Stacks, Bitcoin layers and the Nakamoto update: Here’s what’s going on

Between Ordinals, Runes, BitVM and a rebuilding ecosystem, the modern crypto era is characterized by a return to the first and largest block chain: Bitcoin.

The hype around Bitcoin Layer 2s, rollups and similar projects is a recent development, but some initiatives have been building on Bitcoin for years. One of them is Stax, whose native token STX is up 70% in the last 3 months and is now a top-30 crypto by market capitalization.

On April 16, Stack is due for the long-awaited “Nakamoto” update, just in time for Bitcoin's halving.

“Stacks is currently the best L2 in terms of total value locked, developer activity and other key metrics,” said Andre Serrano, head of product and development at the Stacks Foundation, in an interview with Decrypt.

In the year Launched in October 2018, Stacks Hash connects itself to Bitcoin by storing a copy of Stacks' transaction blocks in the Bitcoin ledger. It also directly pays those who lock STX into the network, known as “stackers”, in BTC, and rewards “miners” who sacrifice their BTC with newly minted STX.

“Bitcoin product is something that we feel very strong market demand for, so that's definitely a unique feature. [from other L2s]” Serrano added.

Some of Stacks' most popular features include cheaper, faster transactions compared to standard Bitcoin transfers, and access to “smart contracts” like decentralized finance to build advanced applications.

However, there are limitations. As it stands, stack transactions can only be fully confirmed at the rate at which Bitcoin blocks are produced, which can take tens of minutes. Thankfully, Namamoto offers a solution that is expected to settle transactions in five to ten seconds.

“We achieved this by decoupling the Stacks blocks from the Bitcoin blocks, so the Stack miner can produce multiple blocks at once,” Serrano said. The update protects the Stacks blockchain from “reorgs” by linking Stacks' forking feature directly to Bitcoin, making Stacks transactions as secure as Bitcoin.

Beyond speed and security, the update creates a number of benefits for the wider ecosystem, such as expanding the scope of viable DeFi applications and improved productivity for stackers.

“The native Bitcoin product to participate in overlays is somewhat closed for a reason. [Maximal Extractable Value] Mitchell Cuevas, executive director of the Stax Foundation, explained. “We also believe that mining will become easier and more profitable, so you will have more players competing for these blocks… We expect to see APY go up.”

The next update that Nakamoto will inject into Stacks' pipeline will introduce sBTC, a “reduced trust” method of linking one's BTC holdings to the Stacks blockchain.

Trustless Bitcoin bridges have long been seen as a key to unlocking BTC's potential while remaining decentralized. No perfect solutions have yet been found, but Stacks says the method is “very close.”

“It uses what's called a login signature,” Serrano said. Every two weeks, the Stax network verifiers receive a fragment of the user's private key that controls 1 BTC and achieve a “distributed key generation event.”

Validators include every network user who accumulates STX tokens that Nakamoto is required to connect as a validator after going live. 70% of those validators are required to approve BTC deposits and withdrawals.

“We're expecting twenty to thirty validators when sBTC launches, and I think there's a way to be dozens, if not hundreds, in the future,” Serrano said.

Stakes bridging is very different from bridges managed by federations, such as Liquid or Rootstock, with their bridging systems, which creates a fundamental element of blockchain centralization.

Today, there is growing excitement in the Bitcoin developer space over the potential of BitVM-powered Bitcoin rolls, which can significantly reduce the trust assumptions required to connect BTC to other chains. There is still some debate over their limitations and implications, but the consensus is that they show major promise. Working bridges could be in place as early as 2025.

“BitVM has been very helpful with Stacks, and we've been in direct contact with their team to try and support what they're doing,” Quaes said. “As we try to grow around these layers, there is a chance that BitVM will become the core infrastructure for the Bitcoin ecosystem.”

The Stax Foundation has allocated $500,000 for BitVM research and development and has opened a position seeking a BitVM researcher.

Cuevas believes that the direction of BitVM and Bitcoin's decentralized growth is healthy and encouraging. Bitcoin devs can look at the mistakes of the developers before them who built them more carelessly than other protocols.

“The most important things that people need high security, peace of mind … you're going to eventually have a lot of options to bring that down to Bitcoin,” Quaes said.

“It's great for us to see that we're not the only ones in town anymore.”

Edited by Ryan Ozawa.