Stacks

What is Stacks (STX)?

Stacks is a layer 1 blockchain network designed to operate symbiotically with Bitcoin. It also leverages the security of Bitcoin while providing it with smart contract functionality and decentralized applications (dApps).

Stacks links up with Bitcoin using a novel proof-of-transfer (PoX) consensus mechanism rather than operating like a layer 2 or sidechain.

Bitcoin is considered the best and biggest ‘OG’ cryptocurrency, and its rise to prominence in the modern zeitgeist cannot be duplicated. One of its major advantages as a network is its decentralization and security.

However, those features do not complete the blockchain trilemma. Scalability has been a major issue for Bitcoin and Ethereum, so many solutions have been applied to both blockchains as adoption grows and transactions slow.

Bitcoin protocol changes, known as hard forks, have seen offshoot projects attempt to tackle the issue using solutions like changing block size. Ethereum, in particular, has seen a vast number of layer 2 solutions emerge.

Stacks, however, remains a layer 1, a parallel blockchain rather than one looping atop Bitcoin. It brings smart contracts and scale to the “king of blockchains” without changing its protocol or making any forks.

When Was Stacks Launched?

The concept behind Stacks was conceived at the Computer Science Department of Princeton University in 2013. A team was assembled after a proposal was confirmed by Y Combinator, a startup accelerator, the following year.

With the blueprint for a user-owned internet laid out in the founder’s PhD thesis, $47 million was raised in the Stacks ICO in 2017. Notably, the STX token was the first cryptocurrency to be qualified by the US Securities and Exchange Commission (SEC) for a further token offering in 2019, which raised $23 million.

Investors in Stacks included some of the biggest names in the blockchain industry, such as Winklevoss Capital and the Digital Currency Group.

Who are the Founders of Stacks?

Muneeb Ali and Ryan Shea were the co-founders of Stacks, operating the platform via their company Blockstack PBC.

Ali, having graduated from Princeton with an MA and PhD in Computer Science, worked as a co-CEO of the company with Shea until 2018. Shea then departed the project to pursue his own ventures, while Ali stayed on.

Blockstack PBC rebranded to Hiro Systems PBC in 2020, calling back to a Neal Stephenson novel called Snow Crash. The protagonist of the story is a katana-wielding coder named Hiro, and Stacks founder Ali used the following excerpt from the book in his original thesis:

“When Hiro first saw this place ten years ago, the monorail hadn’t been written yet; he and his buddies had to write car and motorcycle software in order to get around. They would take their software out and race it in the black desert of the electronic night.” - Neal Stephenson (Snow Crash, 1992)

The change to Hiro served as a signal of the company’s commitment to developers. It also clarified the separation between the Stacks platform and the company, now one of many independent entities within the Stacks ecosystem.

How Does Stacks Work?

Stacks is a network of open-source smart contracts and decentralized applications that serves as a programmable layer for Bitcoin.

Developers can build dApps, code smart contracts, and create digital assets on Stacks. This can be done by anyone with an internet connection. Thanks to PoX, the transactions generated on Stacks are then settled on Bitcoin.

While Bitcoin block confirmations are relatively slow, Stacks deals with this issue using “microblocks.” These microblocks allow extremely fast confirmations to occur on the Stacks blockchain before final settlement occurs on the Bitcoin network.

Clarity, an open-source smart contract programming language, is also rather important. It was specifically designed to bring decentralized finance to Bitcoin. This programming language also makes it easy for developers to build complex systems of smart contracts.

Clarity uses a syntax that allows developers to reliably predict the outcome of each smart contract executed, and it is highly secure. It also has no compiler, meaning that contracts are broadcast on the blockchain exactly as they’re written, analyzed, and tested by developers.

What Makes Stacks Unique?

Stacks is unique in that it’s a layer 1 blockchain network that nonetheless exists to bring more utility to Bitcoin. According to a blog post by Stacks Foundation member and Blockstack PBC veteran Dr. Jude Nelson, Stacks runs in parallel to Bitcoin. It also uses Bitcoin as a reliable broadcast medium for its block headers.

Stacks miners perform their own leader election using stored metadata and implement a variation of Nakamoto consensus independent of Bitcoin. This is done by selecting a winning block with a probability proportional to how much BTC was spent to record it on the Bitcoin blockchain.

Stacks, therefore, lets its system state settle on Bitcoin. The act of creating a new Stacks block entails sending a well-formed Bitcoin transaction that records the hash of a Stacks block and where it attaches to the blockchain.

This settlement on Bitcoin allows Stacks to fully leverage the security of Bitcoin itself.

How is the Stacks Network Secured?

Stacks uses a novel consensus mechanism called proof-of-transfer (PoX) to mine blocks. In Stacks’ implementation of PoX, Stacks transfers Bitcoin to Bitcoin addresses that are set periodically by STX token holders.

Each block, a group of transactions on the network, is produced by one miner. Each miner can choose any existing block as its block’s parent. The only barrier to entry for becoming a block producer is to acquire and spend BTC.

Miners are financially incentivized but not required to build atop a canonical chain fork that the rest of the network follows. This means that honest miners can recover the chain in the event of failure or dishonest mining activity. Hard forks on Stacks, therefore, are a failure recovery mechanism.

