Exploring collaboration, technical innovation, and new use cases will shape Stacks and the broader Bitcoin developer ecosystem.

Written by: PAUL VERADITTAKIT

Translated by: DeepTech TechFlow

In the face of new activities and a surge in transactions requiring Bitcoin block space, the fundamental first-layer protocol faces inherent barriers in scalability. Bitcoin's design itself imposes limits on transaction throughput to ensure security through a decentralized consensus mechanism. These limitations become particularly apparent during network congestion, where increased activity leads to delayed confirmations and rising transaction fees. Additionally, the limited scripting capabilities of Bitcoin's first layer restrict the range of feasible applications, exacerbating scalability-related issues. While the limited design space is both necessary and often desirable, it has made building more complex applications on the network difficult or infeasible.

In this context, second-layer solutions have emerged as a concept designed to complement and enhance the functionality of the first layer. As the name suggests, second-layer solutions operate on top of the existing blockchain, alleviating congestion and supporting the development of complex applications without compromising crucial security and decentralization. The significance of second-layer solutions lies in their ability to create new network functionalities, enabling innovation without compromising the fundamental security and economic commitments of the underlying blockchain.

Unveiling Stacks (STX)

Among the various second-layer solutions targeting the Bitcoin network, Stacks (STX) stands out as an innovative platform that redefines the boundaries of scalability and functionality. Operating as a second-layer solution, Stacks seamlessly integrates with the Bitcoin blockchain, opening up new possibilities. At its core, Stacks introduces a pioneering methodology that bridges the Bitcoin base layer with an optimized auxiliary layer for complex applications.

Unlike conventional second-layer solutions that focus solely on off-chain transaction management, Stacks empowers developers to design dynamic smart contracts on its second layer to enhance the functionality of Bitcoin's first layer. This approach fosters mutually beneficial connections between the two layers, ensuring that complex computations and interactions occur on the second layer, while transaction security and finality depend firmly on the Bitcoin base blockchain.

This innovative architecture does not require any changes to the Bitcoin first layer, preserving Bitcoin's robust security while prioritizing scalability, allowing a large number of applications to run seamlessly without burdening the main network. Stacks' unique approach sets it apart, providing a more comprehensive solution that leverages the advantages of both layers to create an efficient decentralized application ecosystem.

Developing Decentralized Applications on Stacks

Developing decentralized applications (DApps) on the Stacks network opens doors to various possibilities, fostering innovation in areas such as finance, digital art, supply chain management, and decentralized finance (DeFi). By seamlessly integrating with the flagship cryptocurrency Bitcoin and leveraging its user base and security features, Stacks creates an environment where diverse types of DApps can thrive. Developing DApps on Stacks offers enhanced scalability, ensuring smooth user experiences even during network peak periods. Stacks' innovative architecture establishes a secure DApp environment, leveraging the security of Bitcoin's base layer. This layered approach enhances trust, enabling developers to confidently design applications capable of securely handling sensitive data and valuable assets. Interoperability with the Bitcoin network is another key advantage, enabling seamless interaction between DApps and Bitcoin's native assets and ecosystem. Therefore, Stacks empowers developers to turn their creative ideas into reality while providing users with a powerful, user-friendly decentralized experience.

Nakamoto Upgrade and Development

The upcoming Nakamoto upgrade marks a significant milestone in the ongoing development of the Stacks network, bringing about transformative enhancements. The Nakamoto upgrade introduces a series of technological advancements that collectively enhance the network's speed and security. Combined with the launch of sBTC, a 1:1 Bitcoin-backed asset, Stacks is poised to achieve full decentralization for writing to Bitcoin, unlocking potential capital worth billions of dollars for the web3. sBTC provides a minimally trusted way to move BTC between the first and second layers; it achieves this through economic incentives rather than relying solely on cryptography. Threshold wallets are not managed by a centralized or pre-determined entity set; users must delegate their BTC, unlike early sidechain approaches. Instead, threshold wallets are maintained by a dynamic, permissionless group entity that allows joining and leaving, following the principles of Bitcoin itself.

