Bitcoin star public chain Stacks, how far can it go in the future?

Author: Daniel Li, CoinVoice

With the explosive popularity of the Bitcoin NFT protocol Ordinals, the entire Bitcoin NFT market has entered a new round of competition. As one of the first blockchains capable of producing Bitcoin ordinals, Stacks has benefited greatly from this trend. In the past ten days or so, its token STX has quadrupled in price. Although the recent market has entered a downward trend, and the price of STX has fallen back to $0.69, it remains a popular cryptocurrency favored by many investors. However, the boom of Ordinals has also raised a question: as more and more Bitcoin NFT projects emerge, the Bitcoin network may experience congestion, which will test the minimalist philosophy of Bitcoin. For Stacks, as a Bitcoin L2 public chain, this is both a challenge and a rare opportunity.

Bitcoin's Star Public Chain Stacks Born to Break Through

There has always been a technical dilemma in blockchain known as the "impossible triangle," which states that it can only simultaneously satisfy two of the three aspects: decentralization, security, and scalability. As one of the earliest public chains, Bitcoin also follows this principle. Bitcoin excels in decentralization and security but has made significant compromises in scalability, resulting in very poor scalability, with a new block taking ten minutes to write and transaction confirmation times reaching tens of minutes. Due to these limitations, Bitcoin, despite having developed for over a decade, still exists purely as a value public chain.

In addition to technical aspects, social divisions are also one of the reasons affecting Bitcoin's scalability. Bitcoin fundamentalists believe that the current Bitcoin as a value public chain is good enough and does not need to be scaled up to improve transaction speed. They argue that scaling could potentially change Bitcoin's consensus mechanism, leading to a hard fork that would affect Bitcoin's security and decentralization. Furthermore, deploying various complex smart contracts and applications on the Bitcoin network could lead to network congestion, driving up gas fees, which deviates from Satoshi Nakamoto's vision of Bitcoin as a peer-to-peer (P2P) cash system. Therefore, they oppose Bitcoin's scalability and advocate for maintaining the simplicity and stability of the Bitcoin network.

The technical challenges and community divisions have made the process of scaling Bitcoin slow and tortuous. Before the emergence of Stacks, many projects attempted to improve Bitcoin's scalability, but most have faded into obscurity, with only a few forked projects briefly gaining popularity due to hype. In contrast, Stacks is undoubtedly the most successful one.

The success of Stacks mainly stems from its ability to find a balance between Bitcoin fundamentalists and scalability advocates.

The Bitcoin native network itself does not support smart contracts and decentralized applications, so a second-layer protocol is needed to achieve these functions. Stacks is such a protocol; it builds a new blockchain to enable the deployment of smart contracts and decentralized applications on the Bitcoin network. The Stacks blockchain interacts with the Bitcoin network, using Bitcoin's security and network effects to ensure its security and decentralization while making no modifications to the Bitcoin network, thus maintaining the simplicity and stability of the Bitcoin network.

Technical Innovations and Advantages of Stacks

Recently, due to the popularity of Ordinals, the public has begun to focus on the previously overlooked issue of Bitcoin scalability, and people are surprised to discover the existence of Stacks. While many habitually assume that Stacks is just another short-term trendy product, they do not realize that Stacks has been quietly working on building a Bitcoin second-layer network for nearly ten years.

Stacks is an independent blockchain based on the Bitcoin blockchain, created by Muneeb Ali and Ryan Shea in 2013. It uses a "Proof of Transfer" (PoX) protocol to leverage Bitcoin's security and the Stacks token (STX) to implement smart contracts. Initially focused on DApps development and providing a decentralized experience by leveraging Bitcoin's security, Stacks began to explore using Bitcoin's second-layer technologies (such as the Lightning Network) to expand network throughput and transaction speed, launching Stacks 2.0 to achieve high throughput, low cost, and instant settlement transactions.

Stacks has many technical advantages, specifically reflected in the following aspects:

(1) PoX Mining Mechanism: Stacks uses the PoX mining mechanism instead of traditional PoW or PoS mining mechanisms, addressing many issues present in traditional mining mechanisms, such as energy consumption and computational power competition.

(2) Clarity Smart Contract Language: Stacks has developed a smart contract language called Clarity, which features a strong type system and clear execution logic, allowing secure smart contracts to be executed without intermediaries, thereby enhancing the reliability and operability of smart contracts.