By selecting miners based on Bitcoin transactions, all miners’ activities are made public across all Stacks forks. This means that all Stacks nodes with the same view of the Bitcoin chain will learn about all the Stacks forks that exist. Also, the act of altering this view would mean altering the state of Bitcoin itself.

As a result, while many misconstrue Stacks as a proof-of-stake blockchain, proof-of-transfer is actually far more closely related to proof-of-work.

Despite the storage of Stacks blockchain history on Bitcoin, Bitcoin miners are by design agnostic to Stacks. Stacks miners’ block-commit transactions are treated just like any other Bitcoin transactions.

Stacks nodes use the Bitcoin blockchain as a shared broadcast medium for discovering block data. Bitcoin miners get compensated for providing this service to the Stacks blockchain, but nothing more.

What is the Use of STX?

STX, the native token of the Stacks blockchain, is used for paying all transaction fees on the Stacks network. This includes normal transactions, smart contract execution, and digital asset creation.

Notably, Stacks holders can lock up STX for some time in a process called “stacking,” which is not to be confused with staking.

Stacking sees STX holders operate a full node on the network, lock up their STX, and broadcast data to the network. The stacker decides how many network cycles they want to lock their STX up for and receives rewards at the end of that period.

While full node operators have to stack a significant amount of STX, smallholders can participate in stacking by delegating their STX to a stacking pool.

Notably, this stacking process sees rewards paid to stacks in BTC rather than STX. This is done via the PoX consensus mechanism, which requires Bitcoin miners to distribute BTC rewards to stackers.

Who Controls Stacks?

Stacks and its ecosystem are governed by the Stacks Foundation. The non-profit Foundation also considers proposals and distributes grants to developers building on the Stacks blockchain.

The Stacks Foundation Grants Program provides funding for builders with the shared goal of creating a decentralized internet facilitated by decentralized applications and dev tools built on Stacks.

The Stacks Foundation’s Executive Director is Brittany Laughlin, an adjunct professor at Cornell Law and a blockchain industry veteran. Laughlin joined the Stacks Foundation from Blockstack PBC. She has previously built three companies, including her own VC firm, Lattice Ventures.

Other key members of the Stacks Foundation include Dr. Jude Nelson (development lead), Mitchell Cuevas (the Foundation’s head of growth), and Nick Cooper (the Foundation’s finance lead).

On the Foundation’s Board are Zavain Dar (venture capitalist), Meltem Demirors (CoinShares’ Chief Strategy Officer), and Rodolfo Gonzalez (entrepreneur).

How Much Is STX In Circulation?

The STX token has a circulating supply of over 1.33 billion STX, with a predefined future supply that will reach approximately 1.8 billion STX by the year 2050.

Of the initial issuance of STX tokens, just over 29% were sold in 2017, and 8.9% were used in a further token sale in 2019. 14.2% went to the Hiro PBC Treasury, and 7.4% went to the Stacks Foundation treasury.

The Stacks team received 7.9% of the STX token distribution, and founder Muneeb Ali was given 6.6%.

How Do You Buy STX?

STX is an especially popular cryptocurrency, given that it allows holders to earn Bitcoin. Most—if not all—of the leading cryptocurrency exchanges provide pairs with STX.

You can use several stablecoins, such as USDT, to buy STX on various exchanges, while you can also find it paired with fiat currencies like the U.S. dollar. In terms of other cryptocurrencies, STX is most often paired with BTC or ETH.

Is It Possible to Buy Stacks Instantly?

It is possible to buy STX instantly when using a cryptocurrency exchange. Still, it’s useful to remember that STX can be stacked to earn BTC rewards. If an exchange doesn’t offer this feature, it may be wise to withdraw your STX into your own wallet.

How Do You Store STX?

STX can be stored in a wallet, and you can find a list of supported wallets on the Stacks website.

The Hiro wallet is a natural choice for many since it supports Stacking and integrates with the Ledger hardware wallet. It can also be used as a browser extension or desktop application.

The Neptune browser extension wallet also allows stacking. The desktop-based Wise wallet provides excellent encryption and even allows the management of multiple addresses. If you prefer a mobile wallet, Xverse and Boom Wallet both support STX stacking.

Stacks Energy Consumption

According to Dr. Jude Nelson, PoX does not require energy expenditure. Instead, it recycles the energy required to produce Bitcoin’s tokens, and spending Bitcoin extends Bitcoin’s energy use to secure both Bitcoin and Stacks.

Is STX a Good Investment?

Stacks is an attractive proposition for a wide variety of cryptocurrency enthusiasts. It deals with some of the community’s core values like privacy, digital ownership, and blockchain agnosticism via its symbiosis with Bitcoin.

Stacks enhances and provides added benefits to users of the industry’s flagship network, and it does so while rewarding users of their network for participation.

Even when viewed from the perspective of passive users, STX has a significant allure since stacking gives holders a way to passively earn Bitcoin.

Stacks does suffer from some misconceptions around how it works, such as often being confused for a layer 2 or sidechain and stacking being equated to Stacking. It’s, however, a unique project that brings much-needed value and utility to the industry.