Technical Analysis of Stacks: How to Catch the Fast Train of BTCrise through 'Economic Bonding'?

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

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

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

3. The sBTC has a native BTCCross-Chain Interaction design, which may not have Babylon’s encryption technique but is native enough.

Let’s analyze the above three points one by one from a technical perspective:

1）Back in 2017, when BTC was still in the midst of a debate between the conservatives and the innovators, the conservatives firmly believed that it should simplify its functions and focus solely on being a reserve asset, while the innovators believed that BTC needed to expand its use cases to support Smart Contract functionality to compete with new chains such as Ethereum.

Clearly, Stacks chose the latter, which was somewhat “unconventional” at the time. However, years later, the wave of asset issuance on the BTC chain and the expansion of the BTC layer2 network initiated by Ordinalsprotocol, among other developments surrounding the BTC ecosystem, have confirmed the strategic vision of Stacks’ decision back then.

So, to some extent, Stacks should be considered the pioneer of this BTC ecological expansion frenzy, but in this BTC FOMO frenzy mainly driven by ‘Chinese,’ Stacks seems to be ‘absent’ and has not been very involved in publicity and discussion. However, its pure technical orientation and stable development have also enabled it to enjoy the market’s expected dividend for BTC layer2, and its overall market performance is impressive.

After all, as a “pioneer”, and after 7 years of precipitation and market validation, Stacks has explored a complete technical stack, providing a feasible solution example for BTC to explore Smart Contract practice;

2. When it comes to the operational mechanism of Stacks’ technical architecture, it gives me a slightly ‘unconventional’ overall feeling. Why do I say that? This has to be opened up from its special Consensus Mechanism.

Stacks did not adopt the commonly used 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 must prove to the BTC Mainnet that they have initiated the transfer of BTC to a specific Address in order to win the ‘mining right’ on the Stacks network, win $STX rewards, and Stacks network users (Holders) who hold and stake STX for a certain period can proportionally receive a portion of the BTC dividends invested by these Miners.

It is not difficult to see that the POXConsensus Mechanism as a whole is a “two-layer design”, with the BTC network as the basic layer precipitating and locking BTC assets to provide network “Consensus layer” security, and the Stacks network as the “execution layer” for the implementation of 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 this?

In order for a Miner to participate in block generation, in addition to the basic operating and maintenance costs of running a Node and the cost of electricity, the main cost is to invest 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 reward.

Users can stake STX to maintain the security of the network, which is no different from the way most POS networks maintain security. The difference is that the economic gains and losses of staking on most POS networks cannot withstand the Fluctuation of the Secondary Market itself. However, users of the Stacks network can stake $STX to receive BTC rewards.

This brings about a “benign” economic internal cycle, Miners consume $BTC to compete for the right to mine, and this portion of BTC will be distributed to Stakers, making more users willing to stake actively to obtain BTC rewards, thereby causing a reduction in the circulation of STX and driving the outstanding performance of BTC in the Secondary Market, further mobilizing the enthusiasm of 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 an advantage in resisting market fluctuations and the stability of the market ecosystem, especially when the BTC price continues to rise. The cost of the entire network and the dividend rewards will increase synchronously, meaning that the value precipitated by 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 investing in BTC and the STX reward ratio will be proportional.

In my opinion, the uniqueness or forward-looking aspect of Stacks’ trap POX Consensus Mechanism lies in its binding of BTC, the most stable asset in the market, providing network security through BTC, and gaining expected network enhancement through BTC. The dilemma of long-term ‘loss’ of stake assets in the original POS network has been resolved under the super rise buff of BTC assets.

3. Recently, @andrerserrano, the product lead of Stacks, shared an Overview of the upcoming Mainnet deployment of sBTC, highlighting the unique nature of sBTC as a native BTCCross-Chain Interaction asset.

Compared to the commonly used centralized custodial assets, sBTC achieves BTC-native security, cross-chain-free, atomic transactions, and decentralized risk-free points through the traditional Wrapped version asset packaging method of Chain A lock assets Chain B Mint assets. How is this achieved?

Stacks uses a multi-signature threshold mechanism to ensure the security of the Stacks network. Therefore, in the BTC Mainnet, there are a large number of ‘signers’ to verify transactions and implement multi-signature operations. When users send BTC assets to the designated BTC multi-signature address, after the transaction is confirmed, the deployer and monitor of the Stacks protocol will automatically mint corresponding sBTC on the Stacks network for the user.

The key point is that Stacks has deployed a large number of independent signature Nodes, such as 100. The transaction will be truly validated and confirmed only when a sufficient number of Nodes have signed and confirmed, such as (68/100).

To better understand the advantages and disadvantages of this multi-signature mechanism, I tried to compare it with @babylonlabs_io: The special feature of Babylon is the use of mathematical encryption algorithm techniques to ensure that Nodes do not behave maliciously, because if a Node behaves maliciously, its Private Key will be “exposed”, which greatly limits its potential for misconduct;

In contrast, the mechanism of Stacks is relatively simple, relying on the trust of a large number of light Nodes and a higher 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, and the more severe Slash punishment feature will greatly reduce the risk of malicious behavior by Nodes.

Of course, this multi-signature security mechanism built up based on the scale and quantity also has a characteristic of being less flexible. For example, if most of the NodeAddress in 100 Nodes are changed, 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-layer verification mechanisms and hierarchical control of permissions. In short, we will continue to explore more sophisticated and secure methods for technical optimization.

Above.

Finally, apart from the technical elements, it has to be said that Stacks has the double Buff of being supported by both American local companies and the first ComplianceToken registered and certified by SEC Reg+. This adds a lot of room for imagination, especially in the current macro background of the Trump ‘encryption government’.