Hiro Systems CEO and Stacks Founder Muneeb Ali joins Yahoo Finance's David Hollerith in the Crypto Corner to discuss the CEO's innovations in adding stacks software to bitcoin that functions it would enable in the cryptocurrency.
AKIKO FUJITA: We are seeing Bitcoin trading back above that $60,000 handle, recovering from an overnight sell-off that led to a broader retreat in the entire crypto market. Over the weekend, though, Taproot, its most significant upgrade in several years, was officially activated. The upgrade changes are expected to make Bitcoin's underlying blockchain more efficient and provide a better framework for developers looking to build on the largest cryptocurrency. Let's bring in Yahoo Finance's David Hollerith, who's joining us with a special guest. David.
DAVID HOLLERITH: Thanks, Akiko. Yeah, I'm joined by Muneeb Ali. He's CEO of Hiro Systems and also founder of the Stacks Protocol. So I wanted to bring on Muneeb especially because the Stacks Protocol, which he created, is sort of, you know, one of the rare products or protocols we see that are actually building on Bitcoin. So just to start off there, money, can you sort of tell us about the Stacks Protocol? And why did you choose to tie it to Bitcoin? And why haven't more projects done the same thing?
MUNEEB ALI: Yeah, absolutely. So I think the best way to think about Stacks is a programming layer for Bitcoin. And a lot of people might be familiar with Ethereum that has, like, full smart contracts capabilities, meaning that developers can build all sorts of applications on top. Bitcoin is a little bit different, right? Bitcoin is actually much more simple at the base layer. And that's by design.
So Bitcoin is designed to maximize decentralization. It's designed as sound money. And Stacks is basically bringing the full smart contracts capabilities to Bitcoin to unlock Bitcoin applications, which we think that could be a pretty huge market because Bitcoin is a trillion dollars in asset. A lot of people kind of, like, trust Bitcoin and want to build interesting applications on top of Bitcoin. So if you can bring Ethereum-like smart contracts directly to Bitcoin, we believe that that could be a potentially very large market to unlock.
DAVID HOLLERITH: Yeah, and could you just tell us more about some of the applications that are using Stacks? From what I understand, I mean, from what you're saying, they're DeFi projects. And obviously, it's most of what we think of as DeFi projects are built on blockchains of their own or Ethereum.
MUNEEB ALI: Yeah, so I think it was actually relatively very recent. The mainnet launch happened earlier this year. And since then, we have basically seen a lot of different DeFi protocols, but these are really Bitcoin DeFi, