Ethereum has become one of the dominant players in the cryptocurrency landscape, providing Decentralized Finance options with smart contracts and dApps. Bitcoin, an older player, was built before these ideas were developed and, as such, Ethereum has cornered the market.
The Stacks blockchain platform claims to be able to bring the world of DeFi to the Bitcoin ecosystem. Does Stacks live up to the hype?
What is Stacks?
Stacks is a smart contract and dApp enabled open-source blockchain platform built on the Bitcoin blockchain. It is a Layer 1 blockchain with the ability to handle a large volume of transactions due to its Proof-Of-Transfer consensus mechanism that uses the Bitcoin blockchain to finalize blocks while the computations are done on the Stacks blockchain.
It retains all the security benefits and blockchain technology inherent to Bitcoin while adding the ability to use smart contracts and dApps. This brings the world of DeFi applications into the Bitcoin ecosystem. Transaction speeds are greatly increased as a microblock of transactions on the Stacks network can be represented by a single transaction on the Bitcoin blockchain.
Stacks has a native token STX that is used as a utility token for gas fees (similar to Ethereum) and can be used for mining and a process called Stacking.
Stacks, originally named Blockstack, was developed in 2013 by Ryan Shea and Muneeb Ali. It had a highly successful Initial Coin Offering (ICO) in 2019 that raised $50 million in its ICO of 440 million tokens with investors including the Winklevoss brothers (founders of Gemini) and Blockchain Capital.
Stacks Use Case: Utility Token for dApps
Users who conduct business on the Stacks network can use Decentralized Applications (dApps) and smart contracts. To do so they pay a small fee in the utility token, STX, to the network. This is similar to the gas fee in Ethereum and is used as a mining reward for adding blocks to the Stacks blockchain.
These dApps were not normally possible on the Bitcoin blockchain but Stacks brings dApp capability to the network. This opens up Bitcoin to the world of DeFi and applications that were previously only available on Ethereum or other blockchains.
This has huge potential for the growth of the Stacks network for users who want to use Bitcoin for their decentralized finance for security or ease of use. Although Ethereum remains the most popular platform for dApps, Stack has seen a range of dApps developed on its platform.
Stacks Use Case: DeFi Fees
The Stacks network has several popular applications already running. Stackswap is a decentralized exchange or DEX where users can trade cryptocurrency without the need for an intermediary.
CityCoins is a platform where cities can create their own tokens and citizens can donate their STX to the city with the possibility of winning the native city coins in return. CityCoins is already being used in Miami and New York City.
Moon provides prepaid or virtual Visa cards so users can pay using cryptocurrency for goods and services around the globe anywhere that Visa is accepted. This opens up a huge range of commerce to individuals in the cryptocurrency landscape.
To use any of these dApps or the others hosted on the Stacks network, users pay a small transaction or gas fee in the utility token, STX, or the developer can sponsor the fees. So STX holders can trade cryptocurrencies or invest in their city or trade NFTs while paying a small amount of STX to maintain the network.
Stacks Use Case: STX and Proof-Of-Transfer
Users can “stack” their STX tokens as part of the Proof-Of-Transfer consensus mechanism and earn Bitcoin (BTC) in return.
Proof-Of-Transfer (PoX) is a blockchain consensus mechanism that works on both the Bitcoin blockchain and the Layer 1 Stacks blockchain that is built on top of it. It uses the security of the Proof-Of-Work (PoW) Bitcoin consensus mechanism and its own mechanism to handle a large volume of transactions that is not possible with Proof-Of-Work alone.
It is similar to Proof-Of-Burn consensus mechanisms where miners burn a PoW cryptocurrency to earn the ability to mine a block and receive tokens in return. In PoX instead of burning the cryptocurrency, miners send the tokens to be used as rewards for other users who take part in stacking. In the consensus mechanism there are two roles – stackers and miners.
Mining and Stacking
Miners in the Stacks network commit Bitcoin tokens, BTC, and if chosen (the probability is increased by the amount of BTC they spend) they win a block and the BTC are transferred to stackers. The miners receive STX as a reward when they write the block onto the blockchain.
Stackers lock or stack their STX tokens for a number of cycles (a cycle is around 2100 blocks) as part of maintaining the stability of the network. It essentially works as a vote of support in the consensus mechanism functioning and enables miners to write the block into the Stacks blockchain.
Stackers have to lock up a certain amount of STX tokens to take part, this amount varies each cycle depending on the amount of locked STX in proportion to liquid STX. This is currently at 110,000 STX coins and can be checked on their online stacking portal.
In return the stackers receive the BTC tokens sent from the miners as a reward. Users who do not have the necessary amount of STX tokens to take part in stacking individually can join a stacking pool and combine resources.
The Stacks network is designed to incentivize users who hold STX tokens or BTC tokens and promote usage of the Stacks platform in the form of token rewards. So miners can receive STX tokens for their work and stackers can stack STX to receive BTC tokens as a reward.
Stacks as A Bitcoin Partner
Stacks has seen steady success since its launch and following ICO. With over 300 dApps built on its blockchain, it has brought smart contracts and DeFi to the Bitcoin ecosystem and opened up a range of options for BTC and STX holders.
STX functions as a utility token for the network and as part of its unique Proof-Of-Transfer consensus mechanism. It also allows holders to earn BTC for participating in maintaining the network.
Stacks claims to be “unleashing Bitcoin through Stacks” and has become a complementary blockchain and cryptocurrency to Bitcoin It retains all the benefits of Bitcoin’s security while adding the option to use smart contracts and dApps. While it has few use cases outside of the Stacks network, it provides a range of services to holders on the Stacks and Bitcoin blockchains