In what could be the most pivotal year for Bitcoin since it was invented, Muneeb Ali, CEO of Trust Machines and co-creator of the Stacks blockchain, thinks the network’s scalable layer 2s are poised for a breakout. This isn’t just because bitcoin (BTC) has been setting new all-time highs on a weekly basis recently — largely driven by the introduction of spot BTC exchange-traded funds (ETFs) — but because, more and more, people are using the first cryptocurrency for its intended purpose: as money.
The introduction of the Ordinals protocol, the rise of Bitcoin-based BRC-20 tokens and the increasing sophistication of the network’s “smart contracts” via things like BitVM have all contributed to the reinvigoration of Bitcoin’s “fee economy,” i.e. the price paid to make a BTC transaction.
In other words, people are not just buying and holding bitcoin anymore, but using it.
“Yes, the larger use case remains that bitcoin is a savings technology,” Ali told CoinDesk in an interview. Ali is a veteran developer who got his start working on one of Satoshi Nakamoto’s interests, creating an on-chain domain naming system called the Bitcoin Name Service (BNS) in 2014.
“But if you’re talking about $1.4 trillion in [deployed Bitcoin] capital, if people keep 80% of that in savings, there’s still hundreds of billions of dollars of BTC that’s available” to be put to productive use.
Ali predicts that most of this action will happen on Bitcoin layer 2s like Lightning, LayerTwo Labs’s “drivechains” or secondary solutions like Stacks, which are all attempts to solve the same problem of scaling Bitcoin and making it more affordable to use. It’s conceivable in the future that there could be daily bitcoin users who never send an on-chain transaction on the base layer, he said.
CoinDesk caught up with Ali last week to discuss Stacks’ long-in-the-works Nakamoto upgrade, what he appreciates about other app-optimized networks like Ethereum and Solana and the “revival of interest in Bitcoin layer 2s.” The following interview has been lightly edited and abbreviated.
Stacks has been around for a long time, and, to your credit, it has continually innovated. The upcoming Nakamoto upgrade has been in progress for a few years. Answer honestly: Has Stacks built up technical debt — or were there decisions you made earlier that limit what you can do today or that make certain things more difficult?
There’s definitely technical debt from a code perspective, right? If you already have a code base, and you’re upgrading it, there’s friction when making changes live and in production. I’ll give you an example: Today, there’s $1.4 billion in STX capital that is locked in consensus right now. The first thing that’s going to happen is that people are going to unlock their capital and lock it in the new consensus protocol — that’s $1.4 billion getting unlocked in one place and moved, versus just launching a new system.
At the same time, I would emphasize that this is exactly the type of challenge that Bitcoin layer 2s should be able to take on. It’s what makes the whole system durable. L2s move fast. Bitcoin is not going to change much. L2s are innovative and open to making rapid changes. After a while it becomes part of their culture. These days, I’m seeing “XYZ ecosystem” have a cadence of one major upgrade every six months: That would be very healthy for Bitcoin.
Fragmentation of layer 2s on Ethereum is an emerging issue for that network. Are you thinking that Bitcoin is going to need layer 3s eventually?
We are already seeing this. Stacks has this thing called Bitcoin subnets — the work is done but it was never really fully launched because there’s so much focus on Nakamoto right now. The basic concept is to use Stacks to do the logic and security in the middle in between subnets, which could be more permissioned, while putting all of the state from the subnet onto the Bitcoin layer 1. This allows you to use BTC liquidity. That’s exactly the type of stuff that people call layer 3s, where you can reuse bits and pieces of different L1 and L2 components.
We’re developing these SDKs [software development kits] that can help developers use Stacks subsets to — I’ll give you an example. Let’s say someone wants to use the Bitcoin layer 1 as the data availability layer, but the huge signer network that Stacks has, with its $1.4 billion locked today, its decentralized group of signers and 30+ institutions. So they can pick and choose to use the signers from the L2 to build an interesting application. That’s an interesting area as things become more modular, and we will definitely be keeping an eye on whether Stacks emerges as a leading L2 that can be reused in quote unquote L3s. I think that’s something developers will really like.
