How to take advantage of the BTC growth through “economic binding”?

Author: Haotian

With the eye-catching performance of the old coin sector, let me talk about the absolute old coin in the Bitcoin ecosystem, @Stacks.

1) It has no intention of competing for the FOMO trend of BTC layer2, but it has long been a "pioneer";

2) The POX consensus mechanism relies on economic binding to catch the "express train" of BTC growth;

3) sBTC's native BTC cross-chain design, although it does not have Babylon's encryption technology, is "native" enough.

Next, I will analyze the above three points from a technical perspective:

1) As early as 2017, when Bitcoin was still in a dispute between conservatives and innovators, conservatives firmly believed that functions should be simplified and only focused on reserve assets, while innovators believed that BTC needed to expand more application scenarios to support smart contract functions to cope with the competition of new chains such as Ethereum.

Obviously, Stacks chose the latter, which was somewhat "alternative" in the environment at the time. But many years later, the Ordinals protocol set off a wave of BTC on-chain asset issuance, BTC layer2 network expansion, and other extensions and developments around the BTC ecosystem, all of which confirmed that Stacks' choice that year was extremely strategic.

So, to some extent, Stacks should be the originator of this BTC ecological expansion boom, but in this BTC FOMO wave mainly driven by "Chinese", Stacks seems to be "absent" and has not participated too much in the hype and discussion. However, its pure technology orientation and steady development have also allowed it to reap the market's expected dividends for BTC layer2, and its overall market performance is remarkable.

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

2) When it comes to the operating mechanism of Stacks' technical architecture, the overall feeling I give is slightly "alternative". Why do you say that? This has to start with its special consensus mechanism: Stacks did not adopt the POW or POS consensus mechanism that was more common at the time, but adopted a special POX consensus mechanism. Simply put: POX is Proof of Transfer. Miners on the Stacks network must prove to the Bitcoin main network that they have initiated a transfer of BTC to a specific address, and then they can win the "block generation right" of the Stacks network and win the $STX reward. Users (Holders) of the Stacks network, who hold and stake STX for a certain period of time, can obtain the BTC dividends invested by these miners in proportion. It is not difficult to see that the POX consensus mechanism is generally a "two-layer design". The Bitcoin network, as the basic layer, precipitates and locks BTC assets to provide network "consensus layer" security, while the Stacks network is the "execution layer" for the implementation of complex smart contract-related applications and network communication collaboration.

This design fully maintains the authority of the BTC main network and achieves "strong correlation" with the Bitcoin main network through "economic binding". How to understand it?

In addition to the basic network operation and maintenance fees and "electricity fees" for running nodes, the main cost for miners to participate in block production is to invest a certain amount of "BTC". The higher the BTC price, the higher the cost of mining for miners, which also determines the more precious the STX reward;

Users can pledge 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 profit and loss ratio of most POS network pledges cannot withstand the fluctuations of the secondary market itself. Users of the Stacks network can get BTC rewards by staking $STX.

This brings about a "virtuous" internal economic cycle. Miners consume $BTC to fight for the right to produce blocks, and this part of BTC will be distributed to Stakers, making more users willing to actively pledge to obtain BTC rewards, which will then cause the reduction of STX circulation, thereby driving the performance of BTC secondary market prices, and further motivating miners to consume BTC mining.

For miners, if STX mining is unprofitable, the mining industry will not start. 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 terms of anti-market volatility and market ecological stability. Especially when the BTC price continues to be in an upward cycle, the consumption cost and dividend rewards of the entire network will increase simultaneously, which means that the value of the network itself will also increase. Moreover, it can adjust the mining difficulty according to the secondary market price of BTC, and the cost of miners' investment in BTC and the proportion of reward STX will be proportional.

In my opinion, the alternative or advanced nature of Stacks' POX consensus mechanism is that it is bound to BTC, the most stable asset in the market, relies on BTC to provide network security, and obtains network expectations through BTC. The helpless dilemma of "loss" in the long run of pledged assets, which is a common problem of POS networks, has been resolved under the super growth Buff of BTC assets.

3) Recently, Stacks' product manager @andrerserrano shared an Overview of sBTC's upcoming mainnet launch, which shows the uniqueness of sBTC, which is known as the native BTC cross-chain asset.

Compared with the traditional Wrapped version of asset packaging methods that are commonly used for centralized custody assets, chain A locks assets, and chain B Mint assets, sBTC realizes BTC's native security, cross-chain-free, atomic transactions, and non-centralized risk points. How to achieve it specifically?

Stacks uses a multi-signature threshold mechanism to ensure the security of the Stacks network. Therefore, there are a large number of "signers" on the Bitcoin main network to verify transactions and implement multi-signature operations. Users send BTC assets to the designated BTC multi-signature address. After the transaction is confirmed, the signer deployer of the Stacks protocol monitors and verifies the transaction, and then automatically casts the corresponding sBTC to the user on the Stacks network.

The key point is that Stacks deploys a large number of independent signature nodes, such as 100. When the threshold number of nodes is signed and confirmed, the transaction will be truly verified and confirmed, such as (68/100).

In order to understand the advantages and disadvantages of this multi-signature mechanism more quickly, I tried to use @babylonlabs_io to make a comparison: Babylon's special feature is that it uses mathematical encryption algorithm techniques to ensure that nodes do not do evil, because if the node does evil, its private key will be "exposed", which greatly limits its possibility of doing evil;

In contrast, Stacks' mechanism is relatively simple, relying on the trust of a large number of light nodes and a higher threshold design to reduce the probability of evil. Once evil occurs, the Stacks network itself relies on the mechanism of economic bundling to complement each other well, and the more serious Slash penalty characteristics will greatly reduce the risk of node evil.

Of course, this multi-signature security mechanism built up by scale and quantity will also have a feature of being not flexible enough. For example, if most of the node addresses of 100 nodes are changed, the original multi-signature address assets will be forced to migrate. Therefore, Stacks is exploring advanced "dynamic member" management mechanisms such as Multisig2 to expand flexible features such as multi-layer verification mechanisms and hierarchical authority control. In short, we will explore more precise and secure methods to continuously optimize technology.

That's all.

Finally, in addition to technical elements, one thing we have to say is that Stacks has the dual buffs of a US-based company and the first compliant token to be certified by SEC Reg+, which adds a lot of imagination in the current macro context of Trump's "crypto government."