Nakamoto in 10 Minutes
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On the previous page, we outlined three primary changes to the way Stacks works that Nakamoto introduces:
Fast blocks: The time taken for a user-submitted transaction to be mined within a block (and thus confirmed) will now take on the order of seconds, instead of tens of minutes. This is achieved by separating block production from cryptographic sortitions -- a winning miner may produce many blocks between two subsequent sortitions.
Bitcoin finality: Once a transaction is confirmed, reversing it is at least as hard as reversing a Bitcoin transaction. The Stacks blockchain no longer forks on its own.
Bitcoin Miner MEV Resistance: This proposal alters the sortition algorithm to ensure that Bitcoin miners do not have an advantage as Stacks miners. They must spend competitive amounts of Bitcoin currency to have a chance of earning STX.
Here is a video that covers exactly what happens to a Stacks transaction under Nakamoto rules. In it we cover exactly how Nakamoto achieves Bitcoin finality.
In the rest of this doc, we'll cover some of the key components of Nakamoto in a bit more detail.
Fore a more detailed technical explanation of how this is all accomplished, check out the Block Production section.
One of the most significant changes coming in Nakamoto is how new blocks are produced. Historically, because Stacks blocks have been anchored 1:1 to Bitcoin blocks, slow block times and transaction times have been one of the biggest pain points for Stacks users and developers.
Nakamoto brings significantly faster block times by decoupling Stacks block production from Bitcoin block production. In Nakamoto, new Stacks blocks are produced roughly every 5 seconds.
This is achieved via the use of tenure-based block production. Each Bitcoin block introduces a new tenure, in which a single miner cryptographically selected for that tenure is responsible for producing all Stacks blocks.
Rather than single Stacks blocks being tied to a single Bitcoin block, Bitcoin blocks are now tied to a miner tenure, during which they mine several Stacks blocks which settle in around 5 seconds.
But if a single miner is only cryptographically selected for their tenure, and not their produced blocks, what mechanisms exist to ensure the validity of their block production?
This is where Stackers come in. In pre-Nakamoto Stacks, Stackers were responsible only for locking their STX tokens to contribute to the economic security of the network.
In Nakamoto, Stackers are responsible for validating and approving each block produced during a miner's tenure.
To ensure network consistency, the Stacks protocol commits to the state of the Stacks blockchain with each new Bitcoin block by referencing the first Stacks block produced in the previous tenure. Such a design reinforces the fidelity of transaction data and the synchronization between the two chains. It also links the Stacker’s actions with the actions of miners producing a partnership between the two to create both fast and secure blocks.
As part of this tenure change, Stackers also agree on a last signed block and require the next miner to build off of this, which prevents new Stacks forks. Stacks does not fork on its own and automatically forks with Bitcoin.
This symbiotic relationship between Stackers and miners is what creates the capability for both fast blocks and 100% Bitcoin finality.
This elegant design creates a cooperative relationship between miners and stackers while achieving the best of both worlds with block production and transaction speed and security.
Here is a diagram outlining miner and signer behavior.
Miner Extractable Value (MEV) has been a longstanding issue across many blockchains, including Stacks pre-Nakamoto.
MEV refers to the potential profit miners can extract from the manipulation of transaction inclusion and ordering within the blocks they produce, which can lead to unfair practices and diminished trust in the network.
Specifically in pre-Nakamoto releases of Stacks, Bitcoin miners with a significant percentage of Bitcoin’s hashrate had the ability to censor commitment transactions of other Stacks miners ensuring they were able to win the block rewards and fees of Stacks blocks where they were also the winner of the Bitcoin block as a Bitcoin miner.
This allowed them to sometimes win these rewards for minimal bitcoin cost in PoX. This has led to reduction in Stacker BTC rewards and other bad incentives for Stacks mining. As such Nakamoto has changed the approach to sortitions to promote better fairness in the mining process.
With the Nakamoto release, Stacks introduces a series of countermeasures to mitigate the influence of MEV and promote a fairer mining landscape.
Miner Participation in Recent Blocks: The update emphasizes a miner's consistent participation within the network, requiring a history of attempts in recent blocks (the last 10) to qualify for sortition. This persistent involvement in at least the last 10 blocks aims to foster a dedicated and stable miner community.
Median of Past Bids Method: By calculating the winning probability based on the median total BTC bids of the last ten blocks, the system discourages aberrant bidding behavior. This reduces the likelihood of a miner skewing sortition chances through atypical or extreme bids.
Absolute Bid Total: Inclusion of an absolute measure of bids further strengthens the system's robustness. Rather than having a variable determined by just the immediate mining environment, the absolute bid total keeps the process anchored to a broader and more stable economic baseline.
These changes ensure that miners are rewarded for their genuine contributions to the network's security and continuity, safeguarding the blockchain from manipulation and encouraging a more equitable distribution of rewards.
