Stacks (STX-USD) is “an open-source blockchain network that leverages the security and capital of Bitcoin (BTC-USD) for decentralized apps and smart contracts.”
To put it more clearly, Stacks is a layer-1 blockchain solution that is designed to bring smart contracts and decentralized applications to Bitcoin to build a better internet on Bitcoin. How is this possible? Starting with addressing one main problem of Bitcoin, Stacks has plenty of utility to explore.
Stacks’ Focus
The core problem of Bitcoin that Stacks is addressing the need for more functionality.
Bitcoin is a speculative investment, a store of value and digital money. But it has many more useful applications worth developing. One major question related to Bitcoin is how to get a two-way peg system that will be completely trustless and improve its functionality. A two-way peg system allows the transfer of Bitcoins from the Bitcoin blockchain to a secondary blockchain and vice versa, creating a sidechain.
This sidechain can be more programmable, allowing the development of smart contracts and useful applications. This makes native Bitcoin transactions more interesting.
Stacks is using this approach by researching and developing the two-way peg model. This adds practical solutions and enhances expressive Bitcoin transactions and Bitcoin swaps. Stacks is taking Bitcoin steps further in terms of security and stability.
Clarity Smart Contracts: Improving Bitcoin Transactions
Stacks has developed a new smart contract programming language known as Clarity, which is designed to be both secure and easy to build. Clarity smart contracts can read Bitcoin transactions, making them expressive Bitcoin transactions. Thus, allowing developers to be more focused on making functions and features more creative and effective.
Whenever Bitcoins transactions are performed, Stacks smart contracts can react to them. This adds more meaning as triggering conditions on the smart contracts give users the potential to purchase as an asset or make a swap through native Bitcoin transactions.
Top Features
Stacks is adding more functionality to decentralized finance, non fungible tokens (NFTs), apps, and smart contracts for Bitcoin, without the need to change the original Bitcoin blockchain.
It is notable that “[t]he Stacks chain is tethered to Bitcoin through its Proof of Transfer consensus mechanism, so all Stacks transactions settle on Bitcoin.”
This Proof of Transfer (PoX) is a blockchain consensus mechanism that is the first to connect two separate blockchains, Bitcoin and Stacks.
Among the top benefits of the PoX mechanism is the ability for anyone to mine without any special hardware. There is also a sustainability benefit, as the electricity spent to secure Bitcoin can be reused by Stacks. Additionally, there are more business model opportunities to explore. Network participants can earn a Bitcoin yield for helping to secure the network.
This Bitcoin yield is not negligible, as during the last stacking cycle, the annual percentage yield was 8.2%. By supporting the Stacks network, users lock in their STX tokens and they get rewarded in Bitcoin.
Stacks also supports the Blockchain Naming System, a network system that allows users to create forever usernames that have three important properties. First, they are globally unique. Second, they are human-meaningful as the creator is the one that chooses the usernames. Third, they are strongly owned, meaning only the owner can change it.
Decentralized Apps on Stacks: Growing Helped by Clarity
Currently, there are 26 decentralized apps on Stacks. This number is expected to increase as Clarity has several benefits for the developers in creating new applications. Clarity is predictable, decidable, secure, and enhances visibility into Bitcoin.
Should You Invest in Stacks?
STX Token is trading at $1.44, having fallen off its high price of $2.46 in January. I believe the token has utility, but do not forget that it remains highly speculative and volatile. I am not convinced its market capitalization of nearly $1.9 billion is warranted.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
