Bitcoin L2 Stacks Initiates Nakamoto Upgrade

The Stacks (STX) protocol has initiated the Nakamoto Upgrade, which introduces Bitcoin (BTC) finality to its network. Over the next 21 days, the ecosystem is

Stacks, a Bitcoin Layer-2 (L2) network, has begun rolling out the Nakamoto Upgrade, a significant update that will introduce Bitcoin (BTC) finality to the L2 protocol. This upgrade is designed to enhance transaction speeds and reduce settlement times within the Bitcoin ecosystem.

The Nakamoto Upgrade, which was activated on Wednesday, will introduce several key changes to the Stacks network. One of the most notable aspects of this upgrade is the enhancement of transaction speeds.

Prior to this upgrade, standard settlement times on the Bitcoin network ranged from 10 to 30 minutes or more. However, with the Nakamoto Upgrade, these settlement times will be reduced to approximately five seconds—a 10X improvement that will significantly enhance the usability of the Stacks network.

This upgrade also paves the way for the introduction of sBTC, a decentralized asset that is backed 1:1 by Bitcoin. The addition of sBTC is expected to further enhance the capabilities of the Stacks network and enable the creation of new use cases.

The Nakamoto Upgrade also comes at a time when several projects built atop the Stacks blockchain have been grappling with less-than-desirable speeds. These slow transaction times have negatively impacted the user experience.

Moreover, they pose challenges in supporting high-volume use cases and limit developers in delivering complex decentralized finance (DeFi) products.

Despite the positive changes brought by the upgrade, which began on Wednesday, the total value locked (TVL) on the Stacks network has decreased by over $7 million, dropping from $98.10 million to $90.62 million. This decline in TVL suggests that the upgrade's immediate impact on market confidence was mixed, even as the network undergoes notable improvements.

BeInCrypto data shows STX, the native token of the Stacks network, is trading for $1.59 at press time, down 8.5% since Thursday session openned.

Bitcoin L2s Could Initiate New Wave

Stacks is one of the largest Bitcoin L2 networks by market capitalization. Earlier this year, the STX community voted on the Nakamoto upgrade to make the network faster and reduce block times.

According to BeInCrypto, VC funding towards Bitcoin L2s continues to grow, with total funds raised in H1 2024 reaching an impressive $143.6 million. This represents a substantial increase from the $49 million raised in the second half of 2023.

BeInCrypto also reported that at least 65 projects identified themselves as Bitcoin Layer-2.

“The crypto industry is catching on to the fact that much of what is done on alternative blockchains can be built on top of Bitcoin. Fortune 500 companies like MicroStrategy are tailoring their entire business towards Bitcoin's Layer-2. Layer-2 faces no more regulations than other crypto platforms. The only challenges are technical, and the brightest minds are being pulled towards Bitcoin along with nation-states, etc,” Manuel Ferrari, Money On Chain Co-Founder, told BeInCrypto.

There is also speculation that L2s could spark a new bullish wave for Bitcoin, especially as the focus on scaling increases. This rising demand might lead to capital rotation, with overflow potentially moving into Layer-2 tokens like STX, Elastos (ELA), SatoshiVM (SVM), and BVM (BVM).