sBTC is finally online. A brief understanding of Stacks L2’s exploration journey

Author: Blue Fox Notes

During this cyclical bear market, the crypto space experienced a rise in the BTC ecosystem. Although some staunch supporters of BTC's value storage do not like BTC to have any ecosystem, the exploration of the BTC ecosystem has been ongoing. There are several motivations here. Apart from the important factor of "speculation", there are two other needs. One is to unlock the profit opportunities of BTC asset value; the other is to solve the problem of BTC's future mining subsidies, which is also the core issue of BTC's future and involves how to ensure the sustainability of the entire network security. Without the rise of the BTC ecosystem, BTC will face challenges in solving this problem in the future.

The exploration of BTC L2 also includes the exploration of Stacks, which is also one of the earliest projects to enter this field. It attempts to use its L2 to allow ecosystems such as DeFi to have the opportunity to occur in the BTC ecosystem. So, how do we understand the evolution of Stacks from a technical perspective? Here, Stacks is divided into the sidechain era and the L2 era. Although this division is not too rigorous and there are differences in dimensions, it is mainly to make it easier for everyone to focus on and understand some of the most important stages in the history of Stacks development.

The Sidechain Era

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

The initial technical mechanism of Stacks is similar to the sidechain of BTC. However, it is not exactly the same as other sidechains. It has a unique mechanism to achieve its security and has its own characteristics. In short, Stacks uses the anchor transaction mechanism to integrate with Bitcoin. The anchor transaction contains the block header information on the Stacks chain, etc., which needs to be broadcast 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 partly similar to the PoS pledge system. PoX means Proof of Transfer. It has two types of participants, one is miners and the other is signature verifiers. Miners need to participate in Bitcoin chain transactions to obtain participation qualifications (the opportunity to write new blocks to the Stacks chain, that is, the qualification to mine), which is its uniqueness. Miners on Stacks want to gain benefits and need to get the opportunity to write new blocks to the Stacks chain. In order to get this opportunity, Stacks miners need to participate in the election of leaders in each round. The way to participate is to send transactions on the BTC chain, and then randomly select leaders for each round from these participants through VRF (verifiable random function) to get the opportunity to write new blocks on the Stacks chain.

Each Bitcoin block will have a corresponding Stacks miner who obtains the production rights of all Stacks blocks during the term of that block. When the Stack miner adds a transaction to the Stacks block, the Stackes signer verifies the signature. If more than 70% of the signers verify that the signature is valid and reach a consensus, the new block can be added to the Staks chain.

The interaction between Stacks and Bitcoin L1 layer has a "chain anchoring" mechanism. This mechanism binds the information on the Stacks chain to BTC L1. Each Stacks block contains a hash value pointing to the previous Stacks block and a hash value pointing to the previous Bitcoin block. Through this mechanism, the Stacks chain attempts to make all state changes that occur in its network verifiable on the BTC L1 network.

In summary, in this process, Stacks miners need to spend BTC in order to get the opportunity to become block leaders (and get benefits). In order to increase their chances of winning, Stacks miners will spend more BTC based on the cost-effectiveness of benefits. After a Stacks miner obtains the leader position, it obtains the right to create a new block and add the block transaction to the Stacks chain. After the miner completes the work, he can get STX token incentives. The source of STX incentive tokens is the new STX token reward for the block and the transaction fees of Stacks chain users.

In addition to Stacks miners getting the opportunity to write new blocks through PoX, there are also Stackers signers participating in the verification, which is another important participant in the PoX mechanism. STX (Stacks token) holders can participate in the PoX consensus mechanism, mainly signing to verify the validity of the Stacks block and determine whether the block should be on the chain. STX holders participate in the Stacking process by staking STX, and can obtain a portion of the BTC that the miners originally bid and STX as rewards. STX holders will receive corresponding rewards for Stacking rewards based on the amount and duration of STX they stake. A Staking cycle takes about 2 weeks (about 1,800 blocks).

The total supply of STX tokens is 1.818 billion, and the current supply is close to 1.5 billion (coinmarketcap data). Mining rewards will be the main way of release in the future. In the first four years, there will be 1,000 STX per block, and it will be halved every four years until there are 125 STX per block, and then it will no longer be halved.

L2 Era

Stakcs2.0 has entered the Bitcoin L2 era, and the most important aspects include two aspects: Nakamoto upgrade and the launch of sBTC. The Nakamoto upgrade brings Stacks into the BTC L2 era from a technical basis, trying to solve problems in security and performance; and the launch of sBTC prepares its L2 ecosystem for actual implementation.

*Nakamoto upgrade allows real Stacks to evolve towards Bitcoin L2.

The Nakamoto upgrade is a very important milestone for Stacks itself. It will evolve Stacks towards true L2.

The most important point of L2 is to share the security of L1. The Nakamoto upgrade attempts to land in this direction. After the Nakamoto upgrade, Stacks attempts to build itself into a layer of the Bitcoin network, more closely integrated into the Bitcoin network, and thus become a more deeply integrated part of the Bitcoin network and ecosystem.