A beginners guide to Proof-of-Transfer, Stacks blockchain and Stacking.

Bitcoin protocol, the world’s most secured blockchain network and the highest profile cryptocurrency(bitcoin) is where most people first learnt about blockchain technology. I’m certainly one of them, having stumbled upon bitcoin in 2016 and went down the rabbit hold to learn more about the mechanism powering the Bitcoin protocol. Blockchain technology which powers the Bitcoin protocol stretches across multiple domains such as cryptography, computer science, economics, finance and more. What makes the Bitcon protocol the most secured blockchain network is the underlying Proof-of-Work(PoW) consensus algorithm, which have the most nodes(miners) running the network in the industry. Miners compete against each other(by solving mathematical puzzles through computing power) to complete transactions on the Bitcoin network and be rewarded with bitcoin. The complexity of the puzzle increases as 1) users on the network increases, 2) increase in computing power as more miners decides to run the network, 3) and the increase in network load. The hash of each block contains the hash of the previous block, which increases security and prevents any block violation, thus the term blockchain. A quick look at Bitcoin protocol’s 2 main security metrics  1) Total Hashrate and 2) Network Difficulty, shows that they are at an all time high.

Mining hashrate is a key security metric. The more hashing (computing) power in the network, the greater its security and its overall resistance to attack. Although Bitcoin’s exact hashing power is unknown, it is possible to estimate it from the number of blocks being mined and the current block difficulty.

The difficulty is a measure of how difficult it is to mine a Bitcoin block, or in more technical terms, to find a hash below a given target. A high difficulty means that it will take more computing power to mine the same number of blocks, making the network more secure against attacks. The difficulty adjustment is directly related to the total estimated mining power estimated in the Total Hash Rate (TH/s) chart.

What this means?

Blockchain networks are susceptible to various form of network attacks which undermines the security and reliability of the network. The most common security attacks are the DoS attack and the 51% attack. Bitcoin Protocol has the highest hashrate and network difficulty among all other blockchain protocols thus making it one of the most difficult protocol to execute a DoS attack on. As it will be extremely costly and requires a lot of computational power and time to do compute the mathematical puzzles. Similarly, as hash rate increases, the cost to obtain 51% of the total network’s hashrate becomes more prohibitive due to costs and hardware limitations.

How this all relates to Proof-of-Transfer? 

Introduced by Blockstack PBC, Proof-of-Transfer(PoX) is a new approach to consensus that leverages Bitcoin’s security to secure the new blockchain protocol.

A challenge every new blockchain protocol has to deal with is to achieve decentralization quickly with enough miners to support the network before bad actors launch an attack on the network. With PoX, it allows new projects to 1) leverage on existing PoW chain’s security to create a new blockchain network with its own set of features from the beginning, and 2) without the need of setting up another PoW algorithm thereby allowing for better use of resources(electricity) too.

STX mining and Stacking

Bitcoin x Blockstack x Proof-of-Transfer gives rise to STX mining and Stacking, where the Stacks blockchain is secured by the Bitcoin network through the use of PoX. Stacking allows STX holders to be rewarded with bitcoin and miners are rewarded with STX tokens. In order to participate in the Stacks blockchain, miners would commit bitcoin, where the stacks protocol would then redistribute the bitcoin committed by miners to qualified STX holders who locks up their STX.  Miners themselves would then write new blocks on the Stacks chain and earn newly minted STX tokens as a reward. This means that mining is accessible and feasible to anyone with bitcoin. This interplay between Stackers, STX miners, bitcoin, and Stacks is the magic behind Stacks 2.0 and what allows us to anchor the user-owned internet to Bitcoin.

Blockstack and the Stacks blockchain

Stacks blockchain can be seen as an extension of the Bitcoin blockchain, where Stacks blockchain enables people to register digital assets and write smart contracts with the security of the Bitcoin chain. Traditionally, Bitcoin protocol was designed with only a fundamental use in mind, that is to track and account for the ownership of bitcoin within a decentralized network. With Stacks blockchain it opens up a lot more opportunities for Bitcoin, software with greater functionality can be written on smart contracts(Clarity) via Stacks blockchain and be secured by Bitcoin blockchain.

Imaging the possibilities with such a setup, allowing you to use applications such as: emails, maps, productivity tools, all without the risk of mass data breaches, loss of user privacy and the lack of data portability. Physical assets and new forms of assets can be digitized on the blockchain and be transferred freely, with the security of Bitcoin network, thus allowing for new business models, governance and funding mechanisms.