The Nakamoto Glossary: 10 Key Terms You Need to Know

Since its inception in 2018, Stacks has brought increased functionality to the Bitcoin network. Developers use Stacks to build smart-contract-based applications all while settling transactions on the Bitcoin blockchain. 

With  Stacks, we have seen a range of applications being built on Bitcoin — from DeFi, to games and much more. However, Stacks still has some key limitations, such as slow transaction times inherited from Bitcoin's base layer, costly reorganizations etc.

This is where the Nakamoto upgrade comes in, significantly enhancing Stacks' capabilities. Nakamoto is meant to address multiple issues faced by the Stacks community through faster block times and more.

In this article, we'll walk you through the 10 terms related to the Nakamoto release you need to know ahead of its mainnet activation, which begins on August 28.

Bitcoin Finality

Bitcoin finality refers to the point at which Bitcoin transactions are considered irreversible owing to the computational load required to manipulate the blockchain.

Bitcoin’s block finality is about 10 minutes. Since Stacks depends on the base layer (aka Bitcoin), block creation often leaves a buffer window. The Nakamoto upgrade decouples block creation from Bitcoin and batching Stacks transactions.

Bitcoin MEV Mitigation

Bitcoin Miner Extractable Value (MEV) is the profit that the Bitcoin miners extract through practices like manipulation of transaction inclusion. MEV has been a prevalent issue in Bitcoin due to the presence of whales.

The Nakamoto system will implement a variation of an ATC-C-based MEV mitigation strategy that allocates block rewards to the miners. This change in the strategy mandates honest participation as a compulsory requirement for Bitcoin MEV miners.

ATC-C specifically targets the challenge of preventing "whales" (miners with large Bitcoin holdings) from dominating block production for MEV extraction.

Instead of just considering a miner's Bitcoin bid for the current block, ATC-C will consider their commitment across multiple blocks. It essentially aims to prevent sudden spikes in bids from large Bitcoin holders aimed at temporarily dominating block creation for MEV profit.

PoX (Proof of Transfer) 

Proof of Transfer (PoX) is an energy-efficient consensus mechanism that builds upon the concept of Proof of Burn (PoB). Instead of burning cryptocurrency, PoX miners transfer it to other participants on the network. This allows them to secure the PoX blockchain and earn rewards in the transferred cryptocurrency.

The Stacks blockchain leverages PoX and settles transactions on Bitcoin’s base layer to leverage the security of the main chain.

Cryptographic Sortitions

Cryptographic sortition involves the random selection of one or many entities using cryptography from a set to select participants for tasks like auctions, consensus protocols, and lotteries. The Nakamoto upgrade intends to alter the cryptographic sortitions to produce numerous Stack blocks per Bitcoin block, requiring the miner confirmation for all instead of just one.

Cryptographic sortitions ensure that the miners are selected randomly to prevent the dominance of any single entity over the blockchain. Moreover, the reliance on cryptography enhances the security of the blockchain by making it computationally difficult for attackers to predict the outcome of tasks like auctions.

Bitcoin Testnets

Bitcoin testnets are independent blockchains that allow developers to test their dApps, protocol changes, and smart contracts through transactions simulated in a sandbox environment. The block production of these Bitcoin testnets is almost the same rate as that of the blocks produced in the mainnet, which is averaged at one block every 10 minutes. 

Reorgs 

Reorgs, or chain reorganizations, occur when competing blocks are produced almost simultaneously, often due to network latency, bugs, or malicious attacks. This can disrupt a blockchain and cause miners to lose rewards for the orphaned block(s).

Reorgs can lead to delays in transaction processing. Stacks, due to its connection with Bitcoin, aims to minimize the impact of reorgs by reliably following Bitcoin forks, enhancing stability.

As the Nakamoto upgrade speeds up transaction finality by decoupling block creation, chain reorganizations (reorgs) will be significantly mitigated.

Block Production & Block-Commit

New Stacks blocks will be produced almost every 5 seconds in Nakamoto. This is significantly faster than its previous model, which anchored Stack and Bitcoin blocks at 1:1. Here, Bitcoin blocks correspond to the miner's tenure to mine and settle Stack blocks around 5 seconds. 

Meanwhile, block-commit is altered by including an indexed block hash in place of the hash of the next Stack block. Including the indexed block hash helps start the previous miner's tenure and all the Stacks processed causally-dependent Bitcoin state.

Stackers

Stackers play a crucial role in the Stacks network. By locking their STX tokens, they participate in the Proof-of-Transfer (PoX) consensus mechanism, enhancing the network's economic security. Their involvement also contributes to leader selection and governance.

The Nakamoto release aims to minimize forks within the Stacks blockchain and reliably align with Bitcoin forks. This alignment, along with the consensus mechanism, helps ensure greater network security and stability. For Stackers, this means a stable and predictable experience owing to reduced forks.

ClarityWASM

The Stacks blockchain uses Clarity, a smart contract language designed with a strong emphasis on security. Clarity's interpreted nature, meaning it's executed directly on the blockchain, aims to reduce potential errors and vulnerabilities.

ClarityWASM is a compiler that transforms Clarity code into WebAssembly (WASM) bytecode. This allows Clarity smart contracts to function within web browsers, enhancing developer accessibility. WASM technology enables near-native performance for demanding web applications such as games, video editing, and complex calculations.

Signers

In the Nakamoto upgrade, signers are essential for validating and securing Stacks blocks. They sign, store, propagate, and validate each block produced by a miner. This ensures the chain's integrity and contributes to PoX rewards by unlocking STX tokens.

Signers also help prevent malicious miners from creating forks and ensure that miners build upon valid previous blocks. Their on-chain voting is crucial in leader changes, promoting decentralization within the Stacks network.

Preparing for the Nakamoto Upgrade?

Stacks has significantly improved Bitcoin by enabling smart contracts and decentralized applications (dApps). But, as activity on the Bitcoin network scales, Stacks needs to scale along with it. Nakamoto is just one step in realizing Stack’s vision of activating the $1 trillion Bitcoin economy.

With faster block times, enhanced security through Bitcoin finality, and a fairer mining landscape, the Nakamoto upgrade will pave the way for a new era of building on Bitcoin. Developers will be able to create highly scalable decentralized applications all while maintaining the integrity of Bitcoin’s base layer.

The future of building on Bitcoin looks brighter than ever.

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