Is this able to communicate with Lightning?
Not a lot of people know this, but Stacks is already connected with Lightning. There is this protocol called LNSwap that can swap satoshis on Lightning to assets on Stacks using an atomic swap. You can begin to extend that functionality because Stacks is almost like a routing layer for subnets. Anything Stacks has been connected to subnets are connected to, which is a huge benefit.
What do you make of the state of the oracle ecosystem on Bitcoin?
Some of the direct conversations that I’ve had with oracle developers is about how they find it hard to be directly integrated with Bitcoin. That’s common: Bitcoin has an eloquent scripting language, but it’s really hard to work with and it’s limited in what it can do. Interestingly, Stacks has a type of oracle service where through the mining process, people get a native feed of the BTC/STX price pair, because that bidding is happening on-chain — it’s like an on-chain oracle for STX/BTC prices. Some people find that interesting.
I will say right now, oracles on Bitcoin L1 are sort of limited. They mostly work, let’s say we have some off-chain oracle that controls a multisig — they’re not state of the art oracles like on Ethereum or Solana. On L2s, Pyth [Network, a cross-chain oracle solution] is already live and other oracles are coming as well that can try to fill that gap as best as possible. It’ll be a huge step forward because it sort of connects the dots and allows for more expressive contracts that have full functionality like Solana or Ethereum. It would dramatically increase the programmability of Bitcoin.
Are there unseen dangers to increasing the programmability of a system designed to be rather limited? There’s a version of this debate playing out already with Ordinals and the like.
I think, with BitVM, there was an accidental discovery that Bitcoin is already Turing complete. There’s a caveat: these programs are pretty inefficient to build. It’s technically true that with BitVM you can pretty much build any application. But the reality is nowhere close to having full smart contracts. Because BitVM programs are mostly off-chain, they’re not directly impacting anything — just the proving steps are happening on bitcoin L1, which are pretty limited.
If Bitcoin changed its script to something like EVM that would be a drastic change, right? Like you suddenly open yourself up to all sorts of things. With BitVM, yes there are new features, but it’s pretty limited.
That said, with Taproot we have seen that even with limited additional functionality, people can build new things. So I definitely think people will try a lot of new things. What I am excited about with BitVM are very targeted applications, because it’s usually an inefficient way of writing a program. For example, a trustless bridge. A trustless bridge is actually not impacting the L1 that much at all because all the functionality lives on the L2. That’s a great use of BitVM because the L1 is still protected. People might try to do other things with BitVM as well. But it’s a very heavy load, all these programs are very complicated and inefficient.
There’s a claim to make that you’re the Bitcoin maxi who most closely follows developments happening on other chains. Is there anything at all that you admire about Ethereum or Solana?
It’s actually interesting, right? I was with some other Bitcoin people and it was sort of surprising to me how little they follow happenings elsewhere in the industry. I’ll give you a concrete example where I think there could be a benefit.
Everyone wants to support Bitcoin Core development; they are doing thankless work and there should be better ways of supporting them. I brought up the point that these other ecosystems actually have very bright engineers. Algorand, for example, has PhDs from MIT — like really smart people who have built a real blockchain and have experience running production systems. But there’s no good way of learning from their experiences.
How do you hire and retain these people? How do you incentivize them? The rest of the blockchain ecosystem is actually pretty competitive. When we try to hire Core devs for Trust Machines, we compete with Solana Labs and Avalanche. It’s a very competitive market, but Bitcoin is missing in action. Like, they’re not even playing that game. There are a ton of lessons that can be taken from the rest of the industry that can be funneled into Bitcoin Core, that can make core development more efficient, better funded, with better talent.
You probably get a version of this question and every interview you do, but all available evidence suggests people want to hold bitcoin. 70% of addresses are unmoved. Flows into ETFs suggest that people are putting bitcoin into long term savings. Why believe the Bitcoin smart contracts space will ever grow as large as Ethereum?
