The rise of old coins, why is Stacks worth following?

Question

Authored by: Haotian

With the impressive performance of this wave of old coin zone, let me talk about the absolute old coin @Stacks in the BTC ecosystem.

There is no intention to compete with BTC Layer2's fear of missing out trend, but it has long been a "pioneer";

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

sBTC native BTC Cross-Chain Interaction design, although without Babylon's encryption tricks, it can be considered as "native".

Now, let's analyze the above three points from a technical perspective.

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

Obviously, Stacks chose the latter, which was somewhat "unconventional" in the then environment. However, many years later, the asset issuance wave of BTC on-chain sparked by the Ordinals protocol, the network expansion wave of BTC layer2, and various extensions and developments surrounding the BTC ecosystem, all confirmed that Stacks' decision at that time was extremely strategic.

So, to some extent, Stacks should be considered the originator of this BTC ecosystem expansion frenzy, but in this frenzy mainly driven by 'Chinese', Stacks seems to be 'absent' and has not been heavily involved in the promotion and discussion. However, its pure technical orientation and steady development have also allowed it to enjoy the market's expectations for BTC layer2, and its overall market performance is impressive.

After all, as a "pioneer", and with 7 years of accumulation and market validation, Stacks has explored a complete technical stack, providing a feasible solution example for BTC to explore Smart Contract practices.

Speaking of the operational mechanism of Stacks' technical architecture, it gives me a slightly 'unconventional' overall feeling. Why do I say that? This has to start with its special Consensus Mechanism:

Stacks did not adopt the common 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 a transfer of BTC to a specific Address in order to win the 'block rights' on the Stacks network and receive $STX rewards. Stacks network users (Holders) who hold and stake STX for a certain period of time can receive a proportionate share of the BTC Dividend contributed by these Miners.

It is not difficult to see that the POX Consensus Mechanism is generally biased towards a 'dual-layer design', with the BTC network serving as the underlying layer to settle and lock BTC assets, providing network security for the 'Consensus layer', while the Stacks network serves as the 'execution layer' for complex Smart Contract-related applications and network communication collaboration.

This design fully maintains the authority of BTC Mainnet and achieves a "strong correlation" with BTC Mainnet through "economic binding". How should we understand this?

In addition to the basic operational and electricity costs of running a Node, the main cost for Miners to participate in block production is the investment of a certain amount of BTC. The higher the price of BTC, the higher the cost of Miner's Mining, which also determines the value of STX rewards.

Users can stake STX to maintain the security of the network, which is no different from most POS networks in terms of security maintenance. The difference is that the economic gains and losses of most POS networks' stakes cannot withstand the Fluctuation of the Secondary Market itself. On the other hand, users staking $STX on the Stacks network can 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 leading to a reduction in the STX Circulating Supply and driving the outstanding performance of the BTC Secondary Market price, further stimulating the enthusiasm of Miners to consume BTC Mining.

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

This special economic incentive mechanism gives it advantages in both the ability to resist market fluctuations and the stability of the market ecology, especially when the BTC price continues to rise. The cost of the entire network and the dividend rewards will 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 of miners' investment in BTC and the proportion of STX rewards will be proportional.

In my opinion, the alternative or forward-looking aspect of the Stacks 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 network enhancement through BTC. The dilemma of long-term 'loss' of stake assets, which is a common problem in POS networks, has been resolved under the super rise Buff of BTC assets.

Recently, Andres Serrano, the product manager of Stacks, shared an overview of the upcoming deployment of sBTC on Mainnet, which shows the uniqueness of sBTC as a native BTC Cross-Chain Interaction asset.

Compared to the commonly used centralized custody assets, sBTC, which implements the traditional Wrapped version asset packaging method of locking assets in Chain A and minting assets in Chain B, achieves BTC's native security, cross-chain-free, atomic transactions, decentralized risk-free points, and other technical native features. How is it implemented specifically?

Stacks uses a multi-signature threshold mechanism to ensure the security of the Stacks network. Therefore, there are a large number of 'signers' on 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 deployed by the Stacks protocol's monitoring and verifying transactions will automatically mint the corresponding sBTC to the user on the Stacks network.

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

To better understand the pros and cons of this multi-signature mechanism, I tried to compare it with @babylonlabs_io: The special feature of Babylon is that it uses mathematical encryption algorithm techniques to ensure that Nodes do not act maliciously, because if Nodes act maliciously, their Private Key will be "exposed", which greatly limits their ability to act maliciously;

In contrast, the mechanism of Stacks is relatively simple, relying on the trust of a large number of light nodes and a higher threshold design to drop the probability of misconduct. Once misconduct 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 misconduct.

Of course, this kind of multisig security mechanism built on the basis of scale and quantity also has a characteristic of being less flexible. For example, if a majority of NodeAddresses in 100 Nodes are replaced, 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 multi-layer verification mechanisms and hierarchical control of permissions. In short, we will continue to explore more sophisticated and secure methods for ongoing technological optimization.

Above.

Finally, apart from technical elements, there is one thing that must be said, Stacks has the dual buffer of being supported by US domestic companies and the first ComplianceToken registered and certified by the SEC Reg+, which adds a lot of room for imagination in the current macro background of the Trump "encryption government".