作者:一木&Xinwei,MT Capital

TL；DR

Observing the historical trend, STX always lags behind the trend of BTC, and the rise and fall are greater than that of BTC, which is relatively strong compared to other currencies in the BTC ecosystem.

• As the leading project in the BTC ecosystem will usher in the Nakamoto upgrade in Q4, Stacks, a fast block generation every 5 seconds and trustless sBTC, will bring DeFi possibilities to BTC, which is expected to make the Stacks ecosystem further prosperous;
• Among the BTC ecological concept coins, STX has the largest number of listings, and is listed on all mainstream exchanges, including Upbit, and is also the most liquid target, which can be used as an indicator phenomenon to observe the entire BTC ecosystem;
• Stacks uses the Proof of Transfer (PoX) consensus mechanism to implement smart contracts and decentralized applications based on the security of Bitcoin, and mines Bitcoin by locking it and enhances its functions as a layer 2 of Bitcoin, including fast processing of transactions and Bitcoin finality guarantee;
• The Stacks ecosystem currently has a TVL of more than $19 million, more than 120,000 smart contracts deployed, and more than 760,000 wallets.

Introduction

Stacks (STX) is a Bitcoin smart contract layer designed to extend Bitcoin’s capabilities to support smart contracts and decentralized applications.

• Goal: The main goal of Stacks is to introduce smart contract functionality on the Bitcoin blockchain, allowing developers to build decentralized applications (DApps) and smart contracts to expand the use of Bitcoin.
• POX Consensus: Stacks 2.0 adopts POX consensus, and the rewards that participants receive are more stable, underlying chain cryptocurrencies, which are more incentivized for early participants than cryptocurrencies on the new blockchain, which helps attract early participants and have stronger consensus.
• Empower BTC: Increase the vitality of the Bitcoin economy by converting BTC into assets used to build DApps and smart contracts.
• Ecosystem: There are currently 79 projects in stacks, with a TVL of $24.95M.

I. Team Background

Image source: Linkedin

Stacks is a project made up of multiple independent entities and communities that was initially led by Blockstack PBC and later renamed Hiros PBC. According to the latest information from Linkedin, the headquarters of NYC, the team currently has 49 people.

Key Characters and Responsibilities:

Muneeb Ali: Co-founder of Stacks, CEO of Hiro, holds a Ph.D. in computer science from Princeton University, focuses on research and development of distributed applications, speaks at forums such as TEDx, disseminates cryptocurrency, blockchain, and authors numerous academic journals and white papers on related topics. Muneeb is also the CEO of Trust Machine.

Jude Nelson, a research scientist at the Stacks Fund and a former Hiro engineering partner, holds a Ph.D. in computer science from Princeton University, and was a core member of PlanetLab, which won the ACM Test of Time Award for enabling planetary-scale experiments and deployments.

Aaron Blankstein: Engineer, he joined the Blockstack engineering team after completing his PhD in 2017. He studied computer science at Princeton University and the Massachusetts Institute of Technology. His research covers a wide range of topics, with a focus on web application performance, caching algorithms, compilers, and applied cryptography. His research on CONIKS won the Caspar Bowden Award for Privacy-Enhancing Technology in 2017. Emacs has been used for over 10 years.

Mike Freedman, Hiro Technical Advisor, is a professor of distributed systems at Princeton University, where he provides technical direction for the project. He has received the Presidential Early Career (PECASE) Award, Sloan Scholarship. His research has led to several commercial products and the deployment of systems at the multi-million-day user level.

Albert Wenger is a Director at Hiro and the Managing Partner of Union Square Ventures (USV). Prior to joining USV, he served as president of del.icio.us and was an active angel investor who invested in companies such as Etsy and Tumblr. Albert is a graduate of Harvard University with a degree in economics and computer science and holds a Ph.D. in information technology from the Massachusetts Institute of Technology.

J.P. Singh, Hiro Director, Professor and Undergraduate Director at Princeton University, is a recipient of the Presidential Early Career (PECASE) Award and Sloan Fellowship, and co-founded FirstRain Inc., a business analytics firm. He is a graduate of Princeton University and holds a graduate degree in electrical engineering from Stanford University as well as a Ph.D. degree. He is also one of the founders of Trust machine.

