The exploration of Stacks' L2 in simple terms

Nakamoto’s upgrade allows Stacks to evolve towards BTC L2 direction.

Author: Blue Fox Notes

During this bear market cycle, the cryptocurrency field has experienced a rise in the BTC ecosystem. Although some staunch supporters of BTC as a store of value may not appreciate any ecosystem around BTC, exploration of the BTC ecosystem has always been underway. There are several driving factors aside from the important factor of speculation. Firstly, there is a desire to unlock the income opportunities of BTC assets. Secondly, there is a need to address the issue of future mining subsidies for BTC, which is also the core issue for the future of BTC and involves ensuring the sustainability of the entire network. Without the rise of the BTC ecosystem, BTC would face challenges in addressing this issue in the future.

In the exploration of BTC L2, which also includes the exploration of Stacks, it is one of the earliest projects to enter this field. It tries to allow DeFi and other ecosystems to have the opportunity to occur in the BTC ecosystem through its L2. So, how do we understand the evolution of Stacks technically? Here, Stacks is divided into the era of sidechains and the era of L2. Although this division is not too rigorous and there are different dimensions, the main purpose here is to make it easier for everyone to focus on and understand some of the most important stages in the development history of Stacks.

Era of Sidechains

The BTC sidechain concept was proposed by Blockstream and later developed into the Liquid Network; meanwhile, the Rootstock network was also launched during that period. In 2018, Stacks also launched its mainnet and introduced the Clarity contract development oracle in 2019. In addition, it applied to the SEC for compliant token issuance, which was a rare practice at the time. Its significance lies in winning more exploration time for itself under compliant regulatory policies. Stacks has persisted throughout this long period of alternating bull and bear markets.

The initial technical mechanism of Stacks is similar to BTC’s sidechain. However, it is not completely the same as other sidechains. It has a unique mechanism to achieve its security and has its own characteristics. Simply put, Stacks uses an anchoring transaction mechanism to integrate with BTC, and the anchoring transaction includes block header information from the Stacks chain, which needs to be broadcasted to the BTC network. Therefore, although it is a sidechain, it is different from the concept of ordinary sidechains.

Stacks has a PoX mechanism, which is similar to a PoS staking system. PoX stands for Proof of Transfer, which means transfer proof. It has two types of participants: miners and signature verifiers. Miners need to participate in BTC chain transactions to qualify for participation (the opportunity to write new blocks into the Stacks chain, which is the opportunity for mining), which is its unique feature. Miners on Stacks who want to earn income need to have the opportunity to write new blocks into the Stacks chain. To obtain this opportunity, Stacks miners need to participate in the election of each round’s leader, and the way to participate is to send transactions on the BTC chain, and then use VRF (Verifiable Random Function) to randomly select a leader from these participants for each round, in order to obtain the opportunity to write new blocks into the Stacks chain.

Each BTC block will have a corresponding Stacks miner who obtains the production rights of all Stacks blocks in that block period. When a Stack miner adds transactions to Stacks blocks, Stacks signers validate the signatures. If more than 70% of the signers validate as valid and reach consensus, the new block can be added to the Stacks chain.

Stacks has a ‘chain anchoring’ mechanism for interacting with the BTC L1 layer. This mechanism binds the information on the Stacks chain to the BTC L1. Each Stacks block contains a hash value pointing to the previous Stacks block and a hash value pointing to the previous BTC block. Through this mechanism, the Stacks chain attempts to enable verification of all state changes that occur on its network on the BTC L1 network.

In summary, in this process, Stacks miners need to spend BTC in order to have the opportunity to become block leaders (and earn profits). To increase their chances, Stacks miners will spend more BTC based on the cost-effectiveness. Once a Stacks miner obtains the leader position, they have the right to create new blocks and add block transactions to the Stacks chain. After completing the work, the miner can receive STX token incentives. The source of STX incentive tokens includes new STX token rewards for block addition and transaction fees from Stacks chain users.

In addition to Stacks miners who have the opportunity to write new blocks through PoX, there are also Stackers signers who participate in verification, which is another important participant in the PoX mechanism. STX (Stacks token) holders can participate in the PoX consensus mechanism, mainly by signing and verifying the validity of Stacks blocks and determining whether the block should be added to the chain. STX holders can participate in this Stacking process by staking STX and can receive a portion of the BTC bid by miners as well as STX as rewards. The Stacking rewards for STX holders will be based on the amount and duration of STX staked. A Staking cycle takes about 2 weeks (approximately 1800 blocks).

The total supply of STX tokens is 1.818 billion, currently close to around 1.5 billion (according to coinmarketcap data). Mining rewards will be the main release method in the future, with 1000 STX per block for the first four years, halving every four years until it reaches 125 STX per block and no longer halves.

L2 Era

When Stakcs2.0 enters the BTC L2 era, the most important aspects include two aspects: the Nakamoto upgrade and the launch of sBTC. The Nakamoto upgrade takes Stacks from a technical foundation to the BTC L2 era, attempting to solve issues such as security and performance. The launch of sBTC, on the other hand, prepares for the practical implementation of its L2 ecosystem.

The Nakamoto upgrade allows true Stacks to evolve in the direction of BTC L2.

The Nakamoto Upgrade is a significant milestone for Stacks itself. It will evolve Stacks towards a true L2 direction.

L2 The most important point is to share the security of L1. Nakamoto’s upgrade attempts to land in this direction. After the Nakamoto upgrade, Stacks tries to build itself into a layer of the BTC network, integrating more closely into the BTC network, thus becoming a deeper part of the BTC network and ecosystem.