What Is Stacks (STX)?

Stacks (STX) is a layer-1 blockchain that leverages Bitcoin’s security while enabling smart contracts and decentralized applications (dApps). Known initially as Blockstack, the platform was rebranded as Stacks in 2020 to reflect better its mission of unlocking Bitcoin’s full potential. Stacks allows developers to create smart contracts without modifying Bitcoin’s core functionality by building on the Bitcoin blockchain.

Stacks utilizes its cryptocurrency, STX, to power the platform’s ecosystem. STX is used to execute smart contracts, pay transaction fees, and reward network participants. Stacks adds a new dimension to Bitcoin by enabling more complex applications than simple peer-to-peer transactions, making it a more versatile and programmable blockchain.

Stacks operates using Bitcoin as its foundation. It employs a unique consensus mechanism called Proof of Transfer (PoX), which allows STX miners to use Bitcoin to mine new STX tokens. Miners transfer BTC to secure the Stacks network, providing a direct link to Bitcoin’s robust security. This ensures all transactions and smart contracts on Stacks inherit Bitcoin’s durability and trustworthiness.

The Clarity programming language Stacks uses for its smart contracts plays a key role in the platform’s functionality. Clarity is made to be predictable, ensuring that developers know exactly what their code will do before it runs. This minimizes the risk of smart contract bugs and improves overall security for developers and users.

What makes Stacks unique?

What sets Stacks apart is its integration with Bitcoin, leveraging the security of the most trusted blockchains. Instead of starting from scratch like other blockchains, Stacks connects directly to Bitcoin using PoX, enabling developers to build on Bitcoin without altering its core principles. This connection allows Stacks-based apps to inherit the decentralized and highly secure nature of Bitcoin.

Stacks introduces atomic BTC swaps and assets secured by BTC addresses, extending Bitcoin's use cases to areas like DeFi, NFTs, and more. This makes Stacks a unique offering in the crypto space, as it expands Bitcoin’s utility far beyond its traditional role as digital gold.

Stacks key features

• Proof of Transfer (PoX): This innovative consensus mechanism connects Stacks to Bitcoin, allowing miners to use BTC to mine new STX tokens.

• Clarity programming language: Designed for predictability and security, Clarity allows developers to write smart contracts that are easily auditable and safer to use.

• Decentralized applications (dApps): Stacks enables the creation of dApps that run on Bitcoin, providing developers a secure and decentralized platform.

• Stacking: STX holders can lock their tokens to support network security and earn Bitcoin rewards.

Learn more about Bitcoin and crypto mining.

Stacks offers several advantages, primarily by building on Bitcoin’s strengths. The platform is uniquely positioned to attract developers and users interested in leveraging Bitcoin’s security while tapping into decentralized applications and smart contracts. One significant advantage is that STX holders can earn Bitcoin rewards through stacking, creating passive income opportunities. PoX ensures that Stacks remains secure, even as it expands Bitcoin’s capabilities.

On the downside, Stacks is still in its early stages, with only a limited number of dApps currently operating on the platform. Its future success will depend on how well it can grow its ecosystem and attract more developers. Additionally, the platform's heavy reliance on Bitcoin means that any major changes or disruptions to Bitcoin could directly impact Stacks.

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You can generate passive income with Stacks by participating in a process called "stacking." While this may sound similar to staking, stacking is unique to Stacks and involves locking up your STX tokens to contribute to network security. In return, you earn Bitcoin as a reward.

The amount of Bitcoin you can earn depends on the number of STX tokens you lock up and the duration of the stacking cycle. Stacking can be done individually if you hold enough STX, or through pooling with other users on platforms like OKcoin. This offers a way to earn passive income while supporting the network.

Learn about crypto staking taxes.

Stacks has significant growth potential due to its integration with Bitcoin and the expanding use of smart contracts. By connecting to the Bitcoin blockchain, Stacks taps into the most secure network in the world, providing a solid foundation for developers and users alike. The platform’s unique consensus mechanism, PoX, and the ability to earn Bitcoin rewards add additional appeal for investors.

However, as with any cryptocurrency investment, there are risks. Stacks is still in its early stages of development, and its success hinges on whether it can attract a strong user base and developer community. While it may offer high rewards in the long term, it’s important to consider the volatility of the crypto market before investing.

Buying Stacks is simple and can be done through popular cryptocurrency exchanges such as Okcoin, Coinbase, or Binance. These platforms allow you to purchase STX using fiat currency or other cryptocurrencies. If you buy STX on an exchange like OKcoin, you can also stack your tokens directly on the platform to earn Bitcoin rewards.

Once you've purchased STX, it’s essential to store it securely. Stacks offers its own wallet, and STX is also compatible with various third-party wallets, including hardware wallets like Ledger and Trezor. Software wallets are also available for those who prefer convenience.

See our top picks of the best crypto exchanges.

Like other cryptocurrencies, transactions involving Stacks (STX) may have tax implications depending on your local regulations. The IRS treats cryptocurrency as property in the US, meaning that buying, selling, or trading STX could result in taxable events. For instance, if you sell STX for a profit, you may be subject to capital gains tax. Additionally, earning Bitcoin through stacking is likely considered income, and you may need to report it on your tax return.

It’s crucial to keep accurate records of all your transactions and consult a tax professional to ensure compliance. Tools like ours at TokenTax can help simplify this process by automatically tracking your crypto activities and calculating your tax liability.

Looking to calculate your crypto taxes? Try our free crypto tax calculator.

Here are answers to frequently asked questions about STX crypto, what is STX, and what is Stacks?

What network is Stacks on?

Stacks operates on its own layer-1 blockchain but is closely linked to the Bitcoin network. Its Proof of Transfer (PoX) consensus mechanism ties Stacks to Bitcoin’s security, allowing Stacks-based applications and transactions to be validated through the Bitcoin blockchain.

What are Stacks in crypto?

Stacks is a cryptocurrency and blockchain project designed to bring smart contracts and decentralized applications to Bitcoin. The platform uses its native cryptocurrency, STX, to power these applications and reward participants in its consensus mechanism.

Is Stacks safe?

Yes, Stacks benefits from the security of Bitcoin, the most trusted blockchain in the world. By using Proof of Transfer (PoX), Stacks ensures that its transactions are settled on Bitcoin, providing a high level of security for users and developers alike.

Is STX coin a good investment?

STX could be a good investment for those seeking exposure to Bitcoin-based decentralized applications. Its unique combination of PoX and the ability to earn Bitcoin rewards through stacking makes it an appealing option, though, like all cryptocurrencies, it carries risks.