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What is Stacks Crypto? A Guide to the Innovative Blockchain Connecting Bitcoin and Smart Contracts
Stacks makes Bitcoin programmable by enabling smart contracts. You can see Stacks as a blockchain 1.5, where it is its own protocol but is directly linked to the Bitcoin network.
What is stacks?
Stacks (website) is a fascinating project. For starters Stacks presents an intriguing blend of blockchain layers. Although it qualifies as a Layer-1 blockchain due to its unique consensus mechanism (Proof of Transfer), it is purposefully designed to augment Bitcoin's functionalities, similar to what a Layer-2 blockchain does. This unique positioning has led many to consider Stacks as a "Layer-1.5" blockchain, bridging the gap between standalone blockchain networks and secondary layers designed to enhance existing blockchains. In order to understand Stacks, and its relationship to Bitcoin, one must first understand Bitcoin.
Aside from being the most well-known cryptocurrency, Bitcoin is the most secure blockchain that exists. Proof of work is the consensus mechanism by which this blockchain verifies every transaction ever made on Bitcoin, while adding new blocks to the blockchain. This immutability allows Bitcoin to function as the best medium of exchange in the history of mankind.
Seeing as though Satoshi Nakamoto designed Bitcoin with security in mind, it is not surprising that Bitcoin is somewhat limited when compared to newer blockchains. In essence Bitcoin lacks programmability, and ultimately that has limited the amount of applications that can be created on Bitcoin.
This is where Stacks comes in.
Bringing Smart Contracts to Bitcoin
Stacks allows for the creation of smart contracts on the Bitcoin blockchain. This is accomplished via Stacks consensus mechanism (PoX) ,and the Stacks programming language, Clarity.
Proof of Transfer
Proof of Transfer is a unique consensus mechanism for a blockchain. Essentially PoX leverages the security of Bitcoin in order to provide for the security of Stacks. This is accomplished by Stacks miners transferring Bitcoin to bid for the privilege of writing new blocks for Stacks. The Bitcoin bid by the winning miners is then distributed to the Stacks holders who have staked (Stacked) their STX for the opportunity to receive a Bitcoin reward for participating in the network. For every new Bitcoin block created, a new Stacks block is created. In this way PoX allows for every Stacks transaction to settle on its corresponding Bitcoin block.
Clarity is a smart contract language developed by Blockstack and Algorand. Much like PoX, Clarity also brings something unique to the table. Distinct from many other smart contract languages, Clarity is not compiled. Instead, it's interpreted on-chain, meaning that the code you write is the code that gets executed. This makes the behavior of Clarity smart contracts predictable and transparent, mitigating certain classes of bugs and vulnerabilities that have plagued other smart contract platforms.
Clarity is designed to interact with the Bitcoin blockchain through the Stacks blockchain. Smart contracts written in Clarity can read state from the Bitcoin blockchain, allowing them to take actions based on Bitcoin transactions. For example, a Clarity contract could automatically trigger an event when a certain amount of Bitcoin is sent to a particular address.
The History of Stacks
In 2013, Stacks started as a computer science PhD project at the university of Princeton under the name Blockstack. The project was turned into a startup and was then incubated by Y-Combinator a year later.
The project has so far received 93.8 million USD in funding. Over $50 million was raised in its ICO and the rest coming from individuals such as Naval Ravikant, Anthony Pompliano, Meltem Demirrors, Winklevoss Capital, and the Digital Currency Group.
It is noteworthy that Stacks was the first project to be qualified by the SEC for a token sale in the US. Even if this does not imply that the token is entirely regulated, it does significantly improve STX legal standing relative to other tokens.
A Decentralized Bitcoin Layer
Stacks is a decentralized blockchain, meaning that no single entity controls it. What this means in practice is that anyone can develop applications on Stacks, anyone can mine STX, Stacks users control their data, and governance is the responsibility of the Stacks community at large.
The governance of a blockchain is especially important, and one of the primary ways that decentralized blockchains differ from software companies. The foundation of Stacks governance is found in the Stacks Improvement Proposal (sip) protocol. While this process is too long to go into in this article, I would encourage the reader to check out sip-000 which fully details how changes to the Stacks blockchain are proposed and implemented.
