The cryptocurrency ecosystem has experienced a significant decade, rapidly transforming itself from a thought experiment to a value-driven universe of different products and services and, by extension, growing from a niche market to one of the most influential modern technological infrastructures. Cryptocurrency’s expansion has been fueled by its ability to solve many problems, including corruption, lack of financial inclusion, and high-cost banking transactions.
This rapid growth has created some issues with scalability because as more people enter this new market, it becomes harder for everyone to have their transactions processed quickly enough. This leads to higher transaction fees and can even lead to slower transaction times due to network congestion.
Current layer-1 blockchains are defined by more constrained performance, especially the accompanying transactions per second (TPS) limitations. For instance, Bitcoin offers around 7 TPS, whereas Ethereum delivers between 15 to 30 TPS. In the context of legacy payment networks, Visa posits that its own private processing network can handle upwards of 65,000 transactions per second, outpacing the most popular blockchains by a wide margin.
This effectively means that legacy blockchain networks are fairly limited and accordingly can’t handle a large influx of users and transaction-intensive protocols. While several layer-2 scaling solutions designed to improve these figures have been introduced for Ethereum, the comparable amount of layer-1 solutions are extremely limited.
However, before launching into why a layer-1 solution can tackle the scalability constraints imposed by the Bitcoin network, it’s vital to grasp the core capabilities and differences between layer-1 blockchains and layer-2 scaling solutions.
The Many Layers Of Blockchain
Layer-1 refers to the base network and its underlying infrastructure within a specific blockchain ecosystem. For example, Bitcoin, Binance Smart Chain, and Ethereum are all examples of layer-1 blockchains. Layer-1 scaling solutions, by extension, are designed to improve the transaction speed and other features of the base protocol. Still, improving the scalability of layer-1 chains is extremely difficult, as seen in the historical cases of Bitcoin and Ethereum.
To address this challenge, developers created numerous layer-2 scaling solutions designed to raise transaction throughput and reduce fees, all while being less taxing on the main, underlying blockchain. These layer-2 solutions, built on top of layer-1 blockchains, rely on the layer-1 chain to achieve consensus and deliver the necessary security.
Effectively, layer-2 scaling solutions are designed to increase blockchain performance without tampering with any of the core features of the layer-1 blockchain. For example, these can take the form of payment protocols like the Lightning Network for Bitcoin or smart contract scaling via Arbitrum for Ethereum.
While there are several layer-1 blockchains, Bitcoin remains the most affected by scalability issues, namely due to the community’s intense efforts to preserve and prioritize security above all else. On top of it, the underlying network doesn’t support smart contracts, further limiting the network from expanding into decentralized finance (DeFi), play-to-earn (P2E) gaming, and other flourishing sub-sectors within the crypto ecosystem like non-fungible tokens (NFTs).
This is where Stacks emerges as the game-changer for Bitcoin. Whereas layer-2 scaling solutions like RSK, Lightning Network, and Portal have each unlocked new functionalities for the Bitcoin network, Ethereum, by comparison, employs a multitude of layer-2 scaling solutions, which has enabled it to dominate the DeFi and NFT markets.
A Promising Layer-1 Solution For The Bitcoin Network
Unlike the array of layer-2 solutions or sidechains, Stacks provides a consensus algorithm between two independent blockchains, thus leveraging the security and capital of Bitcoin for decentralized apps (dApps) and smart contracts.
To increase the capabilities of the Bitcoin network, Stacks introduces a new consensus mechanism called Proof of Transfer (PoX). Stacks also uses Clarity, a new smart contract programming language designed for security and predictability. With its consensus mechanism and layer-1 blockchain technology, Stacks delivers smart contract functionality and higher transactional demand while applying Bitcoin’s proven security and stability.
With Stacks, DeFi and NFT primitives have been unlocked on the Bitcoin blockchain. Ethereum, on the other hand, is still struggling to roll out the Ethereum 2.0 upgrade designed to move the network to proof-of-stake and address its long-running scalability problems.
While the end goal is to add scalability to Bitcoin – quite similar to that of other existing sidechains or layer-2 scaling solutions, Stacks takes a unique approach to accomplish this very feat. The platform features its own nodes, network, token, and miners. In contrast to other Bitcoin sidechains, Stack’s coin (STX) is not pegged to BTC. Instead, it uses Bitcoin’s base-layer to record all transactions compiled within its blocks.
Taken together, this allows Stacks to demonstrably raise transaction throughput all while dependably leveraging the Bitcoin core network’s proven capabilities for consensus and security to natively deliver added functionality, like support for dApps, DeFi, NFTs, and much more.