The Nakamoto system uses a variation of the Assumed Total Commitment with Carryforward (ATC-C) MEV mitigation strategy described in this document to allocate block rewards to miners. Unlike pre-Nakamoto Stacks, there is no 40/60 fee split between two consecutive miners.
Each miner nominally receives the entire coinbase and transaction fees before the MEV mitigation is applied.
In the ATC-C algorithm, Nakamoto uses the document's recommended assumed total commitment function: the median total PoX spend across all miners for the past ten Bitcoin blocks.
It also uses the document's recommended carryforward function for missed sortitions' coinbases: the coinbase for a Bitcoin block without a sortition would be available to winning miners across the next ten tenures. That is, if a miner whose tenure begins during the next ten tenure-changes manages to produce a Stacks block with a Coinbase, then they receive a 10% of the coinbase that was lost.
The reason ATC (and ATC-C) were not considered as viable anti-MEV strategies before is because a decrease in the PoX total spend can lead to a Bitcoin block with no sortition. This is a deliberate design choice in ATC-C, because it has the effect of lowering the expected return of MEV mining.
In ATC-C, the probability of a miner winning a sortition is equal to (i.e. no longer proportional to) the miner's BTC spend, divided by the maximum of either the assumed total commit (median total BTC spend in the last 10 blocks) or the total BTC spend in this Bitcoin block. This means that the sum of each miners' winning probabilities is not guaranteed to be 1. The system deals with this by creating a virtual "null" miner that participates in each sortition, such that its probability of the null miner winning is 1 - sum(probabilities-of-all-other-miners). If the null miner wins, then the sortition is treated as empty.
While the existence of a null miner was a liveness concern in pre-Nakamoto Stacks, it is not a concern in Nakamoto. If the null miner wins tenure N, then the last non-null miner continues to produce blocks in tenure N. They receive transaction fees, but no coinbase for tenure N.
Nakamoto includes one additional change to ATC-C as described in the above report: if a miner does not mine in at least five of the ten prior Bitcoin blocks, it has zero chance of winning. This requires a Bitcoin MEV miner to participate as an honest miner for the majority of blocks it produces, such that even if they pay the bare minimum PoX payout each time, they are still paying Bitcoin transaction fees to other miners.
The need for this additional tweak becomes apparent when considering the consequences for a real Bitcoin MEV miner who was active in pre-Nakamoto Stacks: F2Pool.
Consider what happens to F2Pool, who spends 200 sats on PoX and zero sats on transaction fees for their block-commit. Suppose the median total BTC spend over the last ten Bitcoin blocks was 500,000 sats (about what it is at the time of this writing).
With ATC-C alone, their probability of winning the sortition would be 200 / max(500,000, 200), or about 0.04% chance. The miner would need to send 2,500 such block-commits before winning a Stacks coinbase (worth about 500 USD).
F2Pool had 13.89% of Bitcoin's mining power over the past three months, so it would take them about 4 months to win a single STX coinbase (which is a very long time horizon). Right now, it costs 22 sats/vbyte to get a Bitcoin transaction mined in the next Bitcoin block; this is what Stacks miners pay.
A block-commit tx is about 250 vbytes, so that's 5500 sats, or about 1.41 USD with today's BTC price. So, F2Pool would lose money by MEV mining at their current rate if prices stay the same over those 4 months -- they'd forfeit about 3,525 USD in Bitcoin transaction fees (lost by excluding other Bitcoin transactions in order to include their block-commit) for a Stacks coinbase worth 500 USD. They'd have to pay about 1410 sats per block-commit just to break even, and they'd only recoup their investment on average once every 4 months.
This by itself is not a significant improvement -- F2Pool would be required to go from paying 200 sats to 1410 sats. However, with this proposal's tweek, F2Pool would be required to additionally win five Bitcoin blocks in a row in order to mine this cheaply.
Given that they have 13.89% of the mining power today, the odds of this happening by chance are only 0.005%. Since this is unlikely -- about once every 20,000 Bitcoin blocks (once every 138.9 days) -- F2Pool would instead be required to send legitimate block-commit transactions in at least 50% of the Bitcoin blocks.
In 87.11% of those, they would be paying the same transaction fees as every other Stacks miner. This alone would cost them $106.13 USD/day. With the additional de minimis PoX payout, this rises to $212.25 USD/day. In other words, they would expect to pay $29,481.51 USD just to be able to mine one Stacks block for a de minimis PoX payout. This is more expensive than mining honestly!
If the largest Bitcoin mining pool -- Foundry USA, at 30% of the Bitcoin mining power -- wanted to become a Bitcoin MEV miner on Stacks, then the given parameter choice still renders this unprofitable. There is a 0.243% chance that they win five blocks in a row, and can thus mine a de-minimis block-commit and be guaranteed to win. This happens about once every 2.85 days (every 411.5 Bitcoin blocks), so they'd be spending about $604.91 USD just to mine one Stacks block for free (which is not profitable either).