Bitcoin Layer 2 Stacks Prepares for Nakamoto Upgrade, its Largest Hard-Fork Ever

Stacks, Bitcoin’s largest Layer 2 by market capitalization, is gearing up for its biggest hard fork: the Nakamoto upgrade.

“Stacks is transforming into a true L2,” said Rena Shah, VP of Bitcoin products at Trust Machines, a company that has been backing and building on Stacks for years.

The Nakamoto upgrade brings a solution expected to reduce Stacks’ block times to five to 10 seconds, from the current 10 minute confirmations it inherits from Bitcoin.

Stacks has been on a tear in recent months. The STX token, which has $3.9 billion in market cap, is up 250% in the past year, now trading for $2.71.

Bitcoin Renaissance

Stacks is looking to capitalize on Bitcoin’s recent renaissance.

“Bitcoin season 2 will be all about users finally separating BTC the asset from Bitcoin as rails,” said Muneeb Ali, co-creator of Stacks. “Bitcoin scaling layers of all kinds stand to benefit [from Ordinals] as developer awareness around these protocols grows and the demand from users for faster, cheaper, and more secure experiences that are native or close to Bitcoin rises.”

Brought on by Ordinals, which has set off a chain of new users and development, Bitcoin’s Layer 2 ecosystem is kicking off, as the oldest blockchain in the industry finally makes moves after years of stagnation.

Launched in October 2018, Stacks stores a hashed copy of transactions on Bitcoin’s blockchain, rewarding users who lock their STX in the network, known as “stackers.” Stacks pays stackers with direct payments in BTC while rewarding “miners” who sacrifice their BTC with freshly minted STX.

What Is The Nakamoto Upgrade?

For Shah, a “true L2” depends ultimately on how to lock assets from L1 to L2s. The peg mechanism, she said, is very important.

Stacks will decouple its blocks from Bitcoin’s so that a Stacks miner can produce multiple blocks within a specific time period. The upgrade will also protect the blockchain against “reorgs” (this occurs when node operators replace a block because a longer chain has been created) by connecting Stacks forking framework directly to Bitcoin.

Why does this all matter? According to Shah, it’s all about finality.

Stacks is “recycling” Bitcoin finality, she said, which is ultimately the most important part of the network.

Ali agreed with Shah. “The Nakamoto activation advances the Stacks ecosystem to a system that not only matches the security prospects of Stacks transactions to that of Bitcoin’s full finality.”

Bitcoin as Medium of Exchange

Lots has been said of Bitcoin’s store of value property, but with a sluggish adoption of the Lightning Network, high transaction fees, and slow block times, payments have lagged.

Shah explained that Bitcoin’s medium of exchange phase is in its early innings, but now Stacks might finally help make the progression.

Taking Bitcoin from investment hedge or “freedom money” and into more DeFi-friendly use cases is a “natural progression for an asset class that has been here for a while,” Shah said.

She pointed to Bitcoin’s $1.3 trillion market cap that is locked in, and how that could be put to better use.

“Imagine what would’ve happened if that trillion got put to work in Ondo or Ethena,” she asked. Stack’s upgrade is a monumental step into making DeFi a Bitcoin reality, Shah added.

Not EVM-Compatible

Stacks is taking a slightly different approach than much of rest of the crypto industry.

It won’t be compatible with Ethereum's Virtual Machine (EVM), as is the case with Rootstock. Instead, Stacks will seek to integrate alternative networks in the crypto ecosystem. According to Shah, these include Near Protocol, Solana, and Aptos, at least to start off with.

Stacks is the third-largest Bitcoin Layer 2 by total value locked, holding $152 million in assets, compared with $996 million for Merlin and $199 million for Rootstock, according to DeFiLlama.

“The Nakamoto upgrade, and the work the Stacks ecosystem has been doing as a whole, is a large contributor to the resurgence of the need for Bitcoin L2s,” said Ali.

Shah added that the update is very bullish, along with the surge in development spawned by Ordinals and the general L2 landscape, Shah told The Defiant.

With Bitcoin puritanism dwindling, she explained, it only makes sense to build.

As a “pre-getting ready” the Nakamoto upgrade’s instantiation window took place on April 22, while the hard fork should take place during the first week of June.