(3) Decentralized Identity Verification: Stacks provides a decentralized identity verification and management system called Blockstack, which uses blockchain technology and public key infrastructure to enhance user privacy and security.

(4) Integration with Bitcoin: Stacks integrates with Bitcoin, extending Bitcoin's security, reliability, and market participation into the Stacks ecosystem, thus achieving higher decentralization and security.

(5) Compatibility with Existing Web Technologies: Stacks can be compatible with existing web technologies, such as using JavaScript to develop decentralized applications, making it easier for developers to build decentralized applications.

In summary, the technological innovations and advantages of Stacks enable it to achieve higher decentralization, greater security and reliability, as well as better scalability and sustainability, providing strong support for the development of its ecosystem.

The Rise of Bitcoin NFTs: Opportunities and Challenges for Stacks

The emergence of Ordinals has sparked another wave of enthusiasm in the Bitcoin application field. As a representative L2 project of Bitcoin, Stacks is in an excellent position to benefit from market speculation. According to data from Defi Llama, in the past 30 days (from February 1 to March 2), the funds on Stacks increased by 254%, with TVL rising from $7.56 million to $26.8 million. The native token STX of Stacks has doubled in price in just over ten days. Although the price of STX has recently corrected due to the overall market downturn, investors generally remain optimistic about STX's future.

Investors' optimism about STX is mainly based on expectations for the Bitcoin halving event in 2024. As the token of the Bitcoin second-layer scaling protocol, the value of STX is closely related to Bitcoin. Therefore, although it seems that STX has exhausted the growth trend brought by the positive news of Ordinals, due to the upcoming Bitcoin halving and Stacks' positive development trajectory, STX is still regarded as a cryptocurrency worth long-term investment.

The Bitcoin NFT boom triggered by Ordinals is growing larger, and this year may become the summer of Bitcoin NFTs. This presents an excellent development opportunity for Bitcoin scaling protocols like Stacks. Particularly, Stacks is not only highly integrated with the Bitcoin ecosystem in terms of technology but also has a more sustainable and decentralized economic model, providing it with greater development space compared to other public chains.

On the flip side, the explosive popularity of Ordinals has also raised a previous question: if NFTs lead to network congestion, the minimalist ideology of Bitcoin will face a test. Will the Bitcoin community allow such speculative activities or the long-term blockage of network development?

Currently, the opposition's viewpoint centers on the idea that NFTs harm Bitcoin's original use case. Some community members have stated, "Allowing Bitcoin to be used for NFTs is like allowing hospitals to be used for wild parties." Supporters argue that the rise of Bitcoin NFTs has found new application scenarios beyond traditional value storage, providing Bitcoin with more use cases and financial applications. From the data, both sides' viewpoints can be validated. According to OKLink data, Ordinals' "inscriptions" are consuming 50% of Bitcoin's block space, with block space utilization reaching 100%. On the other hand, from the miners' perspective, the emergence of Bitcoin NFTs has also brought new revenue growth avenues for them. In the past week, the fees for inscribing "inscriptions" through the Ordinal protocol have accumulated to $880,000.

Currently, neither side can convince the other. This seems to return to the debate that Stacks initially faced between Bitcoin fundamentalists and scalability advocates. Last time, Stacks found a balance between the two sides; this time, whether a balance acceptable to both parties can be found regarding the debate triggered by Bitcoin NFTs poses a severe challenge for Bitcoin second-layer networks like Stacks.

Overview of Popular Ecosystem Projects on Stacks

With the rise of the Bitcoin NFT boom, more and more investors are optimistic about Stacks. As an important part of the Bitcoin ecosystem, Stacks provides users with safer, more efficient, and sustainable smart contract services and has the potential for collaborative innovation with other cryptocurrency projects and traditional financial markets. Given Bitcoin's massive user base, Stacks' close integration with the Bitcoin ecosystem, its more sustainable and decentralized economic model, better privacy protection, and higher performance provide it with greater development space compared to other public chains. Currently, noteworthy Stacks projects include:

Alex Recently, Bitcoin has undergone a cultural and technological transformation through Ordinals and Stacks. A project on Stacks that is expected to stand out in the future is ALEX. ALEX is a DEX designed specifically for Bitcoin, and it is the first platform to provide one-stop DeFi services on Bitcoin through Stacks.

