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Stacks. Enabling Decentralised Applications on Bitcoin

It’s safe to say that advent of the Ethereum network sparked the waves of innovation and decentralised application development – from DeFi to NFT’s – that we’ve witnessed over the past few years. And although Ethereum itself was inspired by the perceived limitations that Bitcoin…


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It’s safe to say that advent of the Ethereum network sparked the waves of innovation and decentralised application development – from DeFi to NFT’s – that we’ve witnessed over the past few years. And although Ethereum itself was inspired by the perceived limitations that Bitcoin imposed on developers looking to experiment and build, many within the Bitcoin community have always maintained that the original crypto-network would ultimately act as the foundational layer for a much wider range of applications sitting on top of it in multiple layers. Stacks is one such project that can trace its routes back to 2014 – the same year Ethereum was announced to the world. Host Teana Baker-Taylor was joined by Stack’s founder, Muneeb Ali, to hear about their progress, recent upgrade and adoption.

Founder's Journey

Muneeb has a background in academia with a speciality in distributed systems, and his entry into crypto was to build a secure decentralized internet.

In the process, he discovered blockchains more specifically, the bitcoin blockchain, to be the solution of choice for building other types of decentralized systems like decentralized domain names or public key infrastructure, different types of username systems and smart contracts.

Muneeb believes that the core vision is what inspired a lot of other projects like Ethereum and more recently some of the next generation blockchains. The difference, however, is that Stacks remains a Bitcoin purist, with a firm belief that Bitcoin is the most solid foundation for building smart contracts.

(02:39) Muneeb believes trying to start a new blockchain to solve emerging problems in many ways is easier than working with Bitcoin as it is.

“…starting something new is easier. If you want to start a new blockchain, you are more in control and you can design it however you want versus trying to work with bitcoin which is in many ways harder because bitcoin is durable, it’s immutable, you can’t change it but bitcoin has a lot of nice properties that would be very hard to achieve as an independent system. It has the highest level of security, it has a very large community behind it, and the rise of bitcoin might be a once in a lifetime type of an event,” Muneeb said.

While you have to do the hard work of adapting your solution to bitcoin, in the end, that hard work is going to pay, Muneeb said.

Building a Decentralized Web

(04:20) From the very genesis of the web in the 90s (what is called web 1.0), it was more peer-to-peer, with very few large companies in the middle.
In web 2.0, with the rise of Facebook and other types of web 2.0 companies, centralization emerged with people instead of running their computers, depend on large service providers and their data centres with huge chunks of personal data sitting in large companies.

(05:06) In some ways, a decentralized web, web 3.0, is going back to the roots but this time guaranteeing that it can be decentralized more fundamentally.

(05:16) “Think about bitcoin, you have your private key and as long as you keep it secure, no one can take your bitcoin from you. Similarly, these private keys can secure your usernames, your data, different assets like NFTs or your participation in a decentralized financial application,” Munneb explains.

The vision of web 3. 0 is not just decentralizing products that already exists but creating a completely new type of services and use cases that were simply not possible before.

Limitation of Stacks V1.

The crypto landscape can be divided into separate tracks; decentralized finance and the more general-purpose decentralized applications.

(06:42) Decentralized Finance (DeFi) is about decentralized exchanges, automated market makers, liquidity protocols and is usually heavily dependent on smart contracts.

(05:06) The second track is about things like decentralized social networks or even
NFTs. Unlike the former, a lot of other types of services are needed beyond smart contracts to make them work.
A decentralized social network for example needs a decentralized storage system or a decentralized identity system to work.

(07:24) “I think our project started more heavily in the decentralized application space and we built out all the core infrastructure needed for decentralized identity design, storage, and how to register user names…Interestingly, in the industry, the order is reversed. Smart contracts took off first and I think the decentralized social networks and decentralized photo sharing are still down the road,” Muneeb said.

Stacks has been working on its smart contract language since 2017 and it went live early in January. Clarity, the language is it has built is a very powerful language that gives formal verifications for multiple programs. Developers can have mathematical proofs to clarify if the smart contract works and for which action. Clarity gives developers full visibility into Bitcoin in a way that can bring smart contracts to Bitcoin.

Stack's Consensus Mechanism

The design of the latest version of Stacks, version 2.0, is informed by the experience of building on the Bitcoin network over the past few years, Muneeb said.

(11:15) “…if you rewind the clock to 2016/2017, it wasn’t very clear that our transactions was going to scale on the bitcoin blockchain itself. The entire debate was around big blocks, small blocks and so on but over time once those big block type wars settled it was abundantly clear that Bitcoin is going to become a settlement player. You’re not going to buy your cup of coffee by paying a 50 dollar transaction fee on Bitcoin…That informed the design of Stacks 2.0 where we wanted to use Bitcoin as a settlement layer. That’s how scalability comes because we can settle a thousand transactions or a million transactions in a single bitcoin settlement transaction on the bitcoin layer,” Muneeb explained.

(12:29) Stacks is not building a new blockchain because it wants to leverage not only bitcoin’s proof of work and the security of the network but also the trillion dollars of capital.

Stacks has been designed such that if someone attacks it, they would need to attack Bitcoin itself, Muneeb said.

(13:16) “The way proof of transfer works is, instead of doing your proof of work, you are looking at Bitcoin that was produced using proof of work as a proof of computation. So people are spending bitcoin to settle transactions on the Stack chain on top of bitcoin. They’re not consuming any additional energy. They’re not doing any hash calculations so it’s a green solution as well,” Muneeb stated.

