Growing the Bitcoin Economy with Bitcoin Layers:

Introducing sBTC and the ‘Nakamoto’ Release of Stacks

Today, two new whitepapers related to Stacks were released! There’s a ton of exciting material, so we’re here to help you get a lay of the land as you learn more and navigate the papers and what they're proposing. Let’s start at the top:

sBTC: This paper discusses a trustless two-way Bitcoin peg system: sBTC. This peg system can help us fulfill the rest of the original vision of Stacks by enabling trustless writing to Bitcoin. Stacks 2.0 brought Clarity and the ‘read’ access; sBTC is the remaining missing ‘write’ piece for a fully expressive Bitcoin layer that can unlock hundreds of billions in Bitcoin capital.

Stacks Whitepaper: The Nakamoto Release with a Trustless Bitcoin Peg. This paper describes changes to the Stacks Bitcoin layer needed to enable the trustless functioning of the newly proposed sBTC asset described in the first paper as well as faster block times and other improvements.
Both whitepapers were written by the sBTC working group, with contributions from Stack Core Devs, Princeton computer scientists, Hiro, Trust Machines, Stacks founder Muneeb Ali, the Stacks Foundation, individual subject matter experts, and more. The sBTC working group is open to the public and works on GitHub.

Effectively, these two papers represent the next major potential milestones for the Stacks network, which is already the leading Bitcoin layer. The proposals illustrate a clear path to extended functionality that enables entrepreneurs and developers to serve the largest economy in crypto. In turn, we believe these advancements can unlock a new era of Bitcoin applications, leading to rapid growth of the Bitcoin economy without compromising the security or values of Bitcoin.

The opportunity

Bitcoin layers can enable DeFi and other applications for BTC but have a major limitation: there is currently no trustless way for users to use their BTC in applications and smart contracts. Stacks has long endeavored to make Bitcoin fully programmable, but Bitcoin has a limited scripting language by design. This makes writing to Bitcoin or working with Bitcoin assets in a way even remotely resembling smart contracts or fully functioning applications, impossible or difficult. sBTC takes on the Bitcoin write opportunity through a trustless two-way peg mechanism. Until now, we’ve only seen federated or centralized approaches.

The sBTC peg system can bring the security and functionality of Bitcoin layers to the level we’ve recently seen for Ethereum with layers like Arbitrum and Optimism. Not only do users have access to full smart contracts at the L2 but they can easily move their assets in and out of the layer in a decentralized manner while their transactions are secured by 100% of the Bitcoin base layer. For Ethereum, the various layers are used primarily for scalability, but for Bitcoin the Bitcoin layers are more important given the limited functionality at the base layer.

sBTC basics

  • sBTC provides smart contracts anchored to the Bitcoin base layer, without changing Bitcoin's simplicity or security
  • Solving the Bitcoin write problem: Creating a way to write to the Bitcoin main chain, also known as the Bitcoin write problem. Enabling smart contracts to programmatically send sBTC to a BTC address, where it can peg it out as BTC.
  • sBTC becomes thefirst truly trustless, non-custodial Bitcoin peg-out.

sBTC in action

A future with sBTC will open a lot of doors for builders and users - and for Bitcoin overall. Here are just a few ways that sBTC could be leveraged to create more functionality and opportunity:

  • Trustless, Bitcoin-collateralized stablecoin loans (tap into your BTC for liquidity without selling it)
  • On-chain, undercollateralized BTC lending
  • Trustlessly deploy BTC to earn BTC yield
  • BTC DAO treasuries - use BTC to fund DAOs and deploy BTC trustlessly and automatically via approved proposals
  • Cheaper and faster means of leveraging BTC for NFTs and other Dapps
  • Payments

Nakamoto basics

The Nakamoto release adds important capabilities that enhance the power of Stacks as a Bitcoin layer. In addition to the trustless, two-way Bitcoin peg (sBTC), this release would enable transactions secured by Bitcoin finality and faster Stacks transactions between Bitcoin blocks.

As always, all of these changes require a vote within the community to move forward.

What does this mean for the ecosystem?

Stacks is focused on bringing more utility to Bitcoin, the proposed design of sBTC represents a huge potential step toward that vision. Solving the bitcoin write problem has been a priority within the community and the technical details outlined in today’s whitepaper lay plans to make that a reality. From here, the ecosystem will need to collaborate on the final design, implementation, and adoption of sBTC going forward.

With the launch of sBTC, the Stacks layer would be the first Bitcoin layer to enable Bitcoin writes and trustless movement of BTC in and out of the layer, while securing transactions by 100% of Bitcoin’s hash power. This creates new green space for entrepreneurs and developers to provide new tools and services with this proposed technology.

Existing STX holders who participate in Stacking could see additional opportunities as well. Stacking provides yield to holders already, and the proposed sBTC upgrades will further tie Stacking to the consensus mechanism within Stacks to support sBTC peg ins and outs. More detail about this can be found in the sBTC Whitepaper.

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