The core functions of the ALEX protocol include decentralized trading and decentralized lending. Users can trade on the decentralized exchange and obtain liquidity from liquidity providers. Through collateral-based lending, users can mortgage digital assets to obtain stablecoins for fund management without needing to sell their assets. ALEX also issues a governance token, ALEX, allowing users holding ALEX tokens to participate in the governance process of the protocol, including proposing, voting, and decision-making. Through a liquidity mining mechanism, ALEX Labs incentivizes users to provide liquidity and participate in the protocol's ecosystem, earning ALEX tokens as rewards for providing liquidity.

Gamma

Gamma is an NFT marketplace based on the Stacks ecosystem, formerly known as STXNFT. The marketplace aims to become a Web3 hub, attracting collectors, creators, and investors to explore, trade, and showcase NFTs through the Bitcoin ecosystem.

Recently, with the rise of BTC NFTs (Ordinals technology), NFT activity on Stacks has gradually increased. According to DappRadar data, Gamma's trading volume has increased by over 300% in the past 30 days. This is mainly due to the low cost and fast NFT minting speed provided by the Stacks ecosystem.

Gamma is a top-tier NFT marketplace where users can explore dozens of different series that are becoming increasingly popular. Additionally, the Gamma platform provides a professional, creator-first NFT Launchpad for digital artists, helping them find simple ways to deploy low-code smart contracts. Using Gamma, even inexperienced artists can create smart contract functionality for their NFTs in minutes, ensuring ownership of their NFTs and protecting their works, much like copyright. Furthermore, Gamma also serves as a social platform for creators to collaborate and share ideas. Gamma currently hosts many popular NFT collections that have built a fervent following in the Web3 world. In fact, many series have become highly sought after, with some projects even launching secondary collections to lower the entry barrier to their communities.

Arkadiko

Arkadiko is a DeFi platform built on the Stacks ecosystem, aiming to provide users with various financial products and services, including lending, trading, collateralization, and yield earning. Unlike other DeFi platforms, Arkadiko is built on the Stacks ecosystem, utilizing Stacks' unique technical architecture, which means it can provide decentralized financial services on the Bitcoin blockchain.

The main application of the Arkadiko platform is the USDA stablecoin minting platform, which operates similarly to MakerDAO. Users deposit STX into Arkadiko's Vault and mint a soft-pegged stablecoin USDA through over-collateralization. The STX deposited can also earn yields through Stacks' PoX mechanism. Additionally, users can use STX tokens as a tool for trading and paying fees, and by collateralizing STX tokens, they can obtain loans. Arkadiko's lending rates are relatively low, making it very attractive to users. Furthermore, Arkadiko also offers liquidity pools, stablecoin trading, and yield farming features, allowing users to participate in more DeFi products and services. The Arkadiko development team is committed to providing more innovative DeFi products and services to enhance the financial experience for users.

CityCoins

CityCoins is a cryptocurrency designed to provide financial support to cities and promote urban economic development. The project was co-founded in 2021 by Muneeb Ali and Ryan Shea and is supported by the Stacks ecosystem.

The main function of CityCoins is to provide financing for cities and help them achieve sustainable development. Holders of CityCoins can choose to invest them into funds for specific cities, thereby providing financial support to those cities. These funds can be used for various city projects, such as infrastructure development, public services, and community development. Holders of CityCoins can earn returns from the funds and enjoy discounts on CityCoins. Additionally, CityCoins can be used to purchase goods and services from specific cities. For example, tourists can use CityCoins to buy tickets for restaurants, hotels, and tourist attractions, as well as other city goods and services. Overall, CityCoins aims to provide more economic support for cities while also offering economic returns for holders. This innovative cryptocurrency model provides a new financing mechanism for sustainable urban development and offers holders an interesting investment opportunity.

Conclusion

With the popularity of Ordinals, the Bitcoin NFT market is rapidly evolving. This presents both an important opportunity and a severe challenge for Stacks. To meet the high throughput demands of Bitcoin NFT projects, Stacks needs to further leverage its technical advantages in Bitcoin second-layer scaling solutions and launch more scalable network solutions. At the same time, Stacks also needs to strengthen its integration with the Bitcoin network to ensure its security while not affecting the stability of the Bitcoin network. If Stacks can successfully overcome these challenges, it will become one of the most successful scaling solutions in the Bitcoin space, laying the foundation for the future development of the Bitcoin network.