Stacks: BTC L2
By Rayna Ishihara | Crescent City Capital Market Analyst Intern
What is Stacks
Stacks is a cryptocurrency project that aims to unleash the full potential of the Bitcoin blockchain by introducing smart contracts and decentralized applications (dApps) to the Bitcoin ecosystem. Formerly known as Blockstack, Stacks operates as a Bitcoin layer-2 solution, utilizing Bitcoin as its underlying layer. The platform is powered by the Stacks (STX) token, which facilitates the execution of smart contracts, transaction processing, and registration of new digital assets.
The motivation behind Stacks stems from concerns about the centralized nature of the internet, with major players like Google and Facebook wielding excessive power over ordinary users. Stacks endeavors to create an online architecture where companies are unable to engage in harmful practices, adopting the motto “can’t be evil” and even displaying it on a billboard near Google’s headquarters.
One of Stacks’ key advantages is that it extends Bitcoin’s functionalities without altering its fundamental features, such as security and stability. By building on top of Bitcoin, Stacks ensures that its ecosystem benefits from the robust security of the Bitcoin blockchain.
Stacks emphasizes openness and modularity in its dApps, enabling developers to build on each other’s applications and generate innovative features. Additionally, Stacks’ integration with Bitcoin provides a solid foundation for all activities within the ecosystem, backed by the most secure blockchain available.
The Stacks network operates as a separate blockchain but can effectively collaborate with Bitcoin. The native cryptocurrency of the Stacks network is the STX token, which holds the distinction of being the first token offering qualified by the U.S. Securities and Exchange Commission (SEC). STX is utilized for transaction fees, deploying smart contracts, and can be “stacked” to earn Bitcoin rewards.
The history of Stacks
Stacks was founded by Muneeb Ali and Ryan Shea at Princeton University in 2013. The project aimed to address the limitations of existing web and mobile apps. After participating in the Y Combinator accelerator in 2014, they raised a seed round led by Union Square Ventures (USV).
Blockstack launched a blockchain-based decentralized identity (DID) system in 2014 and released the initial design for the platform in 2015. They conducted extensive research and development, securing funding through a Series A round led by USV in 2017. They also worked with the U.S. Securities and Exchange Commission (SEC) to meet the qualifications for a token sale.
The Stacks network, Blockstack’s blockchain testnet, was launched in Q2 2018, followed by the release of the mainnet in October 2018. In July 2019, they conducted an SEC-qualified sale of STX tokens. The project gained momentum, with over 300 applications built on Stacks by October 2019.
In 2020, Blockstack underwent a rebranding, becoming the Stacks ecosystem, while Blockstack PBC changed its name to Hiro Systems PBC. The launch of Stacks 2.0 in January 2021 marked a significant milestone, decentralizing the network and shedding its security classification.
How does Stacks work
Stacks operates through a unique consensus mechanism called Proof of Transfer (PoX), involving two parties: miners and stackers. Miners exchange already-mined BTC from the Bitcoin blockchain for a chance to earn STX coins. Rather than traditional mining, each block on the Stacks blockchain stores user identity and transaction metadata, interacting with applications in the Stacks ecosystem. Changes to Stacks IDs, wallet balances, and smart contracts can be verified using the Bitcoin blockchain.
Stacks utilizes a custom storage system called Gaia, which leverages cloud storage providers like Azure and Dropbox. Users can also opt for their own cold storage solutions. The native cryptocurrency of Stacks, STX, is used to register digital assets, including user IDs and smart contracts, on the Stacks blockchain.
Stacks connects to Bitcoin and validates transactions through its proof-of-transfer consensus mechanism. In proof of transfer, miners transfer their Bitcoin to other participants instead of burning them. The protocol randomly selects a miner to validate a block of Stacks transactions and rewards them with STX tokens. The transferred Bitcoin goes to Stacks token holders who have locked up their STX tokens, with winners selected randomly by the protocol.
Summary
Stacks is a blockchain platform that aims to bring decentralized applications (dApps) to the Bitcoin network. It was originally known as Blockstack and was founded in 2013. Stacks allows developers to build smart contracts and dApps on top of Bitcoin while leveraging its security and immutability.
One of the unique features of Stacks is its consensus mechanism called Proof of Transfer (PoX). PoX connects the Stacks blockchain to the Bitcoin blockchain by allowing miners to transfer BTC to participate in the consensus process. Miners are randomly selected to validate blocks of Stacks transactions and, in return, receive STX tokens as rewards.
By connecting to Bitcoin, Stacks ensures that changes made to user identities, wallet balances, and smart contracts can be verified using the Bitcoin blockchain. This adds an extra layer of security and transparency to the Stacks ecosystem.