In addition to Hiro, there are several separate entities in the Stacks ecosystem. Includes Stacks Fund, Diling Technology, Freehold, New Internet Labs, Secret Key Labs.

Image source: stackschina

Hiro: Focused on providing and maintaining developer tools in the Stacks ecosystem.

Stacks Foundation: Supporting the growth of the Stacks ecosystem through governance, R&D, education, and funding.

Daemon Technologies: Focuses on supporting Stacks mining and staking.

Secret Key Labs: Focus on providing Chinese mobile wallets that can directly participate in Stacking.

Second, capital relations

Stacks raised a total of 5 rounds of funding for a total of $88M.

Source: Rootdata

The specific time points and investors are as follows:

Source: Rootdata

Trust machine：

Trust Machine was founded by two Princeton computer scientists (Muneeb Ali, one of the founders of Stacks, and JP Singh, executive director of Hiro), both of whom are big believers in Bitcoin and believe that the Bitcoin layer could unlock a wide range of new use cases for Bitcoin. Muneeb Ali, one of the founders of Stacks, and JP Singh, executive director of Hiro, co-founded Trust machine.

Trust Machines has three products: Leather (wallet, formerly known as Hiro wallet), Console (social platform), and LNswap.

2022年4月,Breyer Capital, Digital Currency Group, GoldenTree, Hivemind和Union Square Venture宣布对Trust Machine投资**$150 M**[1] 。

In addition, in March 2023, Trust Machine and Gossamer Capital announced a $2.5 million investment in Alex, the largest dex on Stacks.

Image source: The author of this article combs

3. Development history and current situation

History

Source: This article is based on publicly available information

Status quo

Stacks has received its latest v2.1 network upgrade in Q1 2023, which includes updates to enhance stacking capabilities, improve the Clarity programming language, internal blockchain upgrades, enhance reliability, and more. In addition, the Hiro Developer Platform was launched, enabling developers to build and deploy smart contracts on Stacks through a managed experience.

Currently, the community is actively preparing for the Nakamoto upgrade, which is expected to take place in Q4 2023.

The Nakamoto upgrade introduces a series of technological advancements, which, combined with the introduction of sBTC, a 1:1 Bitcoin-backed asset, will soon enable Stacks to be written to Bitcoin in a fully decentralized manner. sBTC is a trust-minimized way to move Bitcoin between L1 and L2. In addition, unlike earlier sidechain approaches, threshold wallets are managed by a set of permissionless, dynamically changing entities that are financially motivated to maintain the peg, and they can join or exit peg maintenance at will. With this mechanism, an asset can be issued at the Bitcoin layer, which is always pegged 1:1 to Bitcoin. In addition, the Nakamoto upgrade will dramatically reduce execution time from minutes to seconds.

The community has previously opened the trial application for sBTC for developers, and actively organized community members to learn the key points and use cases of this upgrade.

4. Consensus mechanism: POX

The earliest consensus mechanism of Stacks is proof-of-burn (POB), which was proposed by Jude Nelson and Aaron Blankstein at the end of 2018.

POB allows Stacks miners to compete by burning cryptocurrency instead of consuming electricity. Compared to regular proof-of-work blockchains, proof-of-burn chains do not require specialized hardware for miners to participate and provide greater transparency to network participants. However, POW, Proof of Burn is also destructive, requiring miners to burn value in exchange for the security of the blockchain.

Unlike PoS, PoB requires users to permanently burn their tokens in exchange for mining rights. Users “burn” by sending tokens to an address that cannot be retrieved.

Mining rights are distributed according to a randomly selected process, and there is no absolute guarantee that users will be selected to mine even if they have burned their tokens.

This process may result in a reduced token supply for holders of the original token, but it does create a competitive opportunity with miners.

Since the BTC burned by POB is equivalent to a permanent burn, in order to better balance the interests between miners and token holders, while reducing the impact on the Bitcoin network, Stacks transitioned from a PoB consensus mechanism to PoX.

