Bitcoin was created to be a secure yet decentralized alternative to the traditional fractional banking system. Security was — and continues to be — Bitcoin’s core priority.
But this comes at a cost. Bitcoin can only process a modest seven transactions per second, in addition to having a non-expressive scripting language. The network also does not provide native support for complex smart contracts and decentralized applications (dApps).
However, this doesn’t mean smart contracts and dApps will never be possible on Bitcoin. There are projects out there that aim to overcome these limitations and make a decentralized ecosystem possible on the pioneering blockchain.
Stacks, formerly known as Blockstack, is one such project dedicated to expanding Bitcoin’s functionality.
In this article, you will learn what Stacks is, how it works, and why it is so crucial in enabling support for smart contracts and dApps in the Bitcoin ecosystem.
What is Stacks (STX)?
Stacks is a Layer-2 (L2) protocol that enables developers to create smart contracts and dApps that are secured by the Bitcoin network. Stacks uses a novel consensus mechanism called Proof of Transfer (PoX), which leverages the security and finality of Bitcoin while enabling faster and cheaper transactions on the Stacks chain.
Stacks also introduces a new programming language called Clarity, which is safe, predictable, and easy to use for smart contract development. Clarity allows developers to create logic that can interact with both the Stacks and Bitcoin blockchains, opening up new possibilities for decentralized finance (DeFi), non-fungible tokens (NFTs), social media, and gaming.
Stacks’ native cryptocurrency, STX, is used to pay network fees, participate in governance, and register digital assets. STX has a fixed supply of approximately 1.81 billion coins.
History of Stacks
In 2013, Stacks was founded by Muneeb Ali and Ryan Shea, two computer scientists from Princeton University. Their vision was to create a more secure and decentralized internet, where users own their data and identity and can access applications built on top of Bitcoin.
To achieve this vision, they created Blockstack, a platform that allows developers to build dApps that run on the user’s device and store data in a decentralized storage network. Blockstack also provides users with a universal login system that uses Bitcoin addresses as identifiers.
It was not until 2017 that Blockstack launched STX as its native crypto, originally distributing the token via a $50 million initial coin offering (ICO).
In 2020, Blockstack rebranded to Stacks and launched Stacks 2.0, introducing smart contracts and PoX to the platform. Stacks 2.0 also made history as the first cryptocurrency project to be endorsed by the U.S. Securities and Exchange Commission (SEC), allowing it to distribute its tokens to the public via a Regulation A+ offering, which raised another $23 million.
Stacks 2.0 went live in January 2021 and has since continued to establish itself as a strong proponent of Bitcoin functionality via smart contracts and dApps. According to its website, Stacks has over 400 dApps, 300,000 registered users, 800 community developers, and $1 billion in total value locked on its network.
How Does Stacks Work?
Through its proprietary PoX consensus algorithm, Stacks inherits Bitcoin’s security and finality without modifying its infrastructure.
PoX works by requiring Stacks miners to transfer or burn a certain amount of bitcoin (BTC) to a designated address to create new blocks. The BTC is then distributed to STX holders, who lock their tokens for a period of time in a process known as “stacking.” This creates an economic incentive for both miners and stackers to participate in the network security and consensus.
PoX also enables Stacks to process transactions faster and cheaper than Bitcoin. Although Stacks has the same security and finality as Bitcoin, it operates under its own system of block time and fees. It has a block time of ten minutes, which can be flexibly adjusted depending on network conditions and can scale beyond Bitcoin’s throughput limit via microblocks (smaller blocks produced between regular blocks that can be confirmed faster).
Smart contracts built with Clarity are also interoperable between the Stacks and Bitcoin blockchains. A Clarity smart contract can trigger a payment on Bitcoin based on an event on Stacks, and vice versa. This allows for cross-chain applications that leverage both the functionality of Stacks and the security of Bitcoin.
What dApps are Built on Stacks?
Stacks has enabled the construction of several dApps that are compatible with Bitcoin. These include:
Decentralized Finance (DeFi)
Stacks grants you access to DeFi services like lending, borrowing, trading, and earning interest on BTC. Examples of DeFi solutions built on Stacks are:
- Arkadiko Finance: A decentralized lending platform that allows you to collateralize your STX tokens and mint USDA stablecoins.
