sBTC is finally online, simply understanding the exploration of Stacks L2

Author: Blue Fox Notes

During this bear market cycle, the crypto space has witnessed a rise in the BTC ecosystem. Although some staunch supporters of BTC as a store of value may not be very fond of any ecosystem for BTC, exploration of the BTC ecosystem has always been ongoing. There are several driving forces here, aside from the significant factor of 'speculation.' There are also two aspects of demand: one is the desire to unlock profit opportunities from BTC assets, and the other is to address the issue of future mining subsidies for BTC, which is also the most critical issue for the future of BTC, involving how to ensure the sustainability of the entire network's security. Without the rise of the BTC ecosystem, BTC's future faces challenges in addressing this issue.

In the exploration of BTC L2, this also includes the exploration of Stacks, which is also one of the earliest projects to enter this field. It attempts to allow the DeFi and other ecosystems to have the opportunity to occur in the BTC ecosystem through its L2. So, how can we understand the evolution of Stacks from a technical standpoint? Here, Stacks is divided into the sidechain era and the L2 era. 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.

Sidechain Era

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

The initial technical mechanism of Stacks is similar to BTC's sidechain. However, it is not entirely the same as other sidechains, as it has a unique mechanism to ensure its security. In simple terms, Stacks uses an anchored transaction mechanism to integrate with Bitcoin, where the anchored 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 differs from the concept of a regular sidechain.

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 Bitcoin chain transactions to qualify (the opportunity to write new blocks into the Stacks chain, which is the opportunity to mine), which is its unique feature. Stacks miners on Stacks want to earn profits need to obtain the opportunity to write new blocks into the Stacks chain. In order to obtain this opportunity, Stacks miners need to participate in the election of each round of leaders, and the participation is through sending transactions on the BTC chain, and then from these participants, the leader is randomly selected for each round through VRF (Verifiable Random Function) to obtain the opportunity to write new blocks into the Stacks chain.

Each Bitcoin block will have a corresponding Stacks miner who gets the right to produce all Stacks blocks during the block term. When a Stacks miner adds a transaction to Stacks block, Stacks signers verify the signature. If more than 70% of signers verify it effectively and reach consensus, the new block can be added to the Stacks chain.

Stacks has a mechanism called "chain anchoring" that interacts with Bitcoin L1. This mechanism binds 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 have the opportunity to become block leaders and earn rewards. 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, miners can receive STX token incentives. The sources of STX incentive tokens include block rewards and transaction fees from Stacks chain users.

In addition to Stacks miners having the opportunity to write new blocks through PoX, there are also Stackers signers participating 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 a reward. The Stacking reward for STX holders will depend on the amount and duration of STX they stake. A Staking cycle takes approximately 2 weeks (around 1800 blocks).

The total supply of STX tokens is 1.818 billion, and the current supply is approximately 1.5 billion (according to coinmarketcap data). Mining rewards are the main release method in the future. For the first four years, each block will receive 1000 STX, which will be halved every four years until each block receives 125 STX and will no longer be halved.

L2 Era

Stakcs2.0 enters the Bitcoin L2 era, the most important aspects include two things: Nakamoto upgrade, and the launch of sBTC. The Nakamoto upgrade brings Stacks from a technical perspective into the BTC L2 era, attempting to solve security, performance, and other issues; while the launch of sBTC prepares for the actual implementation of its L2 ecosystem.

*Nakamoto's upgrade enables true Stacks to evolve towards the direction of Bitcoin L2.

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

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