POX（Proof of Transfer）

POX (Proof of Transfer) is an extension of the Proof of Burn mechanism. PoX uses a proof-of-work cryptocurrency for established blockchains to secure new blockchains. Unlike POB, though, instead of burning cryptocurrency, miners transfer the promised cryptocurrency to other participants in the network.

Key Features and Benefits of PoX

Underlying chain token-based rewards: Participants are rewarded with more stable, underlying blockchain cryptocurrencies, which are more incentivized for early participants than cryptocurrencies on new blockchains, which helps attract early participants and have stronger consensus.

1. Initial value setting: It is thought to be pegged to the underlying chain cryptocurrency, so the new token has an initial value that can be referenced.
2. Solving the Dependent Value Spiral Problem: PoX helps solve the dependent value spiral problem that may arise on new blockchains by providing participants with underlying chain cryptocurrency incentives.

Establish a developer fund: PoX can also be used to establish a developer fund to support the development of a new blockchain ecosystem. These funds can use another cryptocurrency, such as Bitcoin, so that the value of the new cryptocurrency will not be affected.

POX Design

Participator

• Miners: Miners. Stake BTC in the bidding form to get the mining right of the next block→ Mining → Get the STX tokens generated by mining + high platform transaction fees;
• Stackers: Users who lock up a certain number of STX for a certain period of time. Set up a self-built pool → stake STX in different periods→ or join other pools to provide an address to receive rewards→ Obtain miners’ BTC based on the amount of staked STX;

Miner Mining Mechanism Image Source: Stacks whitepaper

Contributor (Network Maintainer) Incentives Image source: Stacks whitepaper

Reward Period: During each reward cycle, miners transfer funds to the address where the reward was received. Each reward address receives only one bitcoin from miners during the reward period

Eligibility:

• The Stacks wallet has no less than 0.02% of the total unlocked STX tokens, and this threshold will be adjusted according to the level of participation in the Stacking protocol;
• Broadcast a signed message before the start of the reward period, which includes the protocol to lock the corresponding STX tokens, specify the lock-up period, specify the Bitcoin address to receive the funds, and vote for a block on the Stacks chain.
• Address validity: Participants need to be able to verify the address where the funds are being received, as the reward address needs to be confirmed as valid for each reward period.
• Preparation Phase and Reward Consensus: Prior to the reward cycle, participants go through a preparation phase in which two key things are decided: *1) Anchor Block: During the reward period, there is a anchor block that miners need to transfer their funds to the appropriate reward address. This anchor block is valid for the entire reward period. *2) Reward Collection: A reward collection is a collection of Bitcoin addresses that will receive funds during the reward cycle. This set is determined by anchoring the block’s Stacks chain state.
• Reward Address Selection Rules: Different rules apply to the selection of reward addresses, depending on whether the blockchain prompt built by the miner is a descendant of the anchored block. If a miner builds a blockchain prompt that is not a descendant of the anchor block, then all of that miner’s committed funds must be burned. If a miner builds a blockchain prompt that is a descendant of a peg block, then that miner must send the committed funds to both addresses in the reward set.

5. Technical Architecture

• L1 or L2?

Stacks is described as a smart contract layer built on top of Bitcoin.

The initial version (released in 2021) of Stacks has a separate security budget from Bitcoin L1 and is considered a separate layer (L1.5)

Future Nakamoto versions are planned to rely entirely on Bitcoin’s hash power, making it a fully collateral layer (L2) of Bitcoin, which means that Stacks will be determined by the security of Bitcoin to determine the irreversibility of its transactions.

Sidechain?**

Stacks is somewhat interoperable with Bitcoin, but it doesn’t fit the definition of a traditional sidechain. Stacks’ consensus mechanism runs on Bitcoin L1 and is closely related to Bitcoin’s finality, and the data and transactions on Stacks are automatically hashed and permanently stored on Bitcoin’s blockchain. This is different from traditional sidechains, where consensus runs on the sidechain and does not depend on Bitcoin L1 and does not store data on Bitcoin L1. So, Stacks doesn’t fit the definition of a traditional sidechain.