I do get that question a lot. The way I think about this is: I have my bitcoin savings in cold storage and some capital that I want to experiment with. That capital could be ETH capital or SOL capital — but it just as easily can be BTC capital. The simple fact is it’s much better to have BTC capital — that’s the division, right? And people spend bitcoin.
People forget that the Ethereum ICO [initial coin offering] happened in BTC. $18 million raised in BTC and it sold out. Rootstock raised 35,000 BTC. If you look at ordinals traffic, some of the new NFTs like Taproot Wizards when they launched Quantum Cats. It sold out in BTC. So I feel the data suggests that people actually deploy their bitcoin.
Yes, the larger use case remains that bitcoin is a savings technology. But if you’re talking about $1.4 trillion in capital, if people keep 80% of that in savings, there’s still hundreds of billions of dollars of BTC that’s available. That’s more than any other chain, minus Ethereum, that is available to deploy and put to productive use.
Then there’s the institutional use. Right now, there’s no direct, decentralized way to safely earn yield on their BTC. BlockFi blew up. DeFi didn’t, not even during the bear market. If there’s a healthy, decentralized smart contract option that could turn bitcoin into a productive asset from a passive, no yield asset. That’d accelerate institutional adoption.
I mean, institutions may reject that for similar reasons Bitcoiners may be hesitant: you’re introducing smart contract risk.
It is a risk, right? But there’s risk-to-reward ratios in every market. There are different ways of doing it, too. There’s work being done so that people can keep their BTC in DLCs on the layer 1 where the BTC only moves to the L2 if you get liquidated. But if you get liquidated, it’s not your bitcoin anyway. Right? So DLC is likely a very safe way of keeping your bitcoin while still participating in DeFi. And on a spectrum I think it’s way safer than giving your BTC to a company.
Obviously people value their bitcoin and don’t want to lose it. But that doesn’t mean free market solutions shouldn’t exist to earn yield. If some people want to take more risk with a subset of their BTC holdings, they should be free to do so and right now those options don’t exist. My gut feeling is that there’s actually a lot of demand, too.
If you could do it over again, would you still do the Reg A+ token listing?
We still, in some ways, get some benefit from that. It helps people know the offering was transparent and fully legal — it builds credibility for the ecosystem. Another thing that it did was it actually forced decentralization [of Stacks] very, very early, before the mainnet launch. The original company exists in some form, but everyone involved went off and formed independent companies and pursued different things. It is an actual ecosystem. There’s no equivalent of a Solana Labs that does all the work. On the flip side, it’s harder to coordinate across so many different entities.
There have been other challenges. For example, many exchanges, especially in the U.S., didn’t understand the Reg A+ offering and were hesitant to list the token. People weren’t used to the process. It’s a mixed bag, but overall I need to be grateful for the opportunity. Ultimately it gives a lot of transparency and credibility to the project.
You get a lot of hate on Twitter from Bitcoiners especially. Under every post someone either asks why you launched a token or calls you a scammer. How do you personally stay motivated in such a hostile space?
Honestly, it’s getting much better. It was the Dark Ages of Bitcoin before. What helped me is that people I really respect — the OGs of Bitcoin like Erik Voorhees, Jameson Lopp and a lot of other people — are very supportive. Minus a few, like Adam Back, which bothered me more. Like Adam, why aren’t you getting it?
In person, I have more friendly conversations with everybody. Also, a lot of criticism is coming from the people who joined Bitcoin during the quote unquote Dark Ages and I just view them as having incomplete information. Bitcoin is a free-market solution. When you don’t understand Bitcoin you say something like, “you can do X but not Y on the network.”
The other thing is it’s getting a lot better because there are new builders coming and new tools being built. There’s excitement in the builders community. It’s sort of a mindset, or at some level, a personality thing.
I joke that the number one quality in the type of person who actually finished their PhD is being stubborn. If you’re stubborn about an idea, you really believe in it, you keep taking the punches, right? Then it’s a satisfying feeling when you cross the finish line.