Ethereum Made Big Changes, but Stacks Could Be the Next Big Thing.
Bitcoin began the crypto movement, but when Ethereum came along, things changed a lot. Ethereum introduced smart contracts, allowing developers to create various applications like decentralized exchanges, NFTs, stablecoins, and more. These innovations, grouped as decentralized finance (DeFi), led Ethereum to grow by over 80,000% from 2016 to 2018 and paved the way for the next phase in crypto’s development.
Now, things are going back to where they started. Bitcoin doesn’t have all the tools for smart contracts, but with new technology, it’s getting a shot at DeFi. If you didn’t get in on Ethereum, don’t miss out on Stacks, a Bitcoin-based blockchain shaping the future of finance.
Bitcoin’s faithful Companion
Stacks is a Layer 2 blockchain that works closely with Bitcoin. It uses a proof of transfer system that relies on Bitcoin miners. These miners play a vital role in the strong connection between Stacks and Bitcoin.
Stacks’ reliance on Bitcoin is worth studying separately. It can be complicated and might be better understood later. But what’s important is the strength of Stacks, which lies in its smart contracts.
With Stacks, developers can create decentralized apps similar to those on Ethereum, but with a layered setup, transactions get confirmed on Bitcoin. This means Stacks’ security relies on Bitcoin’s strong security. Also, Stacks offers faster speeds and lower fees, which are common issues with Bitcoin.
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The beginning of a new era
Right now, Stacks offers a different method to use Bitcoin, but it doesn’t fully use Bitcoin as it should. Currently, users must use the STX token to pay for transactions and can’t directly use Bitcoin in DeFi. But, this could soon change.
In summer 2024, Stacks plans to launch sBTC, a two-way pegged token that unlocks Bitcoin’s true DeFi capabilities. With sBTC, Bitcoin holders will be able to exchange their BTC for sBTC, and then use that sBTC to participate in the DeFi economy. Furthermore, since sBTC tracks Bitcoin’s price, users can redeem the token for their original BTC holdings without any price slippage.
Unlike other tokens similar to Bitcoin, sBTC is converted in a decentralized way using smart contracts and multisig wallets, providing a higher level of security. Stacks not only give Bitcoin a DeFi makeover but also minimize the risk of involving third parties, all while maintaining decentralization and security without compromises.
Determining the quantity of current demand
To see how big of a deal this is, consider Wrapped BTC (CRYPTO: WBTC), which follows Bitcoin’s price but works on Ethereum. When people swap Bitcoin for Wrapped Bitcoin, they can use Ethereum’s DeFi protocols and later get back their original Bitcoin.
This process is a lot like what sBTC will do, but there are two big differences. First, Wrapped Bitcoin brings in counterparty risk because it needs a central middleman to help with conversions. Second, the token works on Ethereum and doesn’t sync up with Bitcoin’s blockchain.
Despite some issues with its functionality, many investors want to use Bitcoin’s equivalent in the DeFi economy. Wrapped BTC’s market cap, which is over $6 billion, proves this. It’s the 17th most valuable cryptocurrency right now. If Stacks were to take Wrapped BTC’s place, its market cap of $2 billion could increase more than three times.
The opportunity at hand
Saying Stacks isn’t as good as Wrapped Bitcoin might not be fair. Bitcoin is the most well-known cryptocurrency, and people want to use it for more than just money. Look at Ordinals, for instance. They started in early 2023 and let people make Bitcoin NFTs. In just 2023, people bought 1.6 million Ordinals, making over $1.8 billion in sales.
It’s hard to measure how much Stacks can achieve. However, in a December 2023 interview on CoinBureau, well-known venture capitalist Tim Draper explained it well. He compared Bitcoin to Microsoft, the basic system of a computer, and Stacks to the layer for building and using popular applications like Word, PowerPoint, and Excel.
It’s hard to predict how much Stacks could grow, but if even a small part of Bitcoin’s $850 billion value went to Stacks, it could experience a surge like Ethereum did at the start. Stacks is in a good position to gain from Bitcoin’s DeFi phase, which is just getting started.