What Is Stacks (STX)?

Stacks blockchain is a layer-1 blockchain that enables DeFi, NFTs, apps, and smart contracts for Bitcoin. Layer-1 blockchain is a solution set that enhances the base protocol to make the system more scalable. Stacks allows the building of decentralized apps and smart contracts natively integrated with Bitcoin’s security, capital, and stability. The mission is to create a user-owned decentralized internet, thus unleashing Bitcoin. The native currency of Stacks is STX.

Majorly, two fundamental challenges are observed while building apps and smart contracts on Bitcoin:

• Scalability: Bitcoin blockchain has limited capacity for transactions.

• Secure Contracts: Limited scripting language and does not allow general smart contracts.

However, Stacks blockchain addresses these limitations through the consensus algorithm between two blockchains. The consensus algorithm brings reliability to the blockchain and enables trust between unknown peers to reach a common agreement about the state of the distributed ledger. 

At this time, Bitcoin acts as a settlement layer and source of truth. It has been a long-standing bottleneck to enabling smart contracts directly on Bitcoin, but Stacks blockchain unlocked this functionality without modifying Bitcoin. 

As per the Stacks thesis, decentralized apps and use cases will eventually get built on Bitcoin. Therefore, based on this thesis, Stacks has built the first consensus algorithm between two blockchains (Stacks’ and Bitcoin’s) called proof of transfer (PoX). 

PoX connects the Bitcoin and the Stacks blockchains, thus extending the functionality of Bitcoin. Stacks brings smart contracts and scalable transactions to Bitcoin without modifying Bitcoin. Implementation of PoX is made by using Bitcoin as the base chain and Stacks as a connected chain. 

Getting a smart contract near to Bitcoin makes BTC more valuable and productive. Stacks 2.0 introduced a new smart contract language for Bitcoin called Clarity. Clarity helps prevent bugs in the smart contract as well as allows developers to directly write logic around the Bitcoin state.

Stacks cryptocurrency (STX) is developed as fuel to execute Clarity smart contracts. STX holders can lock Stacks to participate in consensus and earn the Bitcoin rewards; this process is known as Stacking. To participate in Stacking, STX holders run a full node and lock their STX. The earning rate depends on various parameters; for example, if 50% of the liquid supply participates, along with other assumed parameters, the earning rate can be approximately 9%. 

Additionally, the long-term value of Stacks depends on the demand for Clarity smart contracts and the growth of the Stacks network. To implement a Clarity smart contract on the network, users need to pay STX as fuel (gas fee). The transaction fee the users spend on the blockchain network for having their transactions involved in the block is a gas fee. 

History of Stacks (STX)

The whitepaper of Stacks was drafted in December 2020. The Stacks cryptocurrency was distributed to the public via an SEC-qualified token offering in 2019. SEC is the Securities and Exchange Commission, which looks after whether or not a digital asset is a security.

This project started in 2013 with the aim of building a better internet. Muneeb Ali and Ryan Shea, the founders, recruited Princeton computer scientists for initial R&D. The technical foundation was laid in 2017 through Ali’s PhD thesis. $47 million in a token was offered for Stacks in 2017 and later $23 million through the SEC offering in 2019.

How Are New STX Tokens Created?

Stacks miners use Bitcoin to mine newly minted stacks. Stacks holders can lock STX to earn BTC, thus making STX a unique crypto coin that is natively priced at Bitcoin and offers BTC earnings.

STX miners can participate in leader elections by sending transactions on the Bitcoin blockchain. Later, a verifiable random function (VRF) selects the leader of each round randomly (more weightage to higher BTC bids). Now, this new leader writes the new block on the Stacks chain.

Besides, STX miners get newly minted STX in the form of transaction fees, and even the Clarity contract execution fees are paid in STX. These miners express the cost of mining in BTC and spend BTC participating in the leader election. The BTC that miners bid for election is sent to a specific address corresponding to STX token holders participating in the consensus. Thus, Bitcoin consumed in the mining process is used as a reward based on the Stacks holder’s holdings of Stacks.