Smart Contract Language - Clarity

Clarity is a decision-making smart contract programming language designed for the Stacks blockchain with the following features:

1. Security First: Clarity is designed with a focus on security and predictability to protect against common vulnerabilities and attacks in Solidity contracts. It is specifically designed for security and is designed to avoid common problems in the field of smart contracts.

2. Explanatory: Clarity’s code is interpretive, meaning that it is executed line by line when it is submitted to the chain, unlike other languages (such as Solidity) that need to be compiled to bytecode first. This reduces the vulnerabilities that can be introduced by the compiler and keeps the smart contract readable, as the code for the Clarity contract is the code that is executed, without the compiled bytecode.

3. Decidability: Clarity is a decidable language, which means that from the code itself, you know exactly what the program will do. This avoids problems such as “downtime issues”. Clarity ensures that no “running out of gas” is made during the call, as it guarantees that the program execution will end in a limited number of steps.

4. Prohibit recursive calls: Clarity’s design prohibits recursive calls, which is a situation that can lead to a contract loophole, where one contract calls another contract and then calls back the original contract, which can trigger multiple fetch operations.

5. Prevent overflow and underflow: Clarity prevents numerical computation overflow and underflow, which is a common type of vulnerability that can lead to anomalous behavior in smart contracts.

6. Built-in support for custom tokens: Clarity has built-in support for creating custom fungible and non-fungible tokens, which is one of the popular use cases for smart contracts. Developers don’t need to worry about internal asset management, supply management, or the launch of token events, as these features are already integrated into the Clarity language.

7. Transaction protection based on postconditions: Clarity supports attaching postconditions to transactions to ensure that the state of the chain changes as expected after the transaction is completed. If the postcondition check fails, the transaction will be reversed.

8. Force Return Response Handling: Public calls to the Clarity contract must return a response indicating success or failure. This helps to ensure that mistakes don’t go unnoticed, increasing the security of the contract.

9. Combination is better than inheritance: Clarity adopts the principle that combination is better than inheritance, rather than inheriting other contracts as in languages like Solidity. Developers can define features that can then be implemented by different smart contracts, which provides more flexibility.

10. Access to the Bitcoin base chain: The Clarity smart contract can read the state of the Bitcoin base chain, which means you can use Bitcoin transactions as triggers in the smart contract. Clarity also provides a number of built-in functions to verify the secp256k1 signing and recovery key.

Gaia Storage System

Gaia is a unique decentralized storage system in the Stacks blockchain that emphasizes user ownership and control over data. Unlike some other immutable storage solutions on blockchains, such as IPFS and Arweave, Gaia focuses on user control over data rather than emphasizing immutability.

The Gaia storage system consists of Hub services and storage resources on a cloud software provider. The storage provider can be any commercial provider such as Azure, DigitalOcean, Amazon EC2, etc. Gaia currently supports S3, Azure Blob Storage, Google Cloud Platform, and local disks, but the driver model allows for additional backends.

Gaia stores data as a simple key-value store. Whenever an identity is created, the corresponding data store is associated with that identity on Gaia. When a user logs in to a decentralized application (dApp), the authentication process will provide the application with the URL of the Gaia hub, which will then perform storage operations on behalf of that user. There is a “pointer” in Gaia that is stored on the Blockstack chain and the Atlas subsystem. When a user logs in to an application or service using the Blockstack authentication protocol, this storage location information is passed to the application, which then interacts with the Gaia data in the specified location, i.e., the cloud storage provider cannot see the user data directly, only the encrypted chunks.

The Stacks blockchain only stores identity data, while the data created by the operations of identities is stored in the Gaia storage system. Each user has profile data, and when a user interacts with a decentralized dApp, the app stores the app data in Gaia on behalf of the user. Because Gaia stores user and application data outside of the blockchain, Stacks dApps typically have higher performance than dApps on other blockchains.

Image source: Stacks White Paper

Here are some of the key features about Gaia:

1. User Ownership and Control: Gaia is designed with a focus on user ownership and control over their data. This means that users can decide where their data is stored and have the ability to modify or delete their data, unlike some other immutable blockchain storage solutions.

