An Introduction to Stacks – a Leading Bitcoin Layer-2 Protocol

The Bitcoin ecosystem is responsive to users’ needs, keeping true with the standards of Bitcoin. Stacks, for example, provides an innovative layer-2 solution that brings Web3 to Bitcoin

Read on to learn about Stacks, how it works, and how it improves Bitcoin’s functionality and usage

What is Stacks ($STX)?

Stacks is an open-source protocol that brings smart contracts and decentralized applications (dApps) to Bitcoin. It enables a higher level of functionality in Bitcoin while leveraging the network’s security and decentralized nature

Stacks was created by Muneeb Ali and Ryan Shea under Blockstack PBC. Their goal was to develop a decentralized, user-owned internet

The Stacks network’s official token is STX. To fund the project’s development, Blockstack held an initial token offering in 2017, where the team raised around 50 million USD.

Blockstack then offered a public sale in 2019, making STX the first SEC-regulated token sale. With the increase in exchange listings after the public sale, STX experienced a substantial rally, hitting an all-time high of $3.61 in 2021

What is Proof of Transfer?

Proof of Transfer (PoX) is a unique process that confirms blocks on the Stacks blockchain while running parallel to the Bitcoin blockchain

In Proof of Transfer, a miner spends bitcoin to win a block, then writes the new block on the Stacks blockchain and receives newly minted STX as a reward

The miners send Bitcoin to specific addresses participating in the PoX consensus. Through random selection, the miners compete for the right to produce the next Stacks block and receive STX in return, as shown below.


The Stacks protocol interacts with Bitcoin’s base layer without altering it, as it ultimately settles Stack transactions. With regard to energy use, the Stacks Proof of Transfer mechanism uses less energy by transacting already mined Bitcoin to create new Stacks blocks

How Does Stacking Work?

Stacking is a reward system whereby users supporting the network are rewarded in Bitcoin, while STX tokens are temporarily locked away

The temporary locking mechanism allows users to earn passive income and be part of securing the Stacks blockchain.

People can stack STX tokens through an exchange or a wallet that supports stacking

What Can You Find in the Stacks Ecosystem?

Stacks is building a Web3 experience for Bitcoiner, providing a suite of decentralized applications, DeFi protocols, and a thriving Bitcoin NFT market, all while benefiting from Bitcoin’s security

To enter the Stacks ecosystem, the first thing you will need is a Stacks wallet

Arguably, the best Stacks wallet is Xverse, which has also managed to establish itself as the go-to Bitcoin NFT wallet because it supports both Bitcoin Ordinals and layer-2 Bitcoin NFTs on Stacks

Once you have a Stacks wallet, you can access DeFi applications like ALEX, Bitcoin NFT marketplaces like Gamma or HeyLayer, or play games like Stacks Degens

On ALEX, you can swap Stacks tokens and earn yield by locking up crypto assets, while on Gamma you can buy and sell Bitcoin NFTs, such as Megapont Apes, CrashPunks, and Satoshibles. Stacks Degens is an NFT-powered racing game that will remind you of old-school arcade racers from the 80s

Stacks is committed to its mission to empower people to control their data and wealth. It’s also committed to bringing decentralized finance to Bitcoin as it continues to build toward a more decentralized economy as one of the few Bitcoin layers created to date

While it’s still early days for Stacks, the Bitcoin layer-2 protocol has the potential to become of the most important Bitcoin layers in the coming decade