Exploration of the BTC Ecosystem and the Evolution of Stacks

During the current bear market cycle in the cryptocurrency market, the development of the Bitcoin ecosystem has attracted widespread attention. Although some staunch supporters of Bitcoin as a store of value are cautious about the expansion of the BTC ecosystem, relevant explorations have been ongoing. This exploration mainly stems from two needs: first, to unlock the potential revenue value of BTC assets; second, to address the sustainability issues of network security arising from the reduction of future BTC mining subsidies. Without the development of the BTC ecosystem, it will be more challenging to tackle these challenges in the future.

In the exploration of the BTC second layer network (L2), Stacks, as one of the early projects in this field, attempts to enable decentralized finance (DeFi) and other applications to land in the BTC ecosystem through its L2 solutions. The development of Stacks can be roughly divided into two stages: the sidechain era and the L2 era.

Sidechain Era

The concept of Bitcoin sidechains was first proposed by Blockstream, which developed the Liquid Network. At the same time, the Rootstock network also launched a similar solution. In 2018, Stacks launched its mainnet and introduced the Clarity smart contract development language the following year. Notably, Stacks also applied for a compliant token issuance with the U.S. Securities and Exchange Commission (SEC), which was a rare practice at the time, giving the project more time for exploration.

The initial technical mechanism of Stacks is similar to that of BTC's sidechain, but it has its unique features. It integrates with the Bitcoin network through an anchoring transaction mechanism, broadcasting block header information and other data from the Stacks chain to the BTC network.

Stacks employs a consensus mechanism called PoX (Proof of Transfer), which is somewhat similar to Proof of Stake (PoS) systems. There are two main participants in the PoX mechanism: miners and signature validators. Miners need to conduct transactions on the Bitcoin chain to qualify for writing new blocks on the Stacks chain. Each Bitcoin block corresponds to a Stacks miner, who gains the right to produce all Stacks blocks during that period.

Stacks interacts with the Bitcoin mainnet using a "chain anchoring" mechanism, binding information on the Stacks chain to the BTC mainnet. Each Stacks block contains hashes pointing to the previous Stacks block and the previous Bitcoin block, attempting to make all state changes in the Stacks network verifiable on the BTC mainnet.

In addition to miners, STX (Stacks token) holders can participate as signature validators in the PoX consensus, verifying the validity of Stacks blocks and deciding whether they should be added to the chain. By staking STX to participate in this process, one can earn a portion of the miners' bid BTC and STX rewards.

L2 Era

Stacks 2.0 marks the project's entry into the Bitcoin L2 era, mainly consisting of two important aspects: the Nakamoto upgrade and the launch of sBTC.

The Nakamoto upgrade is a key milestone for Stacks in evolving into a true Bitcoin L2. This upgrade aims to address issues such as security and performance, allowing Stacks to integrate more closely with the Bitcoin network and become a more deeply integrated part of its ecosystem.

The core of L2 solutions lies in sharing the security of L1 (Layer 1). The Nakamoto upgrade is precisely working in this direction, attempting to build Stacks as a new layer of the Bitcoin network, deepening the integration with the Bitcoin ecosystem.

The launch of sBTC has prepared for the practical applications of Stacks' L2 ecosystem, laying the foundation for the development and deployment of more decentralized applications on the Bitcoin network in the future.

These developments demonstrate Stacks' efforts to explore how to expand Bitcoin's functionality while maintaining a close connection to the Bitcoin network. As these technologies mature, we may see more Bitcoin-based innovative applications and services emerge.