The STX Crypto Token
STX is the native crypto token of the Stacks blockchain, and it serves several important functions. STX serves as the financial incentive to secure the blockchain via PoX. Miners supply Bitcoin and are subsequently rewarded with STX, and Stackers are subsequently rewarded with that Bitcoin for locking up their STX. In addition to security, STX is used to pay for transaction fees made on the Stacks blockchain. STX is also used in the governance of the blockchain as the weight of the holder's votes is determined by their holdings of STX. Last but not least, STX is used to pay for the computational power of Stacks dAPPS similar to Ethereum “gas”.
There are currently over 1.3 billion STX tokens in circulation, with a max supply of 1.8 billion tokens in circulation by 2050. It is worth noting that no entity/company involved in the Stacks ecosystem owns more than 10% of total supply, and even the early investors frequently own under 5%
Stacks 2.1 and sBTC
2023 has been a big year for the Stacks ecosystem. With the implementation of Stacks 2.1 the foundation for massive growth and opportunity has been paved for this young blockchain. In addition to the highly anticipated sBTC release, we can also look forward to much faster transaction speeds on the Stacks blockchain thanks to subnets. Look forward to future articles about these massive changes coming to Stacks in 2023.
How to Use Stacks
Before you can use STX, you must first acquire STX from a crypto exchange. STX is available on many large, trusted, exchanges such as: Coinbase, Binance, KuCoin, Kraken, OKX, and more.
Once you have your STX, you then need a proper wallet to store them. For cold (hardware) wallet storage, the Ledger device is compatible with the STX token, and for hot ( software) wallets the Hiro and Xverse wallets are available.
While hardware wallets are considered to be the safest option when storing crypto, software wallets are necessary to directly interact with the various dAPPS on the Stacks blockchain.
Always make absolutely sure that you and you alone have access to your wallet’s private key and/or your seed phrase (12/24 words, also called mnemonic password) This is the key to unlocking your wallet. We recommend writing your keys down twice and storing the documents securely or storing the keys in an encrypted, secure password management system.
Stacking, Trading, Collecting, and DeFi
Both Hiro and Xverse wallets can be used to stack your STX to help secure the network and receive Bitcoin rewards as a part of a pool. It is worth noting that for those who own a large amount of STX (in excess of 100k at the time of this writing) you can stack without joining an existing pool.
There are many digital assets in the Stacks ecosystem that you can invest your STX into if so inclined. The Stacks ecosystem currently has 3 NFT marketplaces: Gamma, HeyLayer, and Tradeport. In order to interact with any of these marketplaces one simply has to connect with their aforementioned wallet and sign a message allowing the marketplace permission to interact with your wallet.
In addition to the NFT marketplaces Stacks also has several decentralized exchanges (DEX) and a growing suite of DeFi products hitting the market. Interacting with a DEX on Stacks is the same process as interacting with an NFT marketplace on Stacks, the only difference is the asset being traded.
ALEX , Arkadiko, and Stackswap all offer different tokens and DeFi products for traders. In addition to these exchanges, there are many more in various stages of development
Since its release in 2009 Bitcoin has rightfully achieved the mantle of the most secure, most liquid, and best medium of exchange of any blockchain in existence. Due to Bitcoin’s limitations most of its uses aside from peer to peer transactions have required the use of third party (centralized) applications. Seeing as though centralization is antithetical to the Bitcoin ethos, having layers built upon Bitcoin to enhance its functionality is a sensible proposition.
The vision of the creators of Stacks, its ecosystem, and the builders is to make the Stacks blockchain the premier Bitcoin layer in existence. While Stacks is not the only Bitcoin layer at this time, it is by far the most utilized despite being a young blockchain. Stacks one-of-a-kind consensus mechanism stands alone in the ocean of cryptocurrency offerings.
With the added functionality of sBTC, which solves the Bitcoin write problem, we can expect DeFi on Bitcoin via Stacks to be a massive driver of adoption in the coming years. With the speed upgrades provided by subnets, and the decentralized nature of Stacks it is reasonable to expect that Stacks will continue to grow in users and market cap.
While we watch the growth of Stacks happen in real time, rest assured that the Flagship Stacks outpost will endeavor to keep you up to date with all of the newest applications and news from the Stacks ecosystem. Thanks for reading, Captain Jack signing off.
Disclaimer: Nothing on this site should be construed as a financial investment recommendation. It’s important to understand that investing is a high-risk activity. Investments expose money to potential loss.