How to catch the fast train of BTCrise through "economic tethering"?

Author: Haotian

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

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

2. The POX Consensus Mechanism has hitched a ride on the BTC rise through economic binding.

3. sBTC native BTC cross-chain interaction design, although it lacks Babylon’s encryption skills, is native enough.

Now, let’s analyze the above three points in detail from a technical perspective:

Back in 2017, when BTC was still in the conservative and innovative debate, the conservatives firmly believed that the functionality should be simplified to focus solely on being a reserve asset, while the innovators believed that BTC needed to expand more use cases to support Smart Contract functionality to compete with new chains such as Ethereum.

Obviously, Stacks chose the latter, which was somewhat “alternative” in the current environment at that time. However, years later, various developments around the BTC ecosystem, such as the wave of BTC on-chain asset issuance and BTC layer2 network expansion initiated by Ordinalsprotocol, have confirmed that Stacks’ choice back then was strategically insightful.

So, to some extent, Stacks should be considered the pioneer of this BTC ecosystem expansion frenzy. However, in this BTC FOMO trend mainly driven by ‘Chinese’, Stacks seems to be ‘absent’ 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 dividend for BTC layer2, and its overall market performance is remarkable.

After all, as a ‘pioneer’, and after 7 years of accumulation and market validation, Stacks has explored a complete technical stack, providing a feasible solution example for BTC to explore Smart Contract practices;

2. When it comes to the operational mechanism of the Stacks technical architecture, it gives me a slightly ‘alternative’ overall feeling. Why do I say that? This has to start with its special Consensus Mechanism:

Stacks did not adopt the common POW or POS Consensus Mechanism at that time, but instead adopted a special POX Consensus Mechanism. In simple terms, POX stands for Proof of Transfer.

Miners on the Stacks network need to prove to the BTC Mainnet that they have initiated the transfer of BTC to a specific Address in order to win the “block rights” on the Stacks network and receive $STX rewards. Meanwhile, users (Holders) on the Stacks network who hold and stake STX for a certain period can proportionally receive dividends from the BTC input by these Miners.

It is not difficult to see that the POX Consensus Mechanism tends to have a “two-layer design” as a whole. The BTC network serves as the underlying layer to settle and lock BTC assets, providing security for the network’s “Consensus layer”, while the Stacks network serves as the “execution layer” for landing complex Smart Contract-related applications and network communication collaboration.

This design fully maintains the authority of BTC Mainnet and achieves a strong correlation with BTC Mainnet through ‘economic binding’. How should we understand it?

In addition to the basic operation and maintenance costs of running a Node and the ‘electricity cost’, the main cost for a Miner to participate in block production 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 staking cannot withstand the Fluctuation of the Secondary Market itself. In the Stacks network, users staking $STX can receive BTC rewards.

This creates a ‘benign’ economic internal cycle, where Miners consume BTC to compete for the right to mine blocks, and this portion of BTC is then distributed to Stakers, which encourages more users to actively stake and earn BTC rewards, resulting in a reduction in the circulation of STX and driving impressive prices in the BTC Secondary Market, further incentivizing Miners to consume BTC for Mining.

For Miners, if STX Mining is not profitable, the Mining industry will not take off. For users, the risk of staking STX assets can be mitigated by obtaining real BTC rewards for Hedging.

This special economic incentive mechanism gives it advantages in resisting market fluctuations and the stability of the market ecosystem, especially when the price of BTC 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 ratio of STX rewards will be proportional.

In my opinion, the uniqueness or avant-garde of Stacks’ trap POX Consensus Mechanism lies in its binding to BTC, the most stable asset in the market, providing network security and obtaining network enhancement through BTC. The dilemma of long-term ‘loss’ of stake assets in the original POS network is resolved under the super rise buff of BTC assets.

3. Recently, @andrerserrano, the product manager of Stacks, shared an Overview of the upcoming deployment of sBTC on the Mainnet, revealing the unique nature of sBTC as a native BTC cross-chain interaction asset.

Compared to the commonly used centralized custody assets, the traditional Wrapped version asset packaging method that locks assets in Chain A and mints assets in Chain B, sBTC achieves the native security, cross-chain-free, atomic transaction, and decentralized risk-free characteristics of BTC. How is this specifically achieved?

Stacks uses a multi-signature threshold mechanism to ensure the security of the Stacks network. Therefore, in the BTC Mainnet, there are many ‘signers’ who verify transactions and implement multi-signature operations. When users send BTC assets to the specified BTC multi-signature address and the transaction is confirmed, the signatory deployment party of the Stacks protocol will monitor and verify the transaction, and automatically mint 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. When a sufficient number of Nodes have signed and confirmed, the transaction will be truly verified and confirmed, for example (68/100).

In order to understand the advantages and disadvantages of this multi-signature mechanism more quickly, I tried to use @babylonlabs_io to make a comparison: Babylon is special in that it uses mathematical Encryption Algorithm techniques to ensure that Node does not do evil, because if Node does evil, its private key will be “exposed”, which greatly limits the possibility of evil;

In comparison, the mechanism of Stacks is relatively simple, relying on a large number of trusted light nodes and a high threshold design to reduce the probability of malicious behavior. Once malicious behavior occurs, the Stacks network itself relies on the mechanism of economic bundling to complement it well. The more severe Slash punishment feature will greatly reduce the risk of malicious behavior by nodes.

Of course, this kind of multi-signature security mechanism built on scale and quantity also has a characteristic of being less flexible. For example, if most of the NodeAddress in 100 Nodes are replaced, the original multi-signature Address assets will be forced to migrate. Therefore, Stacks is exploring advanced ‘dynamic member’ management mechanisms such as Multisig2 to expand the flexible features of multi-level verification mechanisms and hierarchical control of permissions. In short, we will continue to explore more sophisticated and secure methods for continuous technical optimization.

Above.

Finally, apart from the technical elements, it has to be said that, in addition to Stacks having the dual Buff of being a ComplianceToken from a US domestic company and the first to obtain SEC Reg+ registration certification, this also adds a lot of imagination space in the macro background of the current ‘encryption government’ under Trump.