What are Stacks? An introduction to the popular Bitcoin Layer-2 protocol

Stacks has been making waves since the beginning of the year when Bitcoin Ordinals brought attention to Bitcoin NFTs, which already exist on the Stacks blockchain as layer-2 NFTs, thus creating an increase in demand for STX and growing trading volumes among Stacks-based NFTs. .

In this guide, we look at the Stacks blockchain, how it works, how it differs from other chains, and what types of decentralized applications (DApps) you can find in the Stacks ecosystem.

What are Stacks?

Stacks is a Bitcoin layer-2 blockchain protocol that enhances the functionality of Bitcoin through self-executing smart contracts without the need for a Bitcoin fork.

This means that Stacks can bring new features to Bitcoin, such as decentralized applications and smart contract functionality, without changing any of Bitcoin’s features. It uses Proof-of-Transfer (PoX) consensus mechanism, which we will cover more in this guide.

Before changing to Stacks in 2020, Stacks was known as Blockstack and was co-founded by two Princeton alumni – Muneeb Ali and Ryan Shea – in 2017. Development started after the company secured $50 million via a token offering. The company spent 2018 developing its mainnet, and in 2019, Blockstack had its public sale become the first US Securities and Exchange Commission (SEC) controlled token sale ever.

In the same year, STX was listed by several leading crypto asset exchanges. Today, Stacks has established itself as a popular Layer-2 protocol for Bitcoin, with a small but growing ecosystem of Bitcoin builders looking to create Web3 applications secured by the Bitcoin network.

What is STX?

The Stacks blockchain has its own native digital token, known as Stacks (STX), which powers the Stacks ecosystem.

STX is used to execute Bitcoin smart contracts using the Clarity programming language, process transactions, reward miners on the Stacks network and enable holders to earn BTC via a process known as stacking.

At the time of writing, STX has a total market capitalization of over $1.5 billion and the token’s price hovers around $1.15.

Certificate of transfer explained

Crypto networks use a consensus mechanism to secure the blockchain. Two of the most widely used consensus mechanisms are Proof-of-Work (PoW) and Proof-of-Stake (PoS).

In PoW, miners must solve a mathematical puzzle to validate a transaction, while in PoS, the blockchain relies on stakers to verify crypto transactions. With both mechanisms, miners and stakers earn rewards in exchange for validating transactions.

Proof-of-Burn (PoB) is another rarely used consensus mechanism. In PoB, miners compete to “burn” a PoW token as a replacement for computing resources.

Stack’s consensus mechanism – PoX (Proof of Transfer) – is an extension of PoB. How? The PoX mechanism relies on a PoW digital currency from an already established blockchain (Bitcoin) to secure a new blockchain. However, unlike the Proof-of-Burn mechanism, miners must transfer the pledged digital tokens to selected participants in the network instead of burning the tokens. Also, because all of Stack’s transactions are settled in Bitcoin, users can enjoy Bitcoin’s security.

Miners in the Stacks ecosystem transfer Bitcoin used to provide Stacking rewards paid in BTC to token holders as a reward for helping to secure the network. To achieve this, Stackers must unlock their STX tokens for a specific time period and provide their BTC address to receive the rewards. Stackers get to unlock their STX holdings when the cycles they have committed to end.

The Proof-of-Transfer mechanism has several advantages for blockchains like Stacks.

• Stacks leverage Bitcoin’s security.
• Apps developed on Stacks can easily interact with Bitcoin’s chain state and data.
• No special hardware is required to participate in PoX. Thus, anyone can become a miner. In addition, they also get to reuse the energy that Bitcoin had already used via its Proof-of-Work consensus mechanism.
• Stackers can earn BTC to secure the network.

What is stack stacking and how does it work?

Stacking stacker is a progressive mechanism that rewards STX token holders for participating in Stacks’ Proof-of-Transfer consensus mechanism. STX holders who engage in stacking are known as Stackers.

Every time a new block is mined on the Stacks blockchain, the platform sends the committed BTC by miners to Stackers as a reward for securing the network. All stackers are awarded Bitcoin after approximately every stack cycle. However, stacking cycles are not constant and vary based on various factors.

To participate in Stacking, stackers must have a Stacks wallet with version 4 or higher. In addition, they can also use various applications and services offered by other devices. STX holders also need a minimum amount of STX to participate in stacking directly. The amount is approximately 100,000 STX, which varies based on the total offer and participation.

Any STX holder who is interested in participating and does not have the minimum STX needed can join a stable pool.

What can you find in the Stacks Ecosystem?

Stacks layer-2 protocol has several benefits for developers as it can unlock non-fungible tokens (NFT), decentralized finance (DeFi) and other web3 applications. Let’s take a look at what you can find on Stacks.

NFTs

Non-fungible tokens (NFTs) are unique cryptographic tokens that represent an asset or object. NFTs are built on the Stacks blockchain using the Clarity programming language and then settled and secured with Bitcoin. Users can then send, receive and store their NFTs using a non-custodial Stacks wallet such as Hiro or Xverse.

DeFi

The Bitcoin decentralized finance sector remains a largely untapped market despite the increased use of Bitcoin.

Stacks is built to improve DeFi for Bitcoin as it can leverage Bitcoin’s settlement and security guarantees. The ability to execute smart contracts on Bitcoin is also a functionality made possible through Stack’s blockchain. In addition, all transactions on Stacks are settled on Bitcoin via the PoX consensus mechanism.

Game

Like most blockchains, Stacks users can access various games on the Stacks network. The best part is that users can enjoy different games without revealing any identifying information. Additionally, as a player, you can potentially earn rewards in STX.

Is Stacks (STX) Token a good investment?

Whether STX is a good investment depends on your risk tolerance and investment strategy. If you are comfortable with taking a lot of risk and want to invest in a Bitcoin layer-2 token, STX may be right for you.

However, it is important to note that Stacks has its own blockchain and ecosystem. So if Bitcoin succeeds, it does not necessarily mean that Stacks will also experience similar success.

Before deciding whether or not to invest in Stacks, research STX to ensure you fully understand what you are investing in. Also, all crypto investing carries risk and you should never invest more than you can afford to lose.