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Cryptocurrency Guide | Guides

What Is Stacks (STX)? All You Need To Know

Author

Jay Solano

Tags

Tags Editor's Choice / Slider Posts

Reading time

4 mins
Last update

Author

Jay Solano

Tags

Editor's Choice / Slider Posts

Reading time

4 mins
Last update

Author

Jay Solano

Tags

Editor's Choice, Slider Posts

Reading time

4 mins
Last update

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Key Takeaways

  • Stacks (STX) bridges the gap between Bitcoin and advanced functionalities. It adds features like smart contracts and dApps to the Bitcoin blockchain, leveraging Bitcoin’s existing security.
  • Stacks aims to combine the security of Bitcoin with the innovation of smart contracts and dApps, offering a secure platform for developers and users.

Bitcoin, the first and most secure cryptocurrency, has limitations. For example, it lacks features like privacy and smart contracts. This has led to many new cryptocurrencies, each aiming to address these limitations. Stacks (STX) is one such project. It bridges the gap by adding these functionalities to the existing Bitcoin blockchain.

What is Stacks (STX)?

Stacks (STX) is a cryptocurrency project that enables new functionality into the Bitcoin blockchain. Originally called Blockstack, it was rebranded in 2020. Here’s what STX offers:

  • Smart Contracts and dApps: Unlike Bitcoin, Stacks allows smart contracts and decentralized applications (dApps) to be built on its blockchain, opening the door to new financial products and services.
  • Security leveraged in Bitcoin: Stacks are a separate layer built upon Bitcoin’s foundation. This means applications on Stacks are verified through Bitcoin’s security and stability.
  • Building on top of each other: Stacks applications are built with reusable components, allowing developers to create powerful features by combining existing ones.

How Does Stacks Work?

Stacks uses a unique system with miners who stake Bitcoin (BTC) to compete for STX rewards (Proof of Transfer). Each block stores user data and interacts with Stacks apps. It leverages Bitcoin’s security for user IDs, wallets, and smart contracts. Stacks has a secure coding language (Clarity) and offers flexible data storage (cloud or personal cold storage). The core token (STX) is used to register assets, run smart contracts, and process transactions on the Stacks blockchain.

What Makes Stacks Unique?

Stacks stands out for its detailed development process and focus on security. Unlike many cryptocurrencies, Stacks spent eight years in development before launch. It extends with the Bitcoin blockchain, leveraging its security but adding functionalities like smart contracts through its Proof of Transfer consensus mechanism. 

Stacks features its own secure smart contract language and a unique data storage system that allows users to choose between cloud or cold storage solutions. Stacks received the first-ever SEC-approved token offering for a blockchain project, boosting its position as a unique and innovative player in the crypto space.

What Gives Stacks Value?

STX value depends on the following:

  • Platform Adoption: More users on Stacks means more demand for STX.
  • Smart Contract Usage: Developers building on Stacks (using STX) boost their value.

Miners commit BTC for STX rewards, but reward potential relies on STX price. Without an active developer ecosystem, STX value could fall as miners lose incentives.

How Does Stacks Maintain Network Security?

Stacks secures its network through a two-layered approach:

  1. Bitcoin’s Proof of Work: Stacks got the security of the established Bitcoin network. Thousands of miners and nodes on Bitcoin work together to make manipulations difficult.
  2. Stacks’ Proof of Transfer (PoX): This unique system requires miners to lock up Bitcoin (BTC) to earn Stacks (STX) tokens. This reinforces security by linking the value of both networks.

Additionally, Stacks transactions can scale independently, with final verification and security guaranteed by the Bitcoin blockchain. This allows for efficient processing without compromising safety.

How To Use Stacks?

Stacks (STX) powers the network:

  • Runs PoX: Connects Stacks to Bitcoin and fuels its consensus mechanism.
  • Builds dApps: These are used by developers to create and deploy smart contracts and decentralized applications.
  • Manages Assets: Creates permanent, transferable digital assets on the blockchain.
  • Pays Fees: Covers transaction costs for smart contract deployment and execution (burned STX reduces supply).
  • Earns Rewards: Users can lock STX to earn Bitcoin rewards (sourced from miners’ BTC commitments).

Stacks Mining

Unlike traditional mining, Stacks miners commit existing Bitcoin (BTC) to compete to earn STX tokens.

  • More BTC, Higher Chance: The amount of BTC committed increases a miner’s chance of winning.
  • Profitability Depends on Price: Success relies on the relative price of STX vs. BTC. A rising BTC price with stagnant STX could make mining unprofitable.
  • Halving Schedule: Similar to Bitcoin, STX rewards per block will halve over time, starting at 1,000 STX and eventually reaching a fixed amount of 125 STX.

Final Thoughts

Stacks (STX) has bridged Bitcoin’s established security and the innovative functionalities of smart contracts and dApps. By adding these features to the Bitcoin blockchain, Stacks offers a secure platform for developers and users alike.

The project has several unique features: a secure coding language, flexible data storage options, and the distinction of being the first blockchain project with an SEC-approved token offering. However, the value of STX relies on user adoption and developer activity within the Stacks ecosystem.

While Stacks uses a two-layered security approach to inherit Bitcoin’s strength, the profitability of mining STX depends on its relative price to Bitcoin. A healthy developer scene is important to maintaining STX value and rewarding miners. Stacks presents a promising solution for blockchain innovation, but its long-term success relies on building an active ecosystem.