers reentrancy an anti-feature and disallows it at the language level, enhancing the security of smart contracts.

Clarity guards against overflows and underflows: Overflows and underflows can disrupt smart contracts, resulting in freezing or draining of tokens. Clarity addresses this by automatically aborting transactions that encounter such situations, guaranteeing the stability and integrity of contracts.

Support for custom tokens is built-in: Clarity simplifies the issuance of custom fungible and non-fungible tokens. Developers can leverage Clarity's built-in features without worrying about managing internal balance sheets, supply, or token events.

Returned responses can't be left unchecked: Clarity mandates that public contract calls must return a response indicating success or failure. Contracts calling other contracts must handle these responses properly. This approach prevents silent failures and enforces robust error-handling practices.

Composition over inheritance: Clarity adopts a composition over inheritance approach, unlike languages like Solidity. Instead of inheriting from other contracts, developers define traits implemented by different smart contracts. This allows contracts to conform to various interfaces, promoting flexibility without complex class trees.

Access to the Bitcoin base chain: Clarity smart contracts can read the state of the Bitcoin base chain, enabling the use of Bitcoin transactions as triggers within smart contracts. Additionally, Clarity provides built-in functions to verify secp256k1 signatures and recover keys.

Meanwhile, smart contracts built using the Clarity programming language have the potential to bring significant benefits and impact to the Bitcoin ecosystem.

Extending Bitcoin's functionality: Bitcoin is primarily designed as a digital currency and a store of value. However, with Clarity smart contracts, developers can introduce new functionalities and features on the Bitcoin blockchain. This opens up possibilities for DApps, DeFi protocols, and other innovative use cases that leverage the security and immutability of the Bitcoin network.

Enhanced interoperability: Clarity's ability to read the state of the Bitcoin base chain allows for seamless integration between the Stacks blockchain and Bitcoin. Smart contracts can directly interact with Bitcoin transactions and leverage Bitcoin's established ecosystem. This interoperability expands the utility of both blockchains and enables new cross-chain applications.

Increased security and transparency: Clarity's focus on security by design helps mitigate common pitfalls and vulnerabilities seen in other smart contract languages. Developers can build robust and auditable smart contracts by leveraging Clarity's features, such as decidability, prevention of reentrancy, and guarding against overflow/underflows. This heightened security and transparency create a safer and more trustworthy environment for executing decentralized applications.

Empowering developers and entrepreneurs: Clarity's user-friendly nature and emphasis on predictability make it easier for developers, including those new to blockchain programming, to create smart contracts. Simplifying the process of building smart contracts using Clarity empowers developers and entrepreneurs, fostering innovation and growth within the Bitcoin ecosystem

How Stacks brings DeFi and NFTs to Bitcoin

The world of DeFi presents an enormous opportunity, especially when it comes to Bitcoin. With Bitcoin's impressive market cap of nearly $1 trillion and its increasing adoption by institutional investors, the potential for Bitcoin DeFi is vast.

However, there have been limitations in harnessing Bitcoin's full potential in the DeFi space. Traditionally, Bitcoin has been less productive in DeFi compared to other cryptocurrencies. To utilize Bitcoin in DeFi, users had to go through centralized exchanges or wrap their Bitcoin on separate blockchains.

Stacks brings a unique approach to enable true Bitcoin DeFi. One key advantage is the visibility Stacks contracts have into the Bitcoin state. This means that Stacks can interact directly with Bitcoin and leverage its security and settlement assurances.

The Stacks blockchain is closely tied to Bitcoin through its PoX consensus mechanism. This ensures that all Stacks transactions ultimately settle on the Bitcoin blockchain. By anchoring to Bitcoin, Stacks inherits Bitcoin's unparalleled security against transaction reorganizations or changes.

Another area where Stacks shines is with NFTs. With Stacks, you can explore a novel and scalable approach to Bitcoin NFTs, opening doors to unique digital art, collectibles, and more. By leveraging the security and reliability of Bitcoin, Stacks ensures your NFTs are protected, and their value is securely recorded on the blockchain.

Imagine a vibrant ecosystem of innovative applications and digital experiences built on the foundation of Bitcoin's trusted infrastructure. Stacks brings this vision to life, empowering developers to unlock new potential and push the boundaries of what's possible in the Bitcoin ecosystem.

What is Stacks' Bitcoin Name System (BNS)?

The Bitcoin Name System (BNS) is a network system that binds Stacks usernames to off-chain state without relying on centralized control. BNS brings unique properties to the table, ensuring globally unique, human-meaningful, and strongly owned names.

In the Stacks V1 blockchain, BNS was implemented through first-order name operations. However, in Stacks V2, BNS is implemented through a smart contract loaded during the genesis block. This upgrade enhances the functionality and flexibility of BNS.