- ALEX: A non-custodial banking platform that allows developers to build customized financial applications on Bitcoin.
- Velar: A DeFi liquidity protocol that allows you to trade tokens on Bitcoin and earn rewards by providing liquidity to liquidity pools.
Non-Fungible Tokens (NFTs)
Stacks enables you to create, buy, and sell unique digital assets that are secured by Bitcoin. Examples of NFT platforms built on Stacks include:
- Boom: A social network built for NFT creators and collectors to mint custom NFTs and manage their Stacks assets.
- Superfandom: A social network where you can collect soulbound tokens and other NFTs representing the causes you care about and the creators you support.
Stacks empowers you to own your data and identity on social media platforms that are built on top of Bitcoin. Examples of social media platforms built on Stacks include:
- Ballot: A decentralized polling dApp that allows decentralized autonomous organization (DAO), NFT, DeFi, and Web3 projects to build democratic consensus processes.
- Console: A decentralized alternative to the popular chat platform Discord, Console is designed specifically for the Web3 community.
How to Get Started With Stacks
Getting started with Stacks is easy. Here’s how:
1. Set Up a Compatible Wallet
Create a new wallet or import an existing one that supports Stacks. Here are some wallets that support Stacks:
2. Buy STX
You can also buy STX on Bake, either as an individual asset or as part of the Bitcoin Builders Smart Bundle with DeFiChain (DFI).
3. Start Stacking
Stacking is the process of locking your STX tokens for a certain period of time to support the network’s security and consensus. In return, you will earn rewards in BTC every cycle (approximately two weeks). You can stack your STX tokens via various platforms like OKCoin and Friedger Pool.
4. Explore Stacks’ dApps
Explore the various dApps built on Stacks. You can find a complete list of dApps on the official Stacks website.
Why Should You Invest in Stacks?
As one of the largest smart contract and dApp-focused protocols in the Bitcoin ecosystem with over $18.46 million in total value locked (TVL), Stacks enables the use of smart contracts and the construction of dApps on Bitcoin without sacrificing security.
Below are the key reasons why you should consider adding Stacks to your investment portfolio:
Stacks Expands Bitcoin’s Capabilities and Use Cases.
Stacks enhances Bitcoin’s capabilities, expanding its use cases beyond being a store of value or medium of exchange. By enabling smart contracts and dApps on Bitcoin, Stacks unlocks the potential of Bitcoin as a platform for innovation and value creation.
Stacks Increases Bitcoin’s Adoption and Demand.
By attracting more developers and users to build and use dApps on Bitcoin, Stacks increases the network effect and utility of Bitcoin. Its requirement for miners to transfer BTC to participate in the network also reduces the supply of BTC on the market to create constant buy pressure.
Stacks Aligns With Bitcoin’s Vision and Values.
Unlike other projects that try to compete with or replace Bitcoin, Stacks complements and supports Bitcoin. Built for Bitcoin, Stacks respects its sovereignty and does not attempt to modify or compromise its protocol.
Instead, Stacks leverages the existing features and strengths of Bitcoin and adds new layers of functionality and scalability on top of it.
Stacks is Open Source and Community-Driven.
Stacks values decentralization, transparency, and innovation. It boasts a diverse and global community of developers, entrepreneurs, investors, and enthusiasts who share a common vision to deepen Bitcoin’s potential and capabilities with smart contracts and dApps.
Expand the Functionality of Bitcoin With Stacks
Stacks stands as proof that Bitcoin is much more than just a secure store of value. Through smart contracts and dApps, Stacks demonstrates the growing possibilities and use cases within the Bitcoin ecosystem.
Get started today by buying your first STX via Bake’s Bitcoin Builders Smart Bundle. STX is paired with DeFiChain (DFI) in this bundle, diversifying your investment across two major projects that are responsible for expanding Bitcoin’s functionality.
DISCLAIMER: Please note that the information on this blog and in any articles posted on this blog is for general information only and should not be relied upon as financial advice. Cake Pte. Ltd., Bake, UAB, and its affiliates (the “Cake Group”) are not licensed financial advisers. You may wish to approach your own independent financial advisor before making any decision to buy, sell or hold any product and/or digital assets mentioned in this blog.