Technical Analysis of Stacks from BTC Layer2 'Pioneer' Perspective

Author: Haotian

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

1. No intention to compete with BTC Layer2's fear of missing out trend, but it has long been a "pioneer";

2. POX Consensus Mechanism relies on economic binding to catch the "fast train" of BTC rise;

3. sBTC has a native BTC cross-chain interaction design, which may not have Babylon's encryption techniques but is considered "native" enough.

Come, around the above three points, let's analyze them point by point from a technical perspective:

As early as 2017, when BTC was still in the debate between conservatives and innovators, conservatives firmly believed that it should simplify its functions and focus only on being a reserve asset, while innovators believed that BTC needed to expand more application scenarios to support Smart Contract functionality to compete with new chains like Ethereum.

Obviously, Stacks chose the latter, which was somewhat 'alternative' in the then environment. However, years later, the wave of BTC on-chain asset issuance and BTC layer2 network expansion initiated by the Ordinals protocol, and various extensions and developments around the BTC ecosystem, have confirmed that Stacks' choice at the time was extremely strategic.

So, to some extent, Stacks should be considered the forerunner of this BTC ecosystem expansion frenzy, but in this mainly 'Chinese-led' BTC fear of missing out trend, Stacks seems to have been 'absent' and has not participated much in the hype and discussions. However, its pure technical orientation and steady development have also allowed it to reap the market's expected dividends for BTC layer2, and its overall market performance is commendable.

After all, as a "pioneer", and after 7 years of precipitation and market verification, Stacks has explored a complete set of technology stacks, providing a feasible solution example for BTC to explore the practice of Smart Contract.

2. When it comes to the operational mechanism of Stacks' technical architecture, my overall feeling is slightly 'unconventional'. Why do I say that? This has to be explained from its special Consensus Mechanism:

Stacks did not adopt the commonly seen POW or POS Consensus Mechanism at that time, but instead adopted a special POX Consensus Mechanism, simply put: POX is Proof of Transfer.

Miners on the Stacks network need to prove to the BTC Mainnet that they have initiated the transfer of BTC to a specific Address in order to win the 'block rights' on the Stacks network and earn $STX rewards. Meanwhile, users (Holders) on the Stacks network, who hold and stake STX for a certain period, can proportionally receive the BTC Dividend invested by these Miners.

It is not difficult to see that the POX Consensus Mechanism is a "two-layer design" as a whole, with the BTC network as the basic layer precipitating and locking BTC assets to provide network "consensus layer" security, while the Stacks network is the "execution layer" for landing complex Smart Contract-related applications and network communication collaboration.

This design fully maintains the authority of BTC Mainnet and achieves a "strong correlation" with BTCMainnet through "economic bonding". How to understand this?

In addition to the basic network operation and maintenance fees of running nodes and electricity bills, the main cost for Miners to participate in block generation is to invest a certain amount of BTC. The higher the price of BTC, the higher the cost of Miner's mining, which also determines that the rewards of STX are more valuable.

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 most POS networks' stakes 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 kind of 'benign' economic internal circulation, Miners consume $BTC to compete for the right to mine, and this part of BTC will be distributed to Stakers, making more users willing to stake actively to obtain BTC rewards, thereby causing a reduction in STX Circulating Supply and driving the outstanding performance of the BTC Secondary Market price, further stimulating the enthusiasm of Miners to consume BTC for Mining.

For Miners, if STX Mining is not profitable, the Mining industry cannot thrive. For users, the risk of staking STX assets can be hedged by obtaining actual BTC rewards.

This special economic incentive mechanism gives it advantages in resisting market fluctuations and maintaining market ecological stability. Especially when the BTC price is consistently in a rising cycle, the cost of the entire network and the dividend rewards will also increase synchronously, which means that the value accumulated 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 and reward ratio of miners' investment in BTC will be proportional to STX.

In my opinion, the uniqueness or forward-looking aspect of Stacks's trap POX Consensus Mechanism lies in its binding to BTC, the most stable asset in the market, relying on BTC to provide network security, and gaining enhanced network expectations 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, Stacks' product lead @andrerserrano shared an Overview of the upcoming deployment of sBTC on Mainnet, revealing the unique nature of sBTC as a native BTC cross-chain interaction asset.

Compared to the commonly used centralized custodial assets, sBTC, which is the traditional Wrapped version of chain A locking assets and chain B minting assets, achieves BTC's native security, cross-chain-free, atomic transactions, and decentralized risk-free points. How does it specifically achieve this?

Stacks uses a multi-signature threshold mechanism to ensure the security of the Stacks network. Therefore, there are many 'signers' in the BTC Mainnet to verify transactions and implement multi-signature operations. Users send BTC assets to the specified BTC multi-signature Address. After the transaction is confirmed, the signers of the Stacks protocol deployer monitor and verify the transaction, and will automatically mint the corresponding sBTC on the Stacks network for the user.

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

In order to better understand the advantages and disadvantages of this multi-signature mechanism, I tried to compare it using @babylonlabs_io: The special thing about Babylon is that it uses mathematical Encryption Algorithm techniques to ensure that the Node does not act maliciously, because if the Node acts maliciously, its Private Key will be 'exposed', which greatly limits its potential for malicious behavior;

In contrast, the mechanism of Stacks is relatively simple, relying on a large number of light nodes' trust 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 binding to complement it well. The more severe Slash punishment feature will greatly reduce the risk of node malicious behavior.

Of course, this multisignature security mechanism built on the basis of scale and quantity also has a characteristic of being not flexible enough. For example, if most of the NodeAddress in 100 Nodes are changed, the original multisignature Address assets will have to be forcibly migrated. Therefore, Stacks is exploring advanced 'dynamic member' management mechanisms such as Multisig2 to expand the flexibility of multilayer verification mechanisms and hierarchical control of permissions. In short, we will continue to explore more sophisticated and secure methods for technical optimization.

Above.

Finally, in addition to the technical elements, one thing that has to be mentioned is that, Stacks has the dual buff of being the first ComplianceToken registered with SEC Reg+ certification by a US domestic company. This, against the macro background of the current 'encryption government' under Trump, adds a lot of room for imagination.