Step Aside, Ethereum: Blockchain Project Stacks Wants to Bring Smart Contracts to Bitcoin
Blockchain project Stacks has published a whitepaper showing how a new digital asset called “Stacks bitcoin” (sBTC) can be used to make Bitcoin fully programmable.
Unlike Ethereum or Solana where developers can conjure up all manner of algorithmic machinations – think six-figure gorilla avatars – Bitcoin’s simpler scripting language limits what Bitcoin developers can create on the platform.
Stacks, an existing smart contract platform, wants to break through those limitations by introducing a new digital asset derived from bitcoin – sBTC (pegged at 1:1 with bitcoin) – that can be used to create smart contracts on Stacks, but can also be readily converted back to bitcoin (BTC).
“Bitcoin is, by design, relatively slow and does not natively provide the fully-expressive smart
contracts needed to build sophisticated applications,” the whitepaper states. “Faster and more sophisticated applications must therefore be built outside of the base layer. Bitcoin layers enable this.”
The term “layers” is Stacks’ lingo for any system outside of Bitcoin’s base layer, such as a sidechain, which is a secondary blockchain that interacts with a primary blockchain. In the whitepaper, Stacks acts as a Bitcoin sidechain, powered by both sBTC and STX – Stacks’ native token.
The project claims in its white paper that its Bitcoin sidechain can unlock “hundreds of billions of dollars” in DeFi on Bitcoin.
The concept is still in the implementation phase and will be formalized under Stacks Improvement Proposal (SIP) 21, according to Stacks co-founder, Muneeb Ali.
“The vote went through and implementation has started,” Ali confirmed during an interview with CoinDesk.”This is going to be the next major release. My best guess is maybe eight to nine months from now.”
How sBTC works
The current Stacks protocol uses a consensus mechanism (how computers agree on the state of a network) called “proof of transfer,” where anyone can be a miner or “stacker.”
Miners earn STX rewards for mining Stacks blocks, but must first post bitcoin to earn mining privileges. That bitcoin is subsequently distributed as a reward to stackers who maintain a copy of the Stacks ledger; stackers must also lock up STX for a certain length of time to receive stacking privileges.
In the proposed sBTC peg system, users send regular bitcoin to a wallet controlled by stackers (a process referred to as “pegging in”). This action mints an equivalent number of sBTC that can be used in smart contracts on Stacks.
To get their bitcoin back (“pegging out”), users return sBTC to the wallet. Stackers then sign these peg out requests and release the equivalent amount of bitcoin back to the users. This also prompts the Stacks protocol to burn the corresponding sBTC.
“It's a fully trustless system. It's a protocol,” says Ali. “There is a dynamic set of signers who have economic incentives to be signers and they sign the peg transactions.”
Bitcoin sidechains aren’t new. Blockstream, a Bitcoin infrastructure firm, published a whitepaper on sidechains as early as 2014, and currently has a fully functional sidechain federation called Liquid.
Earlier this month, Layer 2 Labs raised a $3 million seed round from angel investors to develop “drivechains,” another flavor of Bitcoin sidechains.
In addition, Bitcoin developer Ruben Somsen has been working on “spacechains,” which he describes as “one-way pegged sidechains for Bitcoin.”
So what new innovation does sBTC bring to the sidechains conversation? Ali claims the sBTC model is unique in that anyone can be a miner or stacker. He sees the use of STX to incentivize stackers to sign peg out requests as a distinct advantage, although alternative projects tend to avoid the use of altcoins such as STX like the plague.
Afaict this is like tBTC, Thorchain, etc. I categorize this as "altcoin-backed BTC derivatives". You lock up ~1.5x in altcoin collateral to incentivize redemption in BTC. Only works if the altcoin is worth something – big if.— Ruben Somsen 🌌⛓️ (@SomsenRuben) December 15, 2022
Basically this still applies:https://t.co/Q0QcWR93rc
“It's a trade off,” Ali explains. “The trade off you're making with Liquid is that users need to trust Blockstream and friends – the federation. On Stacks, because there is the extra [STX] token, there is no company in the middle. So you can pick one; you can't have both.”