With BNS, each name has three crucial properties:

• Names are globally unique, meaning there are no collisions or conflicts

• Names are human-meaningful, chosen by their creators to be easily understood

• Names are strongly owned, allowing only the owner to modify the state it resolves to

The Stacks blockchain ensures that all nodes have a synchronized view of BNS, guaranteeing consistency across the network. BNS allows name owners to bind up to 40Kb of off-chain state to their names, replicated to all Stacks blockchain nodes through a peer-to-peer network.

For developers, it's important to note that reading name state in BNS is fast and affordable. However, writing name state is slower and more expensive. Registering and modifying names require transactions on the blockchain, which need confirmation. Users and developers must acquire and spend the requisite cryptocurrency (STX) to send BNS transactions.

The motivation behind name systems is to provide a reliable and meaningful way to resolve names in various applications. Existing systems, such as DNS, social media platforms, Git, and PGP, each have their limitations, often compromising on one or more of the desired properties.

BNS overcomes these limitations by offering globally unique, human-meaningful, and owned names. This makes it a powerful tool for building network applications.

With BNS, we can create domain name services resistant to hijacking, social media platforms with enhanced security against phishing attacks, version control systems free from conflicting branches, and public-key infrastructure that simplifies key discovery and remembrance.

Is Stacks safe and regulated?

The Stacks network takes a unique approach to ensure its security by using two powerful consensus mechanisms: Bitcoin's PoW and Stacks' PoX.

Bitcoin's PoW is a well-established and time-tested consensus mechanism that's proven its effectiveness in securing the Bitcoin blockchain. Miners in the Bitcoin network compete to solve complex mathematical puzzles, and the first miner to find a valid solution gets to add a new block to the blockchain.

This process requires significant computational power and serves as a robust defense against malicious attacks. Stacks recognizes the unparalleled security offered by Bitcoin's PoW and uses it as the foundation for its own security.

Stacks takes this to the next level with its own consensus mechanism PoX. As explained above, with PoX, miners commit Bitcoin to the Stacks network by transferring it to participants who hold and lock a certain amount of Stacks Token (STX).

This mechanism securely anchors the Stacks blockchain to the Bitcoin blockchain. It creates a strong bond between the two networks, leveraging Bitcoin's security and settlement assurances.

By connecting to Bitcoin through PoX, Stacks benefits from the long-term stability and resistance to attacks that Bitcoin has achieved. This unique hybrid approach allows Stacks to tap into the immense security of Bitcoin while maintaining its own separate blockchain for executing smart contracts and decentralized applications.

Here's an intriguing fact: The STX token offering achieved a significant milestone by becoming the very first SEC-qualified offering in the history of the United States. Despite facing a lengthy and challenging process, the team behind STX remained determined and driven by their vision to make the token offering accessible to individuals worldwide, including those in the U.S..

What is the Nakamoto upgrade?

Stacks hit a milestone with its Nakamoto upgrade, which went live on August 28, 2024. The upgrade takes transaction times down from 10-30 minutes to a lightning-fast five seconds. For anyone building DApps on Stacks, it’s like going from dial-up to fiber optic internet overnight.

In a few weeks, they’re rolling out sBTC, a new asset that’s pegged 1:1 with Bitcoin. sBTC is going to make it easy to move BTC between Bitcoin and Stacks. The token will also also be used to pay for transactions on the network.

Stacks has always had high potential, and some argue the project could’ve made further progress if not for Bitcoin’s relatively slower speeds. Now, with the Nakamoto upgrade, all projects on Stacks can finally flex their muscles. Many would agree that the upgrade comes at an ideal time, with much buzz around Bitcoin DeFi following the launch of the Ordinals Protocol, which brought NFTs to Bitcoin.

The final word

Stacks can potentially enhance Bitcoin's capabilities and ecosystem by enabling true Bitcoin DeFi, scalability, enhanced security, and the BNS. Stacks allows developers to build decentralized applications on top of Bitcoin, leveraging its security and decentralization. Integrating Stacks' PoX mechanism with Bitcoin's PoW ensures a robust security framework.

Stacks expands the possibilities for innovation, financial services, and creative development within the Bitcoin ecosystem, making it a promising protocol to help increase Bitcoin's mainstream adoption.

What can Stacks contribute to the broader crypto landscape?

As privacy is always front of the community's mind, Stacks can contribute to privacy-centric solutions, enabling users to have greater control over their data and transactions. Stacks' ability to enable true Bitcoin DeFi is an incredible game-changer. With the increasing adoption of Bitcoin as a store of value, integrating DeFi applications on the Stacks network can unlock a vast untapped market. It can bring advanced financial services, lending and borrowing platforms, decentralized exchanges, and more to the Bitcoin ecosystem, further fueling its growth and utility.

Stacks provides a platform for developers to build decentralized applications underpinned by Bitcoin's security and capital. This offers limitless innovation across several industries, such as decentralized identity, supply chain management, digital art, and gaming. The Stacks ecosystem fosters a vibrant community of developers, entrepreneurs, and enthusiasts, driving growth across the platform.