Stacks: Bitcoin is a free market solution

Author: Daniel Kuhn, CoinDesk; Compiler: Deng Tong, Golden Finance

This year may be the most critical year since the invention of Bitcoin, CEO of Trust Machines and co-founder of Stacks Blockchain Muneeb Ali believes thatLayer 2 is about to have a breakthrough. This isn’t just because Bitcoin (BTC) has been hitting new all-time highs every week lately — largely due to the launch of spot BTC exchange-traded funds (ETFs) — but because, More and more people are using Bitcoin, the first cryptocurrency to serve its intended purpose, as currency.

The introduction of the Ordinals protocol, the rise of Bitcoin-based BRC-20 tokens, and the increasing maturity of network “smart contracts” such as Bitcoin Machine have all contributed to Bitcoin’s The resurgence of Bitcoin’s “fee economy,” the price paid to conduct a Bitcoin transaction.

In other words, People no longer just buy and hold Bitcoin, but use it.

“Yes, the bigger use case is still Bitcoin is a a savings technology," Ali said in an interview with CoinDesk. Ali is an experienced developer who started working on one of Satoshi Nakamoto's interests, creating an on-chain domain name system called the Bitcoin Name Service (BNS) in 2014.

“But if you’re talking about $1.4 trillion of [deployed Bitcoin] capital, if people keep 80% of that in savings, there’s still hundreds of billions of BTC that could be used” for productive use.

Ali predicts that most of the action will occur on Bitcoin Layer 2 (such as Lightning Network), LayerTwo Labs’ “drivechain” or secondary solutions (such as Stacks), which are designed to solve The same problem of scaling Bitcoin and making it easier to use. He said that it is conceivable that in the future, there will be Bitcoin users every day who do not send transactions on the underlying chain.

CoinDesk caught up with Ali last week to discuss Stacks’ long-running Nakamoto upgrade, his appreciation for other application-optimized networks like Ethereum and Solana, and “the resurgence of interest in Bitcoin Layer 2.” .

Stacks has been around for a long time, and to its credit, it continues to innovate. The upcoming Satoshi Nakamoto upgrade has been in the works for a few years. Answer honestly: Has Stacks accumulated technical debt? Or did you make a decision before that limited what you can do today, or made certain things more difficult?

There must be technical debt from a code perspective, right? If you already have a code base and are upgrading it, there will be friction when making changes in live and production. Let me give you an example: Today, there is $1.4 billion in STX capital that is currently on consensus. The first thing that will happen is that people will unlock their capital and lock it in the new consensus protocol - that is, $1.4 billion is unlocked and moved in one place, rather than just launching a new system.

At the same time, I would like to emphasize that this is exactly the type of challenge that Bitcoin Layer 2 should be able to address. This is what makes the entire system durable. L2 moves very fast. Bitcoin isn’t going to change much. L2 is innovative and willing to make quick changes. After a while, it becomes part of their culture. These days I see the “XYZ ecosystem” getting major upgrades every six months: that’s very healthy for Bitcoin.

Layer 2 fragmentation on Ethereum is a new problem for the network. Do you think Bitcoin will eventually need Layer 3?

We have seen this. Stacks had something called the Bitcoin subnet - the work was done, but it never really fully launched because there was so much focus on Satoshi Nakamoto right now. The basic concept is to use Stacks to perform logic and security in the middle between subnets, which allows for more permissions while putting all state in the subnets onto Bitcoin Layer 1. This allows you to use BTC liquidity. This is what people call Layer 3, where you can reuse fragments of different L1 and L2 components.

We are developing these SDKs (Software Development Kits) that can help developers use subsets of Stacks - let me give you an example. Let’s say someone wants to use Bitcoin Layer 1 as a data availability layer, but Stacks has a massive signer network (currently $1.4 billion locked), a decentralized signer base, and over 30 institutions. So they can pick and choose signers that use L2 to build interesting applications. This is an interesting area as things become more modular,We'll definitely be keeping an eye on Stacks to see if it becomes the leading L2, Can be reused in quote unquote L3. I think this is something developers really enjoy.

Can this interact with the Lightning Network?

Not many people know this, but Stacks is already connected to the Lightning Network. There is a protocol called LNSwap that swaps satoshis on the Lightning Network for assets on Stacks using atomic swaps. You can start extending that functionality because the stack is almost like a routing layer for the subnet. Any stack connected to the subnet is already connected, which is a huge benefit.

What do you think of the state of the Bitcoin oracle ecosystem?

Some of the direct conversations I’ve had with oracle developers are about how they find it difficult to integrate directly with Bitcoin. This is common: Bitcoin has an eloquent scripting language, but it's really hard to use, and its functionality is limited. Interestingly, Stacks has an oracle service where through the mining process one can get local feedback on the BTC/STX price pair because the bidding is done on-chain – it’s like an on-chain oracle for the STX/BTC price . Some people find this funny.

What I will say now is that the oracles on Bitcoin L1 are somewhat limited. Most of them work, assuming we have some off-chain oracles controlling multisig - they are not state-of-the-art oracles like Ethereum or Solana. On L2, Pyth [the network, a cross-chain oracle solution] is already online, and other oracles are coming soon to fill as much of the gap as possible. This would be a big step forward as it would connect the dots and allow for more expressive contracts with full functionality like Solana or Ethereum. It will greatly improve Bitcoin’s programmability.

Are there unseen dangers in increasing the programmability of a system that was designed to be quite limited? A version of this debate is already playing out over issues like Ordinals.

I think that through BitVM, there was an unexpected discovery that Bitcoin is already Turing complete. There's a caveat: these programs are built very inefficiently. Technically speaking, you can build almost any application using BitVM. But reality is still far from having a complete smart contract. Because BitVM programs are mostly off-chain, they don't affect anything directly - just the proof steps happen on Bitcoin L1, which is pretty limited.

