Funds start to be “nostalgic”, talking about the absolute old coin Stacks in the BTC ecosystem

Riding on the eye-catching performance of this wave of old coin zone, let me talk about the absolute old coin Stacks in the BTC ecosystem.

1. No intention to compete with the FOMO trend of BTC layer2, but it has long been a “pioneer”;

2. The POX Consensus Mechanism has hitched a ride on the BTC rise ‘fast car’ through economic binding;

3. The sBTC has a native BTCCross-Chain Interaction design, which is ‘native’ enough without the encryption tricks of Babylon.

Now, let’s analyze each point from a technical perspective based on the above three points:

1. As early as 2017, when BTC was still in the battle between conservatives and innovators, conservatives firmly believed that it should simplify its functions and focus only on being a reserve asset, while innovators believed that BTC needed to expand its application scenarios to support Smart Contract functionality and compete with new chains like Ethereum.

Obviously, Stacks chose the latter, which was somewhat ‘unconventional’ at the time. However, years later, the wave of BTC on-chain asset issuance and BTC layer2 network expansion triggered by Ordinalsprotocol, and various extensions and developments around the BTC ecosystem, have confirmed the strategic vision of Stacks’ choice at that time.

So, to some extent, Stacks should be considered the pioneer of this BTC ecosystem expansion frenzy. However, Stacks seems to be ‘absent’ in this BTC FOMO wave mainly driven by ‘Chinese’ and has not participated much in the hype and discussion. Nevertheless, its pure technical orientation and steady development have allowed it to enjoy the market’s expected dividends for BTC layer2, and its overall market performance is impressive.

After all, as a ‘pioneer’, and with 7 years of precipitation and market validation, Stacks has explored a complete set of technology stacks, providing a feasible solution example for BTC to explore Smart Contract practice;

2. Speaking of the operating mechanism of Stacks’ technical architecture, it gives me a slightly unconventional overall impression. Why do I say that? This needs to be explained from its special Consensus Mechanism.

Stacks did not adopt the more common POW or POS Consensus Mechanism at the time, but instead used a special POX Consensus Mechanism, simply put: POX is Proof of Transfer.

Miners on the Stacks network need to prove to the BTC Mainnet that they initiated a transfer of BTC to a specific address before they can win the “block creation right” on the Stacks network and receive $STX rewards. Stacks network users (Holders) who hold and stake STX for a certain period of time can receive a proportionate share of the BTC dividends invested by Miners. It is not difficult to see that the POX Consensus Mechanism is biased towards a “two-layer design”, with the BTC network serving as the underlying layer to secure BTC assets and provide network consensus, while the Stacks network serves as the “execution layer” for complex Smart Contract applications and network communication collaboration.

This design fully maintains the authority of BTCMainnet and achieves a strong correlation with BTCMainnet through “economic binding”. How should we understand this?

In addition to the basic operation and maintenance costs of running the Node network and the ‘electricity bill,’ the main cost for Miners to participate in block generation is the investment of a certain amount of ‘BTC.’ The higher the price of BTC, the higher the cost of Miner Mining, which also determines the more valuable the STX rewards.

Users can stake STX to maintain the security of the network, which is no different from most POS networks in terms of security maintenance. The difference is that the economic gains and losses of most POS networks cannot withstand the Fluctuation of the Secondary Market itself. In contrast, users of the Stacks network can stake $STX to receive BTC rewards.

This brings about a kind of “benign” economic internal circulation, Miners consume $BTC to compete for the right to mine, and this part of the BTC will be distributed to Stakers, making more users willing to stake actively to obtain BTC rewards, thereby causing the reduction of STX circulation and driving the outstanding performance of BTC in the Secondary Market, further motivating Miners to consume BTC for Mining.

For Miners, if STX Mining is not profitable, the Mining industry cannot thrive. For users, the risk of staking STX assets can be hedged by obtaining real BTC rewards.

This special economic incentive mechanism gives it advantages in both the ability to resist market fluctuations and the stability of the market ecology, especially when the BTC price continues to rise. The cost of the entire network and the dividend rewards will increase synchronously, which means that the value of the network itself will also rise. Moreover, it can adjust the mining difficulty based on the secondary market price of BTC, and the cost of miners’ investment in BTC and the proportion of STX rewards will be proportional.

In my opinion, the alternative or forward-looking aspect of Stacks’ trapPOX Consensus Mechanism lies in its connection to BTC, the most stable asset in the market. It relies on BTC to provide network security and obtains network expected enhancement through BTC. The helpless dilemma of stake assets in the long run of the POS network’s common problem of ‘loss’ has been resolved under the super riseBuff of BTC assets.

3. Recently, Stacks’ product manager @andrerserrano shared an Overview of sBTC’s upcoming deployment on the Mainnet, highlighting the unique features of sBTC, which is known as a native BTCCross-Chain Interaction asset.

Compared to the commonly used centralized custody assets, sBTC realizes the native security, cross-chain-free, atomic transactions, and decentralized risk-free features of BTC through the traditional Wrapped version asset packaging method of locking assets in Chain A and Minting assets in Chain B. How does it specifically achieve this?

Stacks uses a multi-signature threshold mechanism to ensure the security of the Stacks network. Therefore, there are a large number of ‘signers’ on the BTC Mainnet to verify transactions and implement multi-signature operations. When users send BTC assets to a designated BTC multi-signature address, after the transaction is confirmed, the deployment party monitor and verify the transaction automatically mint the corresponding sBTC to the user on the Stacks network.

The key point is that Stacks has deployed a large number of independent signature Nodes, such as 100. Only when a sufficient number of Nodes have signed and confirmed the threshold will the transaction be truly verified and confirmed, such as (68/100).

To better understand the advantages and disadvantages of this multi-signature mechanism, I tried to make a comparison using @babylonlabs_io: What sets Babylon apart is the use of mathematical encryption algorithms to ensure that Nodes do not behave maliciously, as their Private Key would be ‘exposed’ if they did so, greatly limiting the possibility of malicious behavior.

In contrast, the mechanism of Stacks is relatively simple, relying on the trust of a large number of light nodes and a higher threshold design to reduce the probability of malicious acts. Once a malicious act occurs, the Stacks network itself relies on the mechanism of economic bundling to complement it well, and the more severe slashing penalty feature will greatly reduce the risk of malicious acts by the nodes.

Of course, this multisig security mechanism based on the scale and quantity will also have the characteristic of being less flexible. For example, if most of the NodeAddresses in the 100 nodes are changed, the original multisignature Address assets will have to be forcibly migrated. Therefore, Stacks is exploring advanced ‘dynamic member’ management mechanisms such as Multisig2 to expand the flexibility of multilayer verification mechanisms and hierarchical control of permissions. In short, we will continue to explore more sophisticated and secure methods for continuous technological optimization.

Above.

Finally, apart from the technical elements, it has to be said that Stacks has the dual buff of being supported by both a US domestic company and the first ComplianceToken registered and certified by SEC Reg+. This adds a lot of room for imagination, especially against the backdrop of the macro environment of the current ‘encryption government’ under Trump.