Using this mechanism, an asset can be issued on the Bitcoin layer (sBTC on the Stacks layer) that always maintains a 1:1 peg to BTC. Fully expressive smart contracts can be executed on sBTC, triggered by Bitcoin transactions, such as the current Stacks second-layer, and can also broadcast signed transactions on the Bitcoin blockchain without the need for trusted entities. This solves the problem of "trustless Bitcoin writing" and allows smart contracts to operate effectively with BTC as their asset without the risk of converting to other non-pegged currencies. Unlike typical sidechains, Stacks second-layer transactions (and smart contracts) also have other important properties: i) they settle on the secure, persistent Bitcoin blockchain; ii) operations related to the exchange rate are implemented as Bitcoin transactions and cannot be reviewed by the Stacks layer or its miners; and iii) Stacks transactions and exchange rate operations achieve Bitcoin finality—i.e., they are supported by 100% of Bitcoin base layer security/hash power—and iv) Stacks transactions and exchange rate operations seamlessly fork with Bitcoin, so no intervention is required when Bitcoin forks.

Furthermore, the Nakamoto upgrade aims to significantly reduce execution time, from minutes to seconds. This achievement stems from pioneering research and development, enabling Stacks to provide users with an experience similar to Ethereum's second-layer solutions while maintaining a strong connection to the security of the Bitcoin network. The Nakamoto upgrade underscores the Stacks community's steadfast commitment to pushing boundaries on the Bitcoin blockchain, positioning the platform at the center of a new wave of decentralized applications.

Use Cases

1. Decentralized Finance (DeFi) ------------

The Stacks second layer may become a hotspot for decentralized finance applications serving Bitcoin holders. Through Stacks, users can access decentralized lending, borrowing, and trading platforms. DeFi projects on Stacks aim to utilize Bitcoin as collateral to provide financial services. This approach provides Bitcoin holders with the opportunity to earn interest and use DeFi functionalities within the Bitcoin ecosystem. Given the potential $500 billion in Bitcoin capital, this could be a significant opportunity for developers and new use cases.

2. Digital Ownership and Identity --------

Stacks facilitates the creation of digital assets representing physical ownership, such as real estate or intellectual property. Users can establish verifiable digital identities and assert ownership of these assets on the blockchain. This is significant for the tokenization of physical assets and the development of secure, tamper-proof records.

3. Tokenization and NFTs --------

The Stacks ecosystem supports the creation of non-fungible tokens (NFTs) and tokenized assets. Artists, musicians, and content creators can tokenize their works and sell them on Stacks-based markets. This empowers creators to retain ownership and royalties for their digital creations.

4. Voting and Governance -----

Stacks implements decentralized governance and voting mechanisms. Users can participate in decision-making processes, such as protocol upgrades and community plans, by staking STX tokens. This enhances the democratization of blockchain networks and ensures stakeholder participation in the platform's evolution.

5. Cross-Chain Integration ----

Stacks is exploring cross-chain integration, allowing seamless movement of assets and data across different blockchains. This has the potential to bridge Bitcoin with other blockchain networks, expanding the utility of Stacks and Bitcoin.

6. Bitcoin Mining with STX --------------

By locking Bitcoin (BTC) as collateral, miners can simultaneously participate in Bitcoin mining and support the Stacks ecosystem. This innovative Proof of Transfer (PoX) consensus mechanism reconciles incentives for both the Bitcoin and Stacks communities.

Stacks Ecosystem

The Stacks developer ecosystem has witnessed the power of collaborative innovation, with developers coming together to shape the future of finance and technology. Let's take a look at some popular leading projects and tools.

1. Hiro PBC (formerly Blockstack PBC) --------------------------

Hiro PBC built early versions of Stacks and is now a developer tool company for both the Bitcoin first and second layers. They played a crucial role in developing early versions of Stacks and its related technologies and continue to contribute to recent developments. Hiro PBC provides tools and resources for developers and projects building on the Bitcoin first and Stacks second layers, such as the Ordinals API, Chainhook indexer, and subnets. Their work aims to drive developer adoption of the Bitcoin first and second layers.

