The layer-2 of Bitcoin Stacks begins the “Nakamoto” upgrade process to improve the scalability of the network

After a long wait, finally the layer-2 of Bitcoin Stacks has initiated the “Nakamoto” update, which takes the name of the creator of the world’s most capitalized cryptocurrency.

This upgrade should significantly improve the scalability of the network, which remains the true Achilles’ heel of Stacks.

It is estimated that after its activation, block production will increase by 120 times, decoupling from L1 and significantly accelerating confirmation times. 

From the canonical average of 10 minutes inherent in the Bitcoin consensus mechanism, it will move to a handful of seconds for the inclusion of a transaction in the block.

Let’s see everything in detail below.

Upgrade Nakamoto: the layer-2 of Bitcoin Stacks kicks off the dance

Yesterday, the long-awaited “Nakamoto” update was initialized by Stacks, a well-known layer-2 Bitcoin project launched in 2020.

Let’s talk about an upgrade that aims to bring greater scalability within the L2 solution, with the goal of making the processing of network transactions even faster.

Technically Nakamoto will decouple the block production program on Stacks from Bitcoin, implementing a more fluid and less demanding cryptographic mechanism.

In detail, the protocol uses a consensus algorithm of proof of transfer, where users burn BTC mined in the blocks to receive rewards.

If on Bitcoin for the approval of a block it is necessary to wait about 10 minutes, on Stack it will soon take only a few seconds. It is estimated that the production of new transactions will increase by 120 times, making Stacks one of the most performant layer-2 in the world.

Despite the update (initially scheduled for May) being initiated yesterday, there are still more or less 2 weeks of waiting before the process is completed.

The stack operators have the entire “stacking cycle 92” (i.e., 2,100 blocks on Bitcoin) to complete Nakamoto, before moving on to a hard fork of the network.

Four weeks after the implementation of the Nakamoto update, sBTC will be introduced, which is a decentralized asset backed 1:1 by Bitcoin.

This will facilitate the transfer of BTC between the Bitcoin blockchain and that of Stacks and will also be designated as gas in transactions.

This improvement on the scalability front could finally bring more activity to the DeFi of the network, driving the development of an ecosystem of decentralized applications.

We remind that the objective of the layer-2 Stacks is to introduce greater utility such as smart contracts and other decentralized functions using Bitcoin as the base layer.

sBTC could also serve as a bridge for possible payments in stablecoin, initialized in Bitcoin currency.

The progress of the Stacks chain and the positive impact of Nakamoto in dapps

The Nakamoto update arrives in the wake of a large number of progressions for the major layer-2 of Bitcoin Stacks.

The second-layer scalability solution, introduced for the first time in the blockchain world in 2022, has reached nearly 200 million TVL just after two years.

Despite a still not very flourishing ecosystem, the chain has seen a great flow of capital since October 2023, accompanied by an increase in volumes.

In a short time, it has increased tenfold the sum of the assets locked on the chain, highlighting the growing interest in infrastructures of this type.

Since the April top, Stacks has however halved its TVL, reflecting the uncertainty of the cryptographic world in the second quarter of this year.

Despite the latest setback, Stacks appears as the dominant layer-2 platform in the Bitcoin space with much growth potential on the horizon.
It is also worth noting how the protocol has recently seen a significant increase in commits on Github by the project’s developers.

Finally, an honorable mention for STX, the native currency of Stacks, which compared to the prices of a year ago has grown by 257%, reaching a market capitalization of 2.1 billion dollars

Now with the Nakamoto Stacks upgrade, it will also be able to improve on the aspect that has most penalized the layer-2 in recent years.

In fact, the applications built on this chain suffer from low execution speeds, limiting the user experience and precluding the development of new DeFi products.

A clear example is Velar, DEX spearheading the Stack ecosystem, which despite being fully optimized has an experience far below other competitors like Uniswap

The developers are obviously incentivized to build in an environment with a simple framework and with sufficient scalability to host large quantities of requests.

Nakamoto could finally solve this problem, attracting new capital and challenging the potential of Stack that has been held back for a long time

The landscape of Bitcoin layer-2 and the latest solutions landed on the market

From 2023 onwards, we have witnessed the creation of various Bitcoin layer-2s, which like Stacks aim to enhance the use of smart contract on the network and improve its scalability.

In reality, even before this trend started to appear in cryptographic discussion forums, only in the last 2 years have we seen an explosion of interest.

The reason is quickly explained: the introduction of the Ordinals protocol in 2023, which brought NFTs directly to Bitcoin, has attracted a lot of interest in the chain.

Investors, developers, and users have started to pay attention to the new protocols developed on Bitcoin. The idea of introducing DeFi on the world’s largest network has driven more and more investments and innovations from the broader cryptographic sector.

This change is evident in the fact that before the ordinals there were only a handful of layer-2 built on Bitcoin. Today, however, there are about 80 such solutions, with many more in development.

Besides Stacks, among the most well-known and with the most BTC locked, we can mention, Lightning Network, Merlin, Core, Bitlayer, Liquid, Rootstock, Internet Computer and BEVM

Source: https://www.bitcoinlayers.org/

Many of the existing layer-2s are supported by investments from major funds such as Pantera, Coinbase, Polychain, OKX Ventures, and Binance. This underscores the great institutional interest behind the new development narrative on Bitcoin.

Many experts define this moment as “the second phase of Bitcoin”, where massive discussions on scalability emerge and many web3 products are presented

Historically, the interest in Bitcoin has been limited to the cryptographic asset rather than its blockchain ecosystem, but now things are about to change 

We will see if with the update of Stacks and the advent of the next layer-2 it will actually be possible to grow DeFi on the chain.