Stacks (STX) is a blockchain with smart contracts to scale Bitcoin
Bitcoin was the first blockchain and marked the beginning of a new era of cryptocurrencies that turned the financial industry upside down. However, the functionality of its protocol is limited: unlike newer generation networks such as Ethereum or Tron, Bitcoin does not have smart contracts and does not allow for an offline transaction between two parties without intermediaries. You can only mine, send and receive BTC on the Bitcoin network and nothing more.
However, developers have come up with solutions, including layer 2 solutions on top of Bitcoin, like Lightning Network and Liquid Network, that extend the functions of the underlying network. One such solution is Stacks, which will be discussed in this article.
What is Stacks, and how does it work?
Stacks is a separate network that runs parallel to the main Bitcoin network for open-source smart contracts. Stacks is also referred to as a network of decentralized applications (DApps).
This protocol allows developers to create decentralized Web3 applications and smart contracts that allow Bitcoin to be used for various purposes. In other words, Stacks opens the way for Bitcoin holders to enter the decentralized finance (DeFi) sector.
The protocol was created by the Blockstack team, founded in 2013 by Princeton University scientists Ryan Shih and Manub Ali. Stacks has raised over $93 million, including through ICO, from investors including such well-known funds as Hashkey, Fenbushi Capital, IOSG Ventures and others.
Stacks is not a Layer-2 protocol, unlike Lightning or Liquid Network, but has its own separate blockchain. Instead of the Proof-of-Work (Pow) consensus used in Bitcoin, Stacks uses its own Proof-of-Transfer (PoX) mechanism.
Like Proof-of-Work, mining new blocks on the Stacks network is called mining. However, it differs greatly from the one used in the Bitcoin blockchain. Each Stacks block stores transaction metadata as well as user-identifying information that is used to interact with decentralized applications.
The Stacks blockchain is directly connected to the Bitcoin network, so all changes to wallet balances are also verified in the Bitcoin protocol.
Another feature of Stacks is smart contracts developed using a special Clarity language. The Clarity language makes it possible to use smart contracts in the Bitcoin network. It also avoids many exploits and bugs that can happen with smart contracts. To make this system work, a smart contract creates 3 transactions: one for Bitcoin and two for Stacks.
The recipient address, total amount of BTC coins, and other parameters are sent in the first Stacks transaction. Once it passes, it is followed by a Bitcoin transaction that determines the status of Stacks on the Bitcoin network. Once this transaction is confirmed, an additional transaction will appear in Stacks, confirming the previous Bitcoin transaction. Only then are the parameters of the smart contract executed.
Due to this, many different functions can be implemented using transactions:
- Issue fungible (FT) and non-fungible (NFT) tokens;
- Manage access to blockchains and applications;
- Create business model templates for DApps;
- And even create separate blockchains for specific decentralized applications.
In addition to NFTs and DApps, the Stacks protocol brings another useful feature to the Bitcoin ecosystem — the Blockchain Name System (BNS) or, in other words, the domain name system. In fact, this feature is similar to the Ethereum Name System (ENS), which allows you to replace complex and lengthy addresses with short and digestible domains.
Ecosystem
The Stacks ecosystem already includes more than 50 different decentralized applications: DEX exchanges, NFT marketplaces, SocialFi, DeFi protocols and DAO platforms for decentralized governance.
According to the DeFi Llama service, the number of blockchain assets in the Stacks ecosystem is about $19 million, and the protocol ranks 53rd in the ranking, ahead of Scroll and Injective.
The decentralized exchange ALEX accounts for the bulk of liquidity — $13.4 million. ALEX is a multi-purpose platform: in addition to swaps and liquidity pools for mining, users have access to staking, farming, lending and borrowing in cryptocurrency, launched (IDO), and asset transfer (Bridge) between Ethereum, BNB Smart Chain and Stacks networks.
The number of assets to exchange is small (15 in total, including xUSDT, xUSD and USDA stablecoins), but more pairs will be added as the platform develops. The ALEX protocol is backed by the Stacks Foundation itself and investors, including Whitestar Capital, GBV and Trust Machines.
Another key application of the Stacks ecosystem is the decentralized exchange protocol LNSwap. Using the LNSwap exchange, native BTC can be exchanged for Lightning Network Bitcoin, STX cryptocurrency or XUSD stablecoin. The LNSwap protocol supports Hiro Wallet and xVerse wallets. In addition, the STX cryptocurrency is traded on major exchanges such as Binance, Coinbase, ByBit and Kraken.
Another notable project based on Stacks is the NFT marketplace Gamma. This trading platform stands out because it allows you to list and sell Bitcoin-created NFTs. Bitcoin NFTs are only in their infancy but could become an integral part of the Web3 industry in the future and may even surpass Ethereum-based NFTs in popularity.
Stacks cryptocurrency
STX is the main cryptocurrency of the network, like BTC in the Bitcoin blockchain. This cryptocurrency is used as the main fuel for transactions and interactions with smart contracts.
Stacks holders can participate in Proof-of-Transfer consensus and receive rewards. The process of mining in the Stacks network is called stacking and is somewhat similar to stacking in Proof-of-Stake-based networks. However, the mechanics are very different: each time a block is mined, miners send a portion of BTC to stackers as a reward. The reward is distributed to stackers every 7 days.
To participate in the consensus, you must contribute a minimum of 90,000 STX ($56,700 at the exchange rate at the time of writing) to the stackers. However, if you don't have this amount but want to participate in stacking, you can delegate STX cryptocurrency to stackers through third-party services. Some platforms offer the ability to delegate from as little as 0.1 STX — that's about 6 cents.
STX's capitalization exceeds $900 million, according to CoinGecko, and the cryptocurrency is ranked 52nd overall. The token's price at the time of writing was $0.63.
The STX price reached a historic high of $3.01 in December 2021. But since then, it has fallen until the beginning of 2023, like almost all other cryptocurrencies. The main reason for the decline was the generally negative trend in the crypto market, similar to the "cryptozyme" of 2018.
Conclusion
Stacks significantly expands the capabilities of the Bitcoin protocol and adds smart contract functionality that enables the creation of autonomous decentralized applications and the realization of the full potential of cryptocurrency assets.
Moreover, Stacks is one of the leading solutions in the Bitcoin ecosystem, and the demand for so-called bitcoinized assets such as BRC-20 tokens could grow significantly in the future, creating an additional growth driver for the already leading cryptocurrency.
