Blockstack proposes new consensus which provides network rewards in bitcoin

Stacks (STX) are the native token of the Blockstack network. Stacks are consumed when users register blockchain-based identities and solidify new business models and protocols that can be used across all 270+ Blockstack apps.

The team of Blockstack, a decentralized computing network and app ecosystem, recently proposed a potentially major improvement to the Stacks consensus algorithm. Stacks 2.0 is expected to launch in Q2 this year and is a major upgrade of the Stacks blockchain with a new Rust implementation. It features native mining, the Clarity smart contract language, and other significant improvements.

Stacks’ current consensus algorithm uses a Proof-of-Burn (PoB) mining mechanism where Stacks miners burn a base cryptocurrency (bitcoin) to participate in the consensus algorithm and earn rewards (newly minted STX). Regarding the improvement, known as the Stacking consensus, the Blockstack team is proposing to replace PoB mining SIP-001 with a new concept of Proof-of-Transfer (PoX).

With PoX, instead of burning a base cryptocurrency, miners transfer the base cryptocurrency to existing holders of a new cryptocurrency who participate in the consensus algorithm. In the proposed implementation using bitcoin, Stacks (STX) token miners would transfer bitcoin to STX holders who are participating in the new consensus algorithm.

“If adopted, we believe SIP-007 would introduce a landmark innovation for Stacks 2.0. We call the new consensus algorithm Stacking. Stacking takes the same bitcoin used in PoB, but instead of destroying it, transfers it to users who are (1) holding Stacks (STX) and (2) actively participating in the consensus algorithm, i.e., adding value to the network. Once every reward cycle (roughly once per month), every user who meets the eligibility for Stacking would receive a reward (a payout) of bitcoin from the network.”
– The Blockstack Team


Why Bitcoin?

Blockstack’s proposal uses bitcoin because it is the most secure Proof-of-Work blockchain in use. Stacking allows anyone to use a secure PoW cryptocurrency like bitcoin to participate in consensus algorithms for new blockchains without ever repeating the need to go from electricity to PoW. These new blockchains benefit from the security of Bitcoin.

Benefits of Stacking

Proof-of-Transfer (PoX) mining used by the Stacking consensus algorithm is superior to Proof-of-Burn as it avoids destroying the base cryptocurrency. It also has a potential economic benefit for STACKS holders by allowing them to earn rewards in bitcoin for participating in the consensus algorithm.

Comparison with PoW and PoS

The Stacking consensus algorithm enables the network to reap the benefits of a standalone PoW blockchain without modifying Bitcoin’s core protocol, while avoiding burning bitcoin in most cases. Also, similar to Proof-of-Stake, holders of the new cryptocurrency who participate in the consensus algorithm can earn rewards. A major difference from Proof-of-Stake is the rewards in Stacking are in bitcoin.

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