It would be a huge change if Bitcoin changed its scripts to something like EVM< /strong>, right? It's like you're suddenly open to all kinds of things. BitVM does have some new features, but it's very limited.

That said, with Taproot we see that people can build new things even with limited additional features. So I definitely think people are going to try a lot of new things. What I'm excited about BitVM for is very targeted applications, as it's often an inefficient way to write programs. For example, there is no need for a trustless bridge. Trustless bridges actually have little impact on L1 because all functionality is on L2. This is a great use of BitVM because L1 is still protected. People might also try to use BitVM for other things. But this is a very heavy load and all these procedures are very complex and inefficient.

Is there anything you admire about Ethereum or Solana?

That’s actually pretty funny, right? I'm with a few other Bitcoin folks and I'm surprised how little attention they pay to what's going on elsewhere in the industry. I'll give you a concrete example that I think might be beneficial.

Everyone wants to support the development of Bitcoin Core; they are doing a thankless job and there should be a better way to support them. I made the point that these other ecosystems actually have very smart engineers. Algorand, for example, has a PhD from MIT - like really smart people who have built real blockchains and have experience running production systems. But there is no good way to learn from their experience.

How to hire and retain these people? How do you motivate them? The rest of the blockchain ecosystem is actually quite competitive. When we try to hire core developers for Trust Machines, we compete with Solana Labs and Avalanche. This is a very competitive market, but Bitcoin is lacking action. Like, they don’t even play that game. There are a wealth of lessons that can be learned from other areas of the industry that can be incorporated into Bitcoin Core, making core development more efficient, better funded, and better talented.

You may get a version of this question with every interview you do, but all available evidence suggests that people want to hold Bitcoin. 70% of addresses have not moved. Inflows into ETFs indicate that people are putting Bitcoin into long-term savings. Why do you believe that the future of Bitcoin smart contracts will be as imaginative as Ethereum?

I do hear this question a lot. My thinking is: I have Bitcoin in cold storage and some other crypto capital that I want to try. This capital can be ETH capital or SOL capital, but it can also be BTC capital. The simple fact is that it’s much better to own BTC capital – that’s the difference between them, right? People spend Bitcoin.

People forget that Ethereum ICOs (Initial Coin Offerings) were conducted in BTC. BTC raised $18 million but sold out. Rootstock raised 35,000 BTC. If you look at Ordinals traffic, you’ll see some new NFTs, such as Quantum Cats from Taproot Wizards. It sold out in BTC. So I think the data shows that people are indeed deploying their Bitcoin.

Yes, The larger use case remains that Bitcoin is a savings technology. But if you're talking about $1.4 trillion in capital, if people were saving 80% of that as savings, that's still hundreds of billions of dollars in BTC available. This is more deployable and put into production use than any other chain except Ethereum.

Then there are institutional uses. Currently, there is no direct, decentralized way to securely earn money on Bitcoin. Having a healthy, decentralized smart contract option could transform Bitcoin from a passive, non-yielding asset to a productive sexual assets. This will accelerate institutional adoption.

I mean, institutions may say no, and Bitcoin holders may be hesitant for similar reasons: you are introducing smart contracts risk.

It’s risky, right? But every market has a risk-reward ratio. There are also different ways to do this. Work is currently underway so that people can keep BTC in Layer 1’s DLC and only when liquidated will the BTC be transferred to L2. But if you get liquidated, it's no longer your Bitcoin.   Therefore, DLC could be a very safe way to keep your Bitcoin while still participating in DeFi. In a way, I think this is much safer than handing over your Bitcoin to a company.

Obviously people value their Bitcoin and don't want to lose it. But that doesn’t mean free market solutions shouldn’t exist to make money. If some people want to take on more risk with some of their Bitcoin holdings, they should be free to do so, but currently those options do not exist. My gut feeling is that the demand is actually huge, too.

If you had it to do over again, would you still buy Reg A+ tokens?

In some ways, we can still benefit from it. It helps people know that the product is transparent and completely legal – it builds credibility into the ecosystem. The other thing it does is it actually forces [Stacks] decentralization very, very early before mainnet launches. The original company existed in some form, but everyone involved formed separate companies and pursued different goals. This is an actual ecosystem. No Solana Labs can do it all. On the other hand, coordinating among so many different entities becomes more difficult.

There are other challenges. For example, many exchanges, especially in the United States, are unaware of Reg A+’s offerings and are hesitant to list the token. People are not used to this process. It's a mixed bag, but overall I need to be grateful for the opportunity. Ultimately, it brings a lot of transparency and credibility to the project.

Especially on Twitter, you can get hate from Bitcoin enthusiasts. Under every post, someone will ask you why you launched your coin, or call you a liar. How do you personally stay motivated in such a hostile environment?

Honestly, things are getting better. Before that were the dark ages for Bitcoin. What helps me is that people I really respect — Bitcoin OGs like Erik Voorhees, Jameson Lopp, and many others — are very supportive.  

Privately, I had more friendly conversations with everyone. Additionally, a lot of the criticism comes from people who got into Bitcoin during the dark ages and I just think their information was incomplete. Bitcoin is a free market solution. When you don’t understand Bitcoin, you say “you can do X on the network, but not Y.”

The other thing is that it gets better because there are new builders coming and new tools are being built. There is excitement in the community. It’s a mindset, or to some extent, a personality.

I joke that the number one quality of people who actually complete a PhD is stubbornness. If you're stubborn about an idea and you really believe in it, you're going to keep taking the hits, right? There is a feeling of satisfaction when you cross the finish line.