Stacks (STX): A Look at Bitcoin L2 Ahead of the Nakamoto Upgrade

About Stacks 

Stacks (STX) facilitates smart contracts, decentralized applications, and NFTs on the Bitcoin network, preserving its key features of security and reliability.

The Stacks journey began in 2013, initiated by computer scientists Muneeb Ali and Ryan Shea under the original name Blockstacks. The project evolved into Stacks 2.0, which launched in 2021.

Investors and SEC Endorsement?

Between 2014 and 2017, the project attracted around $55 million from venture capitalists, including notable names like Digital Currency Group, Union Square Ventures, SNZ Holding, HashKey Capital, Spartan Group, Lux Capital, and others.

A landmark ICO in 2019 raised $28 million, becoming the first crypto token sale conducted under Regulation A+ and approved by the U.S. Securities and Exchange Commission (SEC).

Post the early 2021 rollout of the Stacks 2.0 network, the project exceeded SEC oversight due to the definitive clarification that the STX token is not a security.

How Stacks Works

At the time of writing, Stacks uses the Proof-of-Transfer (PoX) consensus mechanism. This system bridges Bitcoin miners (in an unconventional sense) and stackers (specifically stackers, not stakers) of STX coins. Miners earn STX rewards, whereas stackers gain in BTC. Below is an illustration of this mechanism's functionality.

For smart contract creation, Stacks employs the Clarity language. This language's unique feature allows developers to ascertain with mathematical certainty the capabilities and limitations of a contract before execution.

The Nakamoto Upgrade and Introduction of sBTC?

The team behind the project recognizes that the current Proof-of-Transfer mechanism is not without its flaws, which has led to the significant forthcoming update dubbed Nakamoto. This upgrade is slated for rollout between April 15-29, with its activation planned for May 15-29.

What does the Nakamoto upgrade bring?

– Quicker block generation;

– Transaction finalization on par with the Bitcoin network;
– Enhanced Bitcoin Miner MEV Resistance;
– Establishing a foundation for Bitcoin DeFi and equipping the network to support sBTC*.

*sBTC represents a Bitcoin-backed asset at a 1:1 ratio. Essentially, it acts as a programmable version of BTC, tailored for developers aiming to build applications and smart contracts on the Bitcoin network. sBTC aims to streamline the movement of BTC within and outside the Stacks L2. Its launch is anticipated 2–3 months post the Nakamoto upgrade.

What is STX?

STX is the native cryptocurrency of the Stacks blockchain, used for transaction fees and to facilitate network operations via staking. As previously mentioned, staking STX yields Bitcoin rewards.

The issuance of STX is finite, with over 1.4 billion coins currently in circulation, which constitutes 79% of its maximum supply. Post the deployment of Stacks 2.0, the network's block creation reward progressively decreases, mirroring Bitcoin's approach.

STX is available for purchase on several centralized exchanges, including OKX, Coinbase, Kraken, Kucoin, and Binance.

Future Outlook? 

Is the STX token a good investment? From a fundamental standpoint, the project is robust, and its token potentially stands to revisit its peak values or even surpass them. Moreover, STX is likely safe from SEC actions and, as noted, has a capped supply, which is advantageous for the long-term inflation outlook.

However, it's crucial to acknowledge that the coin has already seen a substantial rally, fueled by the U.S. approval of spot Bitcoin ETFs and the advent of Bitcoin Ordinals. Predicting the continued momentum of Bitcoin-centric projects is complex. It may well be that the opportunity has passed.

This piece does not constitute financial advice. Always conduct thorough research before investing.