Grayscale Investments has published a report highlighting the benefits that the Stacks ecosystem can bring to the growth and expansion of Bitcoin through smart contract functionality.
Bitcoin was the first network built using blockchain technology in the world. Satoshi Nakamoto, its creator, published the Bitcoin whitepaper on October 31, 2008 and, later, on January 3, 2009, launched the network with the creation of the Genesis blockThis kicked off one of the biggest technological and financial revolutions of our time. However, Bitcoin has limited transaction speeds and less functionality than other blockchains that were built after its launch.
Blockchain technology developers have created new projects optimized for the needs of the user community, which, for some, has left Bitcoin somewhat behind in innovation.
However, according to Grayscale, the emergence of Layer2 chains on Bitcoin are unlocking unprecedented opportunities for expand the utility of the blockchain network. Specifically, the digital asset investment manager highlighted the potential of L2 Stacks to innovate the Bitcoin ecosystem with smart contracts and the development of decentralized applications (DApps).
Bitcoin, Stacks and smart contracts
The original Bitcoin code does not natively support smart contracts. However, protocols such as Stacks, which was launched in 2013, integrate this functionality into the blockchain, allowing for greater functionality and utility.
Furthermore, thanks to the Stacks structure, the L2 network also improves Bitcoin’s scalability and interoperability, enabling a new range of BTC applications and use cases within the decentralized finance (DeFi) and GameFi ecosystems.
A store of value asset
Although the narrative of Bitcoin as store and reserve of value Grayscale has gained particular traction in recent months with the approval and launch of cash exchange-traded funds (ETFs), and highlights that the potential of the most powerful cryptocurrency and blockchain on the market extends beyond the financial world. The arrival of token protocols such as Ordinals and Runes to Bitcoin highlights this, as well as the importance of scalability solutions such as Stacks.
L2 is currently the second largest in the Bitcoin ecosystem after Lightning Network in terms of the number of active developers. In addition to this, around 50 protocols and decentralized applications are built on Stacks, which have the security of Bitcoin but are more scalable and accessible than the main network.
This shows that blockchain developers are increasingly focusing on finding more uses for Bitcoin, taking advantage of the robustness, security, decentralization and innovation of this blockchain.
Stacks is in an early stage of development. Still, the smart contract network is revolutionizing the Bitcoin ecosystem, Grayscale stressed.
Nakamoto, a key update for Stacks
Stacks prepares for the Nakamoto Update Released, which will mark a milestone in the history of the layer 2 chain. According to Grayscale, Nakamoto will integrate new features and functionalities into Stacks that will allow the network to be more scalable and efficient. This upgrade will improve Stacks' performance by reducing block times from 10 minutes, on average, to about 5 seconds. Grayscale also explained that the new protocol upgrade will also introduce new digital assets to the Bitcoin ecosystem, such as the token called sBTC, which will be linked to the leading cryptocurrency and allow its use in a wider range of DeFi applications.
The Nakamoto upgrade will also unlock native Bitcoin rewards as well as use cases for the cryptocurrency in decentralized lending protocols, allowing holders to access immediate liquidity with their BTC holdings.
“With increased transaction activity on the Bitcoin mainchain driving up costs, Nakamoto’s upgrade positions Stacks as a more efficient and cost-effective alternative, making this a pivotal moment for the protocol.”, stressed Grayscale.
The release of this new update is estimated to take place sometime in august this year, the developers commented when reporting the delay in its activation in May. This portrait was produced due to the need to build a resilience and recovery system for the network, before implementing the update.
Bitcoin vs Ethereum and other blockchains
While Bitcoin’s development as a platform for smart contracts and decentralized applications is still “in its infancy” compared to blockchains like Ethereum and Solana, Grayscale analysts believe Stacks provides a significant contribution to blockchain innovation. This is especially important considering Bitcoin’s global popularity.
Grayscale believes that the development of Bitcoin's smart contract layer may be a determining factor for its growth and expansion in the future.
In addition to highlighting the advantages Stacks has for positioning Bitcoin as a blockchain with smart contract functionality, Grayscale also pointed out the risks posed by the protocol, especially considering that its Stacks proof-of-transfer consensus algorithm is not widely used in the blockchain industry and can present vulnerabilities and errors.
Despite the above, the firm concluded that Stacks contributes to growth in the development of Bitcoin and that, in general, the STX token could benefit from the rebirth of Bitcoin as a network richer in functionality and utility in the digital ecosystem.
In addition to Grayscale Investments, hedge fund manager Franklin Templeton also dedicated an investor note to Stacks, highlighting the Nakamoto upgrade and smart contract functionality in Bitcoin as a major innovation to drive new use cases for the cryptocurrency and blockchain.
IMPORTANT: The content of this article is for informational purposes only and, in no case, what is written here should be taken as investment advice or recommendations. Bit2Me News reminds you that before making any investment you should educate yourself and know where you invest your money, as well as the pros and cons of the system. We separate ourselves from the actions and consequences that ignorance may entail. If you decide to invest in this or another asset class, you are solely responsible for the consequences that your decisions and actions may have.
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