(13:58) Unlike, proof of stake, Stacks doesn’t have
the bootstrapping problem because you’re using proof of bitcoin’s proof of work. Anyone can independently verify the correct state of the blockchain. Another criticism of proof of stake is that as an individual acquires a large number of tokens on the network, and they gain a lot of power to affect the network decision. Stacks also resolves this.

(14:31) “If you’re a large exchange or you’re a large holder in proof of stake you have more of an
influence on the network consensus mechanism. That is not the case with proof of
transfer, mining is completely permissionless and decentralized and your holdings of the asset has nothing to do with mining,” Muneeb said.

How Rewards Work

(15:14) Mining mechanisms work such that the people who are coming in are doing the work because of newly minted tokens, transaction and gas fees in the block. People who are willing to do that work become Stacks’ miners.

(15:38) Stacks miners also operate on the bitcoin blockchain and millions of dollars of bitcoin have already traded through its proof of transfer mechanism on the Bitcoin blockchain.

The Clarity Smart Contract Language

(16:20) At the ends of the spectrum of smart contract languages are Bitcoin Script and the Turing Complete Language. Bitcoin Script is extremely limited on purpose to keep the attack surface area in Bitcoin as minimal as possible. The other end of the extreme, the Turing Complete language (like Solidity) allows the developer a lot of control to do whatever they want to do. While that is powerful, developers can also hurt themselves because the attack surface area is very large.

(17:17) Clarity sits in the middle of that spectrum we
where the programming language is general and expressive enough that you can almost program anything but it is restricted in certain ways to have formal verifications that protect the developers from themselves.

(17:48) “…we’re extracting the right balance with Clarity because there’s a night and day difference between a developer knowing what the program is going to do before you execute it. In solidity and ethereum, there’s a gas estimate. It’s an estimate because you don’t know exactly what the program is going to do and how much gas is going to get consumed. So imagine these programs have hundreds of millions or maybe even billions of dollars on it, programmers aren’t even sure how exactly the program is going to execute, whereas in the decidable world (like Clarity) you know precisely what the program can do, and what it cannot do even before running.

Algorand on Clarity

(18:43) Algorand announced support for the Clarity language in their blockchain because of its features like decidability and predictability and  implementing it in the algorithm’s blockchain. The difference of running clarity in Stacks versus running it on Algorand is that on Stacks, you get direct access to Bitcoin state because of how the blockchain is designed.

Stacks v2.0

Stacks 2.0 brings smart contracts to the blockchain and it to be more expandable in usage compared to the v1, which was fairly limited in its use cases.

The first version of Stacks focused a lot on decentralized social networks type application or decentralized privacy type applications. At its peak, there were more than 400 applications built on top. With smart contracts on stacks, a lot of the interest is in developing.

DeFi for bitcoin or NFTs for bitcoin in addition to the type of applications that we were seeing before.

How To Build on Stacks

Visiting the doc side of and learning Clarity would be the first step, Muneeb said.

(22:12) As an incentive to build on Stacks, there’s an independent Stacks foundation that has around 100 million stacks (north of 100 million dollars) and focused on enabling developers and giving out grants to developers.

There’s also an independent stacks accelerator focused on enabling small teams to find product-market fit early

(22:42) “…a lot of these projects in crypto have big war chests and they tend to throw a lot of money at building applications. That’s not really how you find product market fit. Sometimes product market fit comes from just a handful of close team members who are constrained by resources and they’re really trying to build something that people actually want and I think the stacks accelerator is modelled after that,” Muneeb added.

New Focus And RoadMap

According to Muneeb, Stacks the company is now focused on building developer tools for the network and has reached the stage where the network has fully operate independently of it.

(23:46) “We were the project to have the first-ever SEC qualified token offering that was public, transparent and anybody could participate in it, including people in the US. Then we went through a very explicit decentralization process…worked with the regulators came up with the explicit decentralization mechanism where my company early on was building a lot of the core protocols and public infrastructure. Then it was like hands-off when Stacks 2.0 was launching. It was truly launched by independent miners and my company now focuses on building developer tools on the network. We have reached a stage where even if this one company disappears, the network can easily survive because it’s so decentralized,” Muneeb added.

Taproot Network Upgrade

(25:33)  “I’m a big supporter of taproot. I am very confident that it’s going to get adopted. I think that in the latest numbers, maybe north of 94% of signalling was in support of taproot. I think that would make a bunch of things much easier. For example, the size of certain transactions can be reduced…it can help with privacy. But in general, my view on Bitcoin remains the same that you can have incremental improvements to Bitcoin but you’re not going to drastically change it,” Muneeb said.

Bitcoin & Energy Transfer

Muneeb believes the conversation on energy is important and eventually settles on the trade one has to make for reduced energy usage.

(29:22) “When you see people who say, we have a green blockchain, the question is what type of tradeoffs are you making and are those trade-offs the right fit for sovereign money and very quickly you would realize that the kind of
tradeoffs that they’re making is that the system might be much more centralized or you cannot independently verify the correct version of the blockchain which is a showstopper,” Muneeb stated.

In addition, lightning channels like Stacks can scale transactions on top so the base layer, Muneeb said.

These scalable transactions in terms of micro blocks on Stacks that settles on Bitcoin can provide green scalability with a very secure base.

Paul Gordon
Paul Gordon
Following a 20+ year career in financial markets, Paul first became interested in Bitcoin in 2011 and helped to establish one of the world's first Bitcoin meetup groups, Coinscrum, in 2012 since when he has grown the community to over 6,500 members, hosting over 250 events and introducing many of the leading projects and thought leaders in the industry.  Paul currently produces the weekly Coinscrum Markets video podcast series and is an active investor and advisor to a number of crypto and blockchain related projects.

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