What is Stacks
Stacks is a layer-1 blockchain that connects to Bitcoin for security and enables decentralized apps and predictable smart contracts.
Stacks implements the PoX (Proof of Transfer) mining that anchors to Bitcoin’s security.
Leader election happens at the Bitcoin blockchain level and STX miners write new blocks on the connected Stacks blockchain. With PoX there is no need to modify Bitcoin to enable smart contracts and apps around it.
There are two types of participants as part of the PoX consensus mechanism: (a) STX miners, and (b) STX holders.
Miners view state on both the Bitcoin blockchain and the Stacks blockchain. Miners participate in leader election by sending transactions on the Bitcoin blockchain and get newly minted STX (coinbase rewards), transaction fees paid to them in STX, and Clarity contract execution fees of each block also paid in STX.
STX miners express the cost of mining in BTC and spend BTC to participate in leader election. The STX miners can model the total value of a new Stacks block as a BTX/STX on-chain trading pair, and will participate in mining if they can get cheaper STX from mining than from outside exchanges.
Proof of Transfer (PoX)
Proof of Transfer (PoX) is the first consensus algorithm between two blockchains. This particular implementation of PoX is using Bitcoin as the base chain and Stacks as the connected chain.
In PoX, leader election happens on the Bitcoin blockchain. Instead of burning electricity on proof of work, PoX reuses already minted bitcoins as “proof of computation” and miners represent their cost of mining in bitcoins.
STX miners bid for becoming the leader of the next round. The protocol selects the winning miner (i.e., the leader) of a round using a verifiable random function (VRF). The leader writes the new block of the Stacks blockchain and mints the rewards: newly minted Stacks for the block, fees for smart contracts and transactions.
Bitcoins used for miner bids are sent to a set of specific addresses corresponding to Stacks STX tokens holders that are actively participating in consensus by stacking their STX token.
Thus, rather than being destroyed, the bitcoins consumed in the mining process go to productive Stacks holders as a reward based on their holdings of Stacks and participation in the Stacking algorithm.
Holders can participate in consensus and earn BTC rewards by participating in a process called Stacking.
To participate, users lock their STX for a reward cycle (approx two weeks), run or support a full node, and send useful information on the network as STX transactions.
STX holders who actively participate in Stacking earn the Bitcoin rewards of that cycle. Unlike proof of stake, there is no risk of slashing (economic penalties by protocol) for STX holders.
Stacking on the Self-Hosted Wallet
Binance had some trouble with their withdrawal system and it was temporarily paused so I waited patiently until I could withdraw into my wallet and start stacking.
Because I had such a small amount of STX tokens, I had to join a stacking pool which I found listed on the Stacks website and I chose to join PlanBetter.
The instructions are quite easy to follow and they also have a Discord server where you an ask for help, like I did. Very helpful people (especially bumblebee) got me sorted out in no time, I delegated my Stacks to the appropriate address and I was stacked to the core on my own self-hosted wallet.
Stacking works on locking up your STX to signal to miners the current state of the network. So it gives an added signal to honest miners on the network.
Stacking on OkCoin
After realising that this is such a simple process, I decided to move as much of my available tokens to STX. I had set aside a few thousand satoshis for the purposes of speculatively trading during this current bull-run (at time of writing, we’re experience the post 2020 bitcoin bull-run) but thought to myself, who needs to put so much funds at risk when there’s a much easier method to earn a regular return.
So I decided to check out OkCoin’s staking facility. I transferred some STX to them, this time from KuCoin, where I liquidated a DGB tokens, who needs to speculate on a s#*tcoin if you can grow your BTC holdings one sat at time, right?
So these are my results and since it’s still early days, I’m yet to receive any rewards. I shall update this post when I have something more to share.
Compounding crypto using Staked!
Another place that I’ve just only come across, in researching this article, is Staked which seems like a one stop shop for staking multiple coins. I look forward to checking them out in greater details in a later post.
So for someone who only used Stack’s apps when they were still known as Blockstack, I’m glad that I took the effort to learn how to stack this token and participate in the consensus to keep the network secure but more important to earn the bitcoin that’s part of the reward system.
In future posts, I shall be reading the white paper in depth and creating more content about this very amazing project that I believe everyone must get involved in. Please join me and if you need any help contact me.