2. Trust Machines --------------

Trust Machines is maximizing the value of the Bitcoin application ecosystem to unlock the full potential of the Bitcoin network. Trust Machines is building Bitcoin DeFi projects and exploring applications that Bitcoin-backed assets and identities can unlock, such as Console, a Web3 chat application protected by your identity. Trust Machines contributes open-source code for the Bitcoin second layer (such as Stacks) and Bitcoin first layer technologies (such as DLC).

3. Stacks Foundation ----------

The Stacks Foundation supports builders to activate the Bitcoin economy through broader adoption. The Stacks Foundation funds critical open-source technology development, educational work, community development and event resources, developer education resources, and contributes to open-source Stacks development and SIP (Stacks Improvement Proposal) processes.

4. Bitcoin Frontier Fund -------

Investing in excellent teams developing new use cases with Bitcoin tools and layers; recently launched an accelerator program for Ordinals startups.

5. Wallets --

The Leather wallet (formerly known as the Hiro wallet) and the Xverse wallet are essential applications for users to manage their STX tokens, Bitcoin, and Bitcoin-based assets (including stamps and Ordinals), and interact with decentralized applications on the Stacks blockchain. They provide a user-friendly interface for securely storing, sending, and receiving BTC and STX tokens, making individual participation in the ecosystem easy.

6. ALEX ----

A Bitcoin DeFi protocol and decentralized exchange (DEX) that released the first-ever cross-chain bridge between Ethereum and the Stacks layer in the second quarter of 2023, allowing users to transfer assets between blockchains.

7. Gamma -----

A Bitcoin NFT marketplace and creator launch platform that released its own Ordinals marketplace and invited artist program, bringing together 60 inaugural artists from the Bitcoin and traditional art worlds.

8. BNS (Bitcoin Name System) ------------

The oldest Bitcoin name system, launched on the Bitcoin first layer in 2015, with over 300,000 names registered in the .BTC namespace. Leather and Xverse support sending and receiving BTC to unique, human-readable names.

9. Clarity Smart Contracts ------------

Clarity is a smart contract language developed for Stacks, ensuring security and predictability. Developers can use Clarity to build decentralized applications and smart contracts, promoting trust and reliability in the ecosystem. Clarity's design eliminates many common smart contract errors seen on other networks.

10. Stacking Pools, such as Fast Pool: ------------------------

Fast Pool allows users to stack and share STX with less than the protocol's minimum stack, making rewards more accessible to users. The Stacking protocol allows individuals to lock STX and qualify for miner-mined STX rewards sent as BTC. Fast Pool is a self-service pool where the smart contract is the pool operator. Fast Pool sends payments in STX instead of BTC to reduce transaction fees.

11. Bitcoin Frontier Fund -------

The Bitcoin Frontier Fund (formerly Stacks Ventures) launched the first Bitcoin Ordinals accelerator program. The program aims to foster innovation in the Ordinals space, providing seed funding, access to funding channels, and guidance for startups. In return for participation, the Bitcoin Frontier Fund offers a $100,000 investment and a supportive community in exchange for 2-3% common stock equity. Startups that have not received significant prior funding will surrender 3% equity, while those recently funded with over $600,000 will surrender 2% equity. Areas of interest include infrastructure, verified Web 3.0 use cases, developer tools, and accessibility.

12. Bitcoin Second Layer Lab -----------

A core development entity based in Pakistan, playing a crucial role in advancing second-layer solutions for Bitcoin. The organization places a high emphasis on developing Bitcoin infrastructure and positions itself at the forefront of blockchain innovation in Pakistan. The Bitcoin Second Layer Lab actively engages in research, development, and implementation of second-layer scalable solutions, greatly advancing the scalability and functionality of the Bitcoin network. In the rapidly evolving blockchain landscape, their work highlights Pakistan's growing influence in the global blockchain community and its dedication to the continuous development of blockchain technology.