2. Connection to Stacks Identity: Gaia connects access to data with the user’s identity on the Stacks blockchain. This connectivity enables users to better manage and access their data while being associated with their digital identity.

3. High performance and high availability: Storing user application data outside the blockchain can provide higher performance and availability, because the read and write of data will not be limited by the performance of the blockchain.

VI. Important Upgrades

Stacks Nakamoto升级

• The Nakamoto upgrade introduces a series of technological advancements, which, combined with the introduction of sBTC, a 1:1 Bitcoin-backed asset, will soon enable Stacks to write to Bitcoin in a fully decentralized manner. sBTC is a trust-minimized way to move Bitcoin between L1 and L2. In addition, unlike earlier sidechain approaches, threshold wallets are managed by a set of permissionless, dynamically changing entities that are financially motivated to maintain the peg, and they can join or exit peg maintenance at will. With this mechanism, an asset can be issued at the Bitcoin layer, which is always pegged 1:1 to Bitcoin. In addition, the Nakamoto upgrade will dramatically reduce execution time from minutes to seconds.
• sBTC: Provides a trustless decentralized two-way anchor that brings BTC liquidity into smart contracts
• Bitcoin finality: Stacks blockchain transactions are considered irreversible once they are confirmed under a PoX (Proof of Transfer) block
• Faster Blocks: The Stacks blockchain achieves faster block confirmation times, with a confirmation time of 5 seconds per block
• Upgrade points

7. Token Economy

The total supply of STX tokens is capped at 1.818 billion, and the current circulating supply is around 1.42 billion.

Stacks’ genesis block contains 1.32 billion STX tokens. These STX tokens were distributed several times in 2017 and 2019. The price of the 2017 issue was $0.12 per STX, the 2019 issue was $0.25 per STX, and the 2019 SEC-compliant issue price was $0.30 per STX.

The mining rewards are distributed as follows: 1000STX per block for the first 4 years, 500STX per block for the next 4 years, 250STX per block for the next 4 years, and 125STX per block permanently after that. The STX assigned to the founders and employees follows a 3-year unlocking schedule.

In October 2020, Stacks changed the minting and burning mechanism of STX tokens. Instead of implementing STX minting and burning, Stacks has reduced the amount of tokens issued. By 2050, the total supply will reach about 1.818 billion.

8. Ecological situation

TVL situation

Wallet number trend

Trend in the number of smart contracts

Ecological Atlas

Wallet

Xverse

Xverse is a crypto wallet built on Stacks that supports the Ordinals protocol. The wallet allows users to manage both Bitcoin assets (including BTC and Bitcoin NFTs) and Stacks-based assets. At the same time, the wallet also has a built-in stack function, which allows users to earn Bitcoin rewards through stack STX.

The wallet’s UI is simple, and the wallet creation process is similar to that of many EVM-compatible wallets, with the same mnemonic phrase used to back up and restore the wallet. For EVM wallet users who are accustomed to MetaFox, this undoubtedly lowers the threshold for using the wallet. Once the wallet is created, two addresses will be generated at the same time, one is a Bitcoin address, which is used to receive and send Bitcoin assets. The other is the Stacks network address, which is used to manage Stacks-based assets.

Leather

The predecessor of Leather was Hiro Wallet. Hiro is a development tools company that empowers developers on the Stacks blockchain. Hiro Wallet is one of the company’s products. Leather is a wallet app built on Bitcoin that already supports Ordinals and will soon support the Lightning Network. Leather has a number of convenient built-in features, allowing users to buy STX directly from within Leather with a credit card, debit card, or even bank transfer, and then participate in staking directly from within their wallet.

Currently, the wallet supports browser extensions for Chrome, Firefox, and Brave, as well as desktop versions for MacOS, Windows, and Linux.

The browser extension allows you to connect to apps, buy STX, mint and NFTs, and use your Ledger hard wallet. The desktop version allows you to participate in staking, earn Bitcoin, and secure your assets using a Ledger hard wallet.

