Stacks (STX) Spikes as Bitcoin Congestion Calls Attention to Scaling Solutions

If widespread adoption of digital assets is to ever occur, leading networks need to address concerns surrounding scalability and functionality.  Stacks has recognized this, and set out to solve the issue, as it pertains to Bitcoin, by functioning as an independent blockchain that remains anchored by the worlds most secure digital asset.

With this in mind, recent events have brought new attention to the project and what it offers, resulting in STX tokens outperforming the market since the year began.

What is Happening to Bitcoin?

Before diving in to why Stacks and its native token ‘STX' are relevant, a quick look at issues plaguing the Bitcoin network should be addressed.

No doubt, anyone that follows the market through social media will have noticed a lot of chatter on the scalability – or lack thereof – offered by Bitcoin.  The issue has been brought to the forefront as network fees have begun skyrocketing due to ordinal inscriptions, which are a capability recently made possible through the activation of Taproot.  In fact, network usage has jumped so much that at time there have literally been more than 400,000 pending transactions in the Bitcoin mempool, with block subsidies surpassing block rewards.

While fears were initially stoked – partly due to Binance being forced to temporarily halt BTC withdrawals as it navigated the situation – as many believed the network was under a denial-of-service or ‘DoS' attack, the situation simply boils down to increased activity on a busy network adapting as it should.  This however has underscored the fact that Bitcoin needs a solution for scaling if it is expected to remain atop a growing crop of digital assets.

How Can Stacks Help?

With the above in mind, how can Stacks help?  As mentioned previously, Stacks functions as an independent blockchain, anchored to the Bitcoin network.  Through its structuring and use of a consensus mechanism known as ‘Proof-of-Transfer' and ‘microblocks', Stacks is able to offer smart-contract capabilities and impressive scaling, while benefitting from the security of the Bitcoin network.

For those wondering what microblocks are, and how they can assist with network scaling, Stacks states that its blockchain,

“…allows for increased transaction throughput using a mechanism called microblocks. Bitcoin and Stacks progress in lockstep, and their blocks are confirmed simultaneously. On Stacks, this is referred to as an ‘anchor block’. An entire block of Stacks transactions corresponds to a single Bitcoin transaction. This significantly improves cost/byte ratio for processing Stacks transactions. Because of simultaneous block production, Bitcoin acts as a rate-limiter for creating Stacks blocks, thereby preventing denial-of-service attacks on its peer network.”

The project describes this approach as an ‘unprecedented method for achieving scalability without creating a totally separate protocol from Bitcoin,'.  In continues, elaborating on this activity by stating that,

“…in between Stacks anchor blocks settling on the Bitcoin blockchain, there are also a varying number of microblocks that allow rapid settlement of Stacks transactions with a high degree of confidence. This allows Stacks transaction throughput to scale independently of Bitcoin, while still periodically establishing finality with the Bitcoin chain. The Stacks blockchain adopts a block streaming model whereby each leader can adaptively select and package transactions into their block as they arrive in the mempool. Therefore when an anchor block is confirmed, all of the transactions in the parent microblock stream are packaged and processed.”

Interestingly, Stacks (STX) is one of the few projects to have distributed its token through a SEC approved Reg A+ offering in 2019.

To learn more about this project, make sure to check out our Investing in Stacks guide.

Price Response

Naturally, with the recent congestion of the Bitcoin network, many investors are becoming interested in solutions to the the issue.  With Stacks being one of these, its native token STX has been performing quite well.  Not only it is up ~270% on the year, it has managed to grow its market-cap to over $1B.

1D – STX/USD

Just looking at the past 24hrs, STX is up over 10%, while the vast majority of the market is experiencing modest declines around 3-5%.

In addition to price, trading volume of STX has experienced a major boost, with an increase of nearly 600% over this same time period.

The Leading Alternatives

Stacks is somewhat unique in its approach to bringing increased scalability and functionality to Bitcoin through use of Proof-of-Transfer.  This does not mean it is the only answer to these issues though.  The following are a two examples of layer-2 solutions looking to achieve similar results.

Lightning Network

The Lightning Network is without a doubt the most well-known and well-received answer to the problems which plague Bitcoin.  It provides users with increased privacy, lower fees, and near-instant transactions.  It has already been adopted by various exchanges like Kraken (and soon Binance), in addition to its developers being granted millions from forward thinking companies like C=, and more.

Furthermore, the Lightning network has shown promising growth with regards to network capacity, all while providing performance that beats established payment processors like Visa and Mastercard.

Liquid Network

Another layer-2 solution already boasting real-world adoption is the Liquid Network.  Developed by Blockstream, this solution offers increased privacy and transaction speed, much like the Lightning Network.  Where the Liquid network sets itself apart is through its ability to facilitate the issuance of various asset-classes reliant on smart-contracts.  These include, but are not limited to,

• Stablecoins
• Non-Fungible Tokens ‘NFTs'
• Digital Securities

As a product of Blockstream, development of the Liquid Network should continue unabated, as the company was recently able to generate in excess of $210M in a Series B funding round.

To learn more about these layer-2 solutions, we provide a closer look at the Lightning Network HERE and the Liquid Network HERE.

Final Word

While it may not seem it at first, this is an ideal time for the scalability issues that plague Bitcoin to be brought into the limelight.  This is an on-going issue that never went away, but was simply pushed to the shadows with the low-activity of the last bear market.  If Bitcoin is going to truly be adopted en masse, this is a concern that needs addressed before the next wave of adoption begins in earnest.  Thankfully, solutions like Stacks, Lightning, and Liquid, each have the means of doing so.

Moving forward, the question is which of these options will become the scaling solution of choice for network participants.  While early signs point to lightning leading the way, the ongoing pump of STX shows there are many willing to place their bets, and back promising alternatives.