13. DeSpread --------

DeSpread has been dedicated to nurturing a healthy blockchain ecosystem, particularly addressing the unique language and cultural barriers in the Korean market. Over the past four years, the company has grown rapidly, now with a team of 21 blockchain experts, all without external investment. DeSpread specializes in providing growth and market strategy consulting services for blockchain projects, leveraging its extensive market knowledge. Additionally, they actively contribute to the industry by publishing educational materials and research publications, promoting the mutual growth of the blockchain community. DeSpread Lab, their internal development team, plays a crucial role by running validation nodes, driving on-chain activities, and creating web3 community platforms, demonstrating their commitment to blockchain innovation.

HireVibes is a platform focused on transforming the traditional employment market through the integration of blockchain technology and decentralized principles. With its innovative approach, HireVibes aims to create a fairer and more efficient job-seeking experience for both job seekers and employers. By harnessing the power of blockchain, they facilitate transparent and fair recruitment processes, empowering individuals to have better control over their career paths. The platform not only connects talent with exciting opportunities but also promotes values such as sustainability and social impact by allocating a portion of job fees to charitable causes. With a mission to transform the employment market, HireVibes represents a pioneering force at the intersection of blockchain technology and human resources.

15. Sustainable Bitcoin Protocol --------

The Sustainable Bitcoin Protocol is a groundbreaking initiative aimed at addressing one of the most pressing issues in the cryptocurrency world—carbon emissions. Recognizing the environmental impact of Bitcoin mining and transactions, the protocol seeks to offset and reduce the carbon emissions associated with network operations. By implementing sustainable practices and technologies such as renewable energy and carbon offset programs, the initiative strives to make Bitcoin more environmentally friendly and socially responsible. It represents a crucial step in reducing the ecological footprint of the cryptocurrency ecosystem, aligning the growth of digital currencies with global sustainability goals. The Sustainable Bitcoin Protocol demonstrates the growing environmental awareness within the crypto community and serves as a model for making blockchain technology more environmentally sustainable.

Inspiring Innovation and Creativity

The transformative potential of Bitcoin has been reignited by the emerging innovative concept within the Bitcoin ecosystem known as "Ordinals." Ordinals signify a groundbreaking shift in thinking, specifically in how data is linked to the smallest unit of Bitcoin, the satoshi. This innovation assigns a unique digital identity to each satoshi, enabling new applications that leverage their unique properties. One practical application is the creation of non-fungible tokens (NFTs) on the Bitcoin blockchain, associating data with individual satoshis to establish secure and immutable ownership. Beyond art and collectibles, this innovation also has the potential to revolutionize source tracking, supply chain management, and decentralized identity verification. The introduction of Ordinals brings unprecedented granularity to the Bitcoin network, opening up a new realm full of innovation and creativity with the potential to reshape digital assets and decentralized applications, provided that activities are successfully expanded to the second layer as discussed earlier.

Future Outlook and Concluding Thoughts

In conclusion, the development journey of Stacks within the Bitcoin ecosystem is characterized by its creative approach to addressing scalability challenges and fostering the development of new applications. This second-layer solution demonstrates its ability to enhance Bitcoin's scalability while upholding the core principles of security and decentralization. The fusion of Stacks' unique properties, the innovative utilization of Ordinals, and the upcoming Nakamoto upgrade collectively position it as a pioneer in the cryptocurrency space.

As the broader cryptocurrency community recognizes the importance of second-layer solutions in shaping the future of Bitcoin, Stacks is poised to play a key role in the evolving landscape. Collaboration, technological innovation, and exploration of new use cases will shape the Stacks and the broader Bitcoin developer ecosystem. The release of $500 billion in Bitcoin liquidity into DeFi, providing faster and cheaper BTC transaction channels, ongoing DApp development, and the integration of cutting-edge technologies, all showcase the immense potential of the Nakamoto version of the Stacks development process.

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