DeFi

ALEX

ALEX is a DeFi protocol built on the Bitcoin network through Stacks smart contracts, which borrowed from the design of Balancer V2 in its development. The current mainnet version of the platform features Swap, lending, staking, yield mining, and Launchpad. In addition, at the moment of the BRC20 fire, ALEX also launched the BRC20 order book exchange.

Arkadiko

Arkadiko is an open-source, non-custodial liquidity protocol built on Stacks smart contracts where users can stake assets to mint stablecoin USDA, earn interest on deposits, and borrow assets on Stacks. Arkadiko’s governance token is DIKO, which can be obtained by staking assets to add liquidity to the pool.

LNSwap

LNSwap is an atomic swap protocol that embodies the foundation of Bitcoin and the security, decentralization, and stability it provides.

Lnswap is made up of three parties: users, liquidity providers, and aggregators.

Users are those who want to exchange assets. Their funds are locked in a very basic Hash Timelock Contract (HTLC) only for the duration of the exchange, and through the use of smart contracts, direct transactions between the two parties can be made without the involvement of a third party.

Liquidity providers are those who use their owned assets to fund the LNSwap protocol to facilitate swaps on our exchange. In return for providing assets, liquidity providers will be rewarded with fees generated by swaps that occur on the platform.

An aggregator essentially collects the data and information exchanged that takes place on the protocol and consolidates them for easy reference and access. Currently, LNSwap’s aggregator is a router that is used to forward the exchange of information between users and liquidity providers. But in the future, the aggregator will actually be an on-chain contract, which effectively means that anyone can become an aggregator for the platform with a simple frontend. In addition, liquidity providers will be able to register to multiple aggregators.

NFT

Gamma

Gamma, an NFT marketplace on Stacks, was formerly known as STXNFT and announced its name change to Gamma on April 27, 2022. Gamma is the third letter of the Greek alphabet that denotes the third phase of the web: Web 1.0, Web 2.0, and now Web3.

The platform aims to bring collectors, creators, and investors together to explore, trade, and showcase NFTs in the Bitcoin ecosystem. The Gamma platform consists of three core products: an NFT marketplace, a launchpad, and a social platform. Gamma.io supports both the primary and secondary markets for Bitcoin NFTs.

Users can use the Gamma bot to mint their own unique digital creations, collect them, or sell them. Users can create a Bitcoin NFT in minutes using a code-free Bitcoin NFT creation tool. Gamma.io solves the pain point of creating NFTs on the Bitcoin network that is technically high, complex, and time-consuming. However, the secondary market still accounts for the majority of platform sales. Each sale includes the artist’s royalties as well as a marketplace commission, with percentages varying by artist and collection.

Boom

Boom is Stacks’ native NFT platform that supports Stacks ecological token transfers, and will support Stacks NFT trading in the future.

IX. Competitors

Unlike the Lightning Network, which focuses on improving the scalability of Bitcoin, Stacks focuses on introducing new smart contract features. Unlike RSK, Stacks has its own miners and mining process, rather than relying on Bitcoin miners. Unlike Liquid, Stacks is an open, decentralized network that doesn’t just focus on financial applications. Unlike Rollups, Stacks is a solution built on top of Bitcoin, not a new network outside of Bitcoin.

Why is the ecology of BTC suddenly discovered by value this year?

There are two important technical updates that need to be mentioned here:

The first is the Segregated Witness upgrade in 2017, which is equivalent to expanding the block data of BTC from 1MB to 4MB, but the part of this extension can only be used to store signatures. Until the Taproot upgrade at the end of 2021, advanced scripts could be written in Segregated Witness for the first time, and complex data could be written on BTC. Since then, BTC has made great progress in programmability and scalability, some protocols with complex logic have begun to appear, and the BTC ecosystem has finally begun the next phase of milestones, which is the main opportunity for the BTC ecosystem to explode in 2023.

Ordinals & BRC20

The emergence of the Oridnals protocol has completely ignited the BTC ecosystem, and its rapid development has also been mutually reinforcing with the adoption of Taproot. People can encode the data of the NFT and write it into the extended space of Segregated Witness (4MB per block).

