What Is the Stacks Nakamoto Upgrade? A Simple Explainer

Stacks is getting a new upgrade called Nakamoto—named after Bitcoin’s pseudonymous creator—that aims to enhance the popular Bitcoin Layer’s capabilities. 

Read on to learn everything you need to know about the Stacks Nakamoto upgrade. 

What Is the Nakamoto Upgrade?

The Stacks Nakamoto upgrade is a hard fork of the Bitcoin Layer Stacks, created to address the block creation speed, transaction finality, and maximal extractable value (MEV) vulnerability. 

It’s set to go live once all the steps of its activation sequence are undertaken, starting from its activation window opening through to the hard fork block, with the exact date to be determined. This can be affected by how the rollout goes, whether it faces any challenges, but also if miners adopt the new changes.

Making Stacks Better

The Stacks community has identified several opportunities to improve the design of this Bitcoin Layer.   

Stacks uses a proof-of-transfer (PoX) consensus mechanism, which is based upon the proof-of-burn (PoB) mechanism. PoB designates a certain amount of crypto asset that is burned or sent to an irretrievable address as a proxy for computing resources. In PoX, however, the amount is sent to someone else in the network.

As Stacks is tied to Bitcoin, its PoX mechanism is tied to Bitcoin’s proof-of-work (PoW) consensus mechanism. This means Stacks’ consensus can only be made once the PoW consensus of the main chain has been reached, which tends to take 10 minutes on average when it comes to adding a new block to this blockchain.

Another challenge stems from Stacks forks not being tied to Bitcoin forks, which enables cheap reorgs that can bring confusion in the best-case scenario and mayhem in the worst case to the Layer 2 network itself. 

Therefore, improvements in these design specifics are expected to help Stacks grow more sustainably.

How Does the Nakamoto Upgrade Improve Stacks?

The improvements in Nakamoto boil down to three changes that should make Stacks faster and more secure: faster block times, finality, and MEV resistance. These changes could also help the chain expand Bitcoin's utility and, consequently, its economy.

Faster block times

For faster block times, the upgrade is decoupling Stacks block production from Bitcoin block arrival times. After the upgrade, new Stacks blocks are going to be produced around every 5 seconds, as Bitcoin blocks are now tied to a Stacks miner tenure, during which they mine the blocks.

Finality

To achieve finality and ensure that no transactions can be reversed, a new mining mechanism anchors the Stacks chain history to Bitcoin. At every Bitcoin block N+1, the state of Stacks is recorded on Bitcoin. This mechanism makes it impossible to rewrite Stacks history without also rewriting Bitcoin history.

Additionally, stackers are tasked with policing miner behavior. While miners decide which transactions are included in any given block, the job of stackers is to make the final call on whether the block is included in the chain or not. These changes also ensure that the Stacks chain can’t fork unless by majority decision.

MEV protection

Maximal extractable value (MEV) refers to the profits various entities, including miners, can make from changing the order of transactions waiting to be confirmed. This can lead to transactions being (unfairly) rearranged and generally manipulated in a way that only MEV entities profit from, which goes against the needs of the wider community. 

To mitigate this possibility, the Stacks Nakamoto upgrade includes a solution that ensures miners are rewarded for their genuine contributions to the network's security and continuity. It should safeguard Stacks from manipulation and help distribute rewards more fairly.

All of these changes will require more cooperation between miners and stackers, as well as within those groups, to ensure nobody has any incentive to work against the network.

Who’ll Be Impacted by the Stacks Nakamoto Upgrade And How?

Several different groups of network participants will be impacted by the protocol upgrade.

Stackers

Before Nakamoto, stackers only had to commit their STX tokens to ensure that the network ran smoothly. Nakamoto brings new responsibilities to them. After the hard fork, stackers will also be responsible for validating transactions on the Stacks network. This will also require them to have an operational signer running. Additionally, stackers will likely need to re-stack or re-delegate after the Nakamoto upgrade is complete. 

Exchanges

Exchanges have it pretty easy with this upgrade: all they need to do is follow the usual node upgrade process. The Stacks team promises that it will look like any hotfix or node upgrade, meaning no need for special preparations as downloading and installing binaries/docker images and restarting the node should be enough. 

Pool Operators

Nakamoto is rolling out in two phases. For stacking pool operators, the first phase means setting up a node and signer, as well as upgrading to the new PoX-4 contract, which is the new stacking contract for Nakamoto. The docs cover this process in detail, while also promising to provide new instructions for the second phase once the time comes. 

Developers

Developers can technically start using Nakamoto immediately. The new contracts used for signers and PoX-4 are already running both on testnet and mainnet, and signers are free to start testing out the new capabilities before the launch.

The Nakamoto Rollout Plan: What’s Next? 

Once the rollout of fast block times and Bitcoin finality is completed, signers will have one full stacking cycle (2,100 Bitcoin blocks, or around two weeks) to make any changes and adjustments. 

Later, if the handoff from Cycle 92 to Cycle 93 is successful at block 861,500, core developers will choose a block for launching the hard fork with all the Nakamoto upgrades. 

After the hard fork is completed, Nakamoto will be live and the rollout plan is thus complete.

This timeline only serves as a general guide, as none of these steps are set in stone. The results of testing and auditing the upgrade could push it back, as could the needs of signers, their decision to support the plan, as well as whether miners decide to adopt it or if they experience setup issues. 

All of these potential roadblocks only serve to improve the upgrade, so in reality, even if it happens, it could mean a better-optimized Nakamoto down the road.

The Takeaway

The Stacks Nakamoto upgrade is a long-awaited solution to many Stacks improvement opportunities that the community has recognized over the years. The upgrade is also set to give slightly different responsibilities to network participants. 

With the growth of this Bitcoin layer, Nakamoto serves as a way to accelerate the expansion of the network, bringing improvements in speed and security and helping the Bitcoin ecosystem along the way.

‍Download Xverse today to interact with the Stacks ecosystem. 

‍