Stacks also provides a custom storage system called Gaia, which allows users to store data on cloud storage providers such as Azure and Dropbox. Additionally, users have the option to use their own cold storage solutions for added control and security.
The native cryptocurrency of Stacks is called STX, which serves as the fuel for registering digital assets on the Stacks blockchain, including user identities and smart contracts.
In summary, Stacks is a blockchain platform that enables developers to build dApps and smart contracts on top of Bitcoin. It utilizes the Proof of Transfer consensus mechanism, connects to the Bitcoin blockchain, and provides a custom storage system. STX is the native cryptocurrency used for registering digital assets on the Stacks blockchain.
Recent updates
The live Stacks price on February 18th is $2.53 USD with a 24-hour trading volume of $142,115,671 USD. It has a circulating supply of 1,439,673,756 STX tokens.
The price of Stacks has increased by 36.93% in the past 7 days, and increased by 67.88% in the past months. Stacks is 29.84% below the all time high of $3.61.
Market Analysis
Firstly, let’s discuss several perspectives on the uniqueness of Stacks before analyzing its future value. Stacks stands out for its innovative approach in various aspects. Unlike many other crypto projects, Stacks has undergone a rigorous peer-review process over eight years, involving academics from prestigious institutions such as Princeton and Stanford. This process ensured the identification and elimination of potential weaknesses.
Stacks extends the functionality of Bitcoin without the need for a hard fork or altering the original blockchain. It achieves this through its unique consensus mechanism called Proof of Transfer (PoX), which directly connects with the Bitcoin blockchain. Additionally, it introduces Clarity, a user-friendly smart contract coding language designed for accessibility and high security.
To handle data storage, Stacks employs Gaia, its own storage system that utilizes commercial cloud storage providers. Notably, Gaia offers users the option to store their data independently, addressing concerns about reliance on cloud storage.
The integrated Blockstack Naming Service allows users to assign human-readable names to assets, which are secured using a combination of public and private keys.
Furthermore, Stacks has gained strong support from the US government, securing significant funding for development and becoming the first blockchain token to receive backing from the SEC for its initial coin offering.
Now, let’s analyze the recent market conditions and factors related to the crypto market, especially those that could influence the price of Stacks. Firstly, we have an updated chart of new weekly Twitter followers for layer 2 solutions. The increase in the growth rate of Twitter followers indicates rising retail interest in the crypto market. Currently, major venture capitalists and individuals with significant funds in the crypto space are investing in Bitcoin layer 2 solutions. Since Stacks is a layer two solution on Bitcoin, it is essential to follow the liquidity flow. This market condition is closely related to the price of Stacks.
Furthermore, on February 4, Muneeb Ali, co-creator of the Stacks protocol, shared a thread highlighting the community’s excitement about potential developments in the Bitcoin ecosystem. He noted that the 10th Satoshi Roundtable focused on Bitcoin Layer 2 solutions, particularly anticipating BitVM and increased acceptance of Layer 2 investments. Ali believes that BTC-L2 is likely to become a top category in the next cycle.
It is understandable that with Muneeb Ali’s confidence in BTC-L2 and the increasing interest shown by the growing number of Twitter followers for layer 2 solutions, people would be optimistic about investing in Stacks. However, perspectives on the market may differ based on individuals’ views. Notably, during a recent digital discussion, Charles Hoskinson, the founder of Cardano, expressed doubts about the effectiveness of Bitcoin’s Layer 2 (L2) solutions, especially when compared to the capabilities of Ethereum and Cardano’s own ecosystems. Here is a screenshot of Charles Hoskinson’s thread discussing his criticism of Bitcoin’s layer 2 solutions.
Therefore, investors should form their own opinions about the trend of BTC layer 2 and how it may affect the price of Stacks.
From a technical standpoint, it is worth noting that STX has reached the resistance area at a price of $2.6. Additionally, the current RSI value for STX is relatively high at around 87, suggesting that the price of Stacks may be overvalued. Consequently, a slight pullback to reach the next wave of high points is likely. An optimistic entry point would be around $2.17, with an exit point at approximately $3.41.
Please note that investment decisions should be made based on thorough research and analysis. This post does not constitute financial advice.
References
https://kriptomat.io/cryptocurrencies/stacks/what-is-stacks/
https://www.fool.com/terms/s/stacks/
https://messari.io/project/stacks/profile
https://www.tradingview.com/chart/zrsQqqcn/?symbol=BINANCE%3ASTXUSDT
https://www.binance.com/ar-BH/feed/post/3706717384889