Soon, a new developer improved Ordinals and wrote the full functionality of the token into the BTC output script in imitation of ERC20, and BRC20 was born.

Atomicals & ARC20

Atomicals is another derivative protocol that implements tokens by inscribed data on UTXOs.

Unlike Oridnals, which was originally designed for NFTs, it rethinks how to issue tokens on BTC from the ground up.

When verifying an Atomicals transaction, you only need to query the UTXO of the corresponding sat on the BTC chain. The atomicity of ARC20 Token is consistent with that of BTC itself, and the calculation of ARC20 transfers is handled entirely by the BTC underlying network.

Atomicals’ UTXO-bound design cleverly circumvents the complexities faced by BRC20, making it more decentralized, more BTC-native, and most importantly, more in line with the culture of the BTC community.

Rune & Pipe

In response to the general trend of hype, Casey also proposed an inscription implementation method specifically for the issuance of FT, namely Rune.

Rune’s idea was just an idea, #Trac的创始人基于此编写了第一个可用协议, and the release of $PIPE. Due to Casey’s high popularity, $PIPE took on the hype enthusiasm that BRC20 continued and quickly completed the first wave of hype.

Rune is more legitimate than BRC20, but it is still difficult to be accepted by the BTC community.

Lightning Network

The Lightning Network is the king of legitimacy in the BTC community. Since 2016, more than half of the developers in the BTC ecosystem have been engaged in the development of the Lightning Network for a long time.

The foundation of the Lightning Network is the payment channel, which was first proposed by Satoshi Nakamoto, where the two parties to the transaction lock BTC through multi-signature, and both parties maintain a ledger off-chain to record transactions.

The payment channels connected by pairs form a network, and two parties that are not directly connected can also jump to the channel to realize transactions. The Lightning Network does extend the performance of BTC transfers to give users a better experience.

The final BTC settlement can only be carried out on the BTC mainnet, and all coins are still stored by the public and private key system.

Taproot Assets (Taro)

Unlike BRC20, Taproot Assets only writes the token’s information in the UTXO output script of the BTC mainnet, and does not store the token’s transfer, mint and other functional codes.

Taproot Assets only treats the BTC mainnet as a registry for tokens, and does not rely entirely on the BTC mainnet to operate, so these assets must be deposited into the Lightning Network before they can be traded.

Therefore, the tokens of Taproot Assets must rely on the third-party storage indexer, and these tokens will be lost forever without the storage indexer.

RGB

RGB is a smart contract system based on BTC and the Lightning Network, which is the ultimate way to scale, but it has also been slow to progress due to its complexity.

RGB converts the state of a smart contract into a short proof that is engraved into the output script of the BTC UTXO.

Users can check the state of the smart contract by verifying this UTXO. When the smart contract state is updated, a new UTXO is created to store the proof of the state change.

RGB can be thought of as the L2 of BTC, and the benefit of this design is that it uses the security of BTC to guarantee smart contracts, but as the number of smart contracts increases, the demand for UTXO encapsulated data will also increase, which will inevitably cause a lot of redundancy to the BTC blockchain in the end.

RSK & RIF

RSK can be seen as the L2 of BTC, which is essentially a smart contract chain with an EVM structure.

RSK simply cross-chains the mainnet BTC to its own face via a hash lock to use it as network gas.

At the same time, RSK uses the same POW consensus algorithm as BTC, so BTC miners can also mine in RSK at the same time and earn transaction fees $RBTC

BitVM

BitVM is currently the most BTC-native, the most protective, and the most technically hardcore smart contract scaling solution.

On the premise that there is no need to modify the BTC network, a VM virtual machine that supports computation is run through the Optimistic Rollup to implement the BTC smart contract. The BTC network is used to run fraud proofs for Optimistic Rollups.

Using the most basic hash lock and BTC script to operate OP_BOOLAND and OP_NOT, a simple logic gate is implemented. By combining the logic gates of BTC, a computable circuit is formed, through which the fraud proof is processed on the BTC chain.

