Technical Analysis of Stacks: BTC Layer2 "Pioneer" from a Technical Perspective

Authored by: Haotian

Taking advantage of the eye-catching performance of this wave of old coin zones, let me talk about the absolute old coin in the BTC ecosystem, @Stacks.

1. No intention to fight the fear of missing out on BTC Layer2, 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 native BTC Cross-Chain Interaction design, although lacking Babylon's encryption skills, is 'native' enough.

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

1）Back in 2017, when BTC was still in the midst of a debate between the conservatives and the innovators, the conservatives firmly believed that it should simplify its functionality and focus solely on being a reserve asset, while the innovators believed that BTC needed to expand its use cases to support Smart Contract functionality in order to compete with new chains like Ethereum.

Obviously, Stacks chose the latter, which was somewhat 'unconventional' at the time. However, many years later, the boom of BTC on-chain asset issuance stirred up by the Ordinals protocol, the expansion of the BTC layer2 network, and various developments surrounding the BTC ecosystem have all proven that Stacks' choice back then was extremely strategic.

Therefore, to a certain extent, Stacks should belong to the originator of this BTC ecological expansion boom, but under the tide of BTC fear of missing out, which is mainly driven by "Chinese", Stacks seems to be "absent" and has not participated too much in the momentum and discussion, however, its pure technology-oriented and steady development has also allowed it to eat the market's expected dividends for BTC layer2, and the overall market performance is remarkable.

After all, as a 'pioneer', and after 7 years of precipitation and market validation, Stacks has explored a complete set of technology stacks, providing a viable solution example for BTC to explore smart contract practices;

2. Speaking of the operational mechanism of Stacks' technical architecture, it gives me a slightly unconventional overall impression. Why do I say that? This needs to be explained from its special Consensus Mechanism:

Stacks did not adopt the more common POW or POS Consensus Mechanism at that time, but instead used a special POX Consensus Mechanism, which is simply understood as: POX is Proof of Transfer.

Miners on the Stacks network need to prove to the BTC Mainnet that they initiated a transfer of BTC to a specific Address in order to win the right to mine blocks on the Stacks network and earn $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 as a whole tends to be a "dual-layer design", with the BTC network serving as the underlying layer to settle and lock BTC assets to provide network security for the "Consensus layer", while the Stacks network serves as 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 BTC Mainnet through 'economic binding'. How should we understand this?

In addition to the basic operating and maintenance costs of running a Node network and the 'electricity fee', the main cost for Miners to participate in block generation is the investment in a certain amount of BTC. The higher the price of BTC, the higher the cost of Miner 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 the way most POS networks maintain security. The difference is that the economic gains and losses of most POS networks' stake cannot withstand the Fluctuation of the Secondary Market itself. On the other hand, users of the Stacks network can stake $STX to earn BTC rewards.

This brings about a 'benign' economic internal circulation, where 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 to get BTC rewards, thereby causing a reduction in STX Circulating Supply and driving up 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 cannot take off. For users, the risk of staking STX assets can be hedged by obtaining real BTC rewards.

This special economic incentive mechanism gives it advantages in resisting market fluctuations and stabilizing the market ecosystem, especially when the BTC price continues to rise. The cost of the entire network and the Dividend reward will increase synchronously, which means that the value precipitated 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 Miner inputting BTC and the ratio of rewarding STX will be proportional.

In my opinion, the uniqueness or forward-looking aspect of Stacks' trap POX Consensus Mechanism lies in its binding to the most stable asset in the market, BTC, providing network security and gaining expected network enhancement through BTC. The plight of stake assets in the POS network, which originally tended to 'lose' in the long term, has been resolved under the super rise Buff of BTC assets.

3. Recently, @andrerserrano, the product manager of Stacks, shared an Overview of sBTC's upcoming deployment on the Mainnet, highlighting the unique features of sBTC as a native BTC cross-chain interaction asset.

Compared to the commonly used centralized custody of assets, the traditional Wrapped version of asset packaging, where Chain A locks assets and Chain B Mints assets, sBTC achieves BTC's native security, cross-chain-free, atomic transactions, decentralized risk points, and other technical Native features. How is this specifically achieved?

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. When users send BTC assets to a designated BTC multi-signature address, after the transaction is confirmed, the signers deployed by the Stacks protocol's monitoring and verifying the transaction 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, and the transaction will only be truly verified and confirmed when a sufficient number of nodes reach the threshold for signature confirmation, such as (68/100).

To better understand the advantages and disadvantages of this multi-signature mechanism, I tried to compare it with @babylonlabs_io: The special feature of Babylon is the use of mathematical Encryption Algorithm techniques to ensure that Nodes do not act maliciously, because if a 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. It relies on the trust of a large number of light nodes and a high threshold design to drop the probability of malicious behavior. Once malicious behavior occurs, the Stacks network itself relies on the mechanism of economic bundling to complement it well. The severe slash punishment feature will greatly reduce the risk of malicious behavior by nodes.

Of course, this kind of multisig security mechanism built on scale and quantity also has a characteristic of being less flexible. For example, if most NodeAddresses among 100 Nodes are changed, the original multisignature Address assets will be forced to migrate. Therefore, Stacks is exploring advanced 'dynamic member' management mechanisms such as Multisig2 to expand the flexible features of multi-layer verification mechanisms and hierarchical control of permissions. In short, we will explore more sophisticated and secure methods to continuously optimize technology.

Above.

Finally, apart from the technical elements, it has to be said that, in addition to the Stacks having the dual buff of being a ComplianceToken registered with SEC Reg+ and being supported by a US domestic enterprise, this adds a lot of room for imagination in the macro background of the current "encryption government" under Trump.