10. Innovation and Risk

Innovation

• S (Secured by the entire hash power of Bitcoin): The security of the Stacks smart contract layer is backed by Bitcoin’s entire hash power, which means it is protected by the highly secure and decentralized nature of the Bitcoin network.
• T（Trust-minimized Bitcoin peg mechanism; write to Bitcoin): Stacks employs a least-trust Bitcoin pinning mechanism that writes information to the Bitcoin blockchain. This ensures interoperability between Bitcoin and Stacks while minimizing the need for trust.
• A (Atomic BTC swaps and assets owned by BTC addresses): Stacks allows for atomic Bitcoin (BTC) swaps while ensuring that the assets in the smart contract belong to Bitcoin addresses. This means that assets can be securely transferred from the Bitcoin network to the Stacks blockchain and vice versa.
• C (Clarity language for safe, decidable smart contracts): Stacks uses the Clarity programming language, which is a language designed for writing secure, decidable smart contracts. The Clarity language is characterized by its ability to reduce errors and uncertainties in smart contracts.
• K（Knowledge of full Bitcoin state; read from Bitcoin): The Stacks smart contract layer has knowledge of the complete state of Bitcoin and can read information from the Bitcoin blockchain. This allows the Stacks smart contract to stay in touch with the Bitcoin network to understand and verify data on the Bitcoin chain.
• S (Scalable, fast transactions that settle on Bitcoin): The Stacks smart contract layer supports scalable, fast transactions that are settled on Bitcoin. Despite its fast transaction speeds, Stacks benefits from the finality and security of Bitcoin.

Risk

• Security: Although the security of BTC is unquestionable as Stacks transactions are processed in batches and hashed on the BTC mainnet, like other blockchains, the Stacks network itself may face security threats such as security breaches and hacks, and some people have questioned the decentralization of the Stacks network. These situations can lead to financial losses and compromise the security of the network.
• Complexity: While Stacks provides developers with an ever-evolving infrastructure, the Clarity language holds back a lot of good developers, and this complexity can lead to potential bugs and inefficiencies.
• Interoperability: Although Stacks and BTC are tightly bound, Stacks and other BTC ecosystem projects still cannot interoperate efficiently. The ability of blockchain networks to work together seamlessly is critical to the adoption and efficiency of the technology. Lack of interoperability can lead to inefficiencies and hinder innovation.

11. Liquidity in the secondary market

The K line is STX/USDT and the orange line is BTC/USDT, which shows that regardless of ups and downs, STX’s performance always lags behind BTC, and it rises and falls with BTC.

As can be seen from STX/BTC, STX is equivalent to leveraged BTC.

To sum up, STX always lags behind the BTC trend, and the rise and fall are greater than BTC.

Orange is REN, yellow is BADGER, cyan is RIF, and purple is ORDI

It can be seen that the currencies of the BTC ecosystem are strongly correlated with BTC, often rising and falling at the same time, STX is relatively resistant to falling, and ORDI is more flexible because it is a new currency.

Summary

Stacks is a layer-2 solution built on top of Bitcoin that addresses scalability challenges with an innovative approach and drives the development of new applications. It enhances Bitcoin’s functionality by introducing smart contracts and decentralized applications (DApps) while leveraging Bitcoin’s security and consensus mechanisms. The platform offers a trustless two-way Bitcoin anchoring mechanism and employs Clarity, a smart contract language designed for security and transparency. Stacks provides Bitcoin with a programmable asset layer that unlocks its potential across multiple use cases.

Key developments like the upcoming Nakamoto upgrade position Stacks as a pioneer in the cryptocurrency space. As the broader crypto community recognizes the importance of layer-2 solutions to Bitcoin’s future, Stacks is poised to play a key role in the growing industry. Collaboration, technological innovation, and the exploration of new use cases are shaping the Stacks ecosystem, with the goal of unlocking $600 billion in Bitcoin liquidity into decentralized finance (DeFi), providing cheaper and faster ways to transact Bitcoin, continuing to develop DApps, and integrating cutting-edge technologies. This demonstrates the great potential of the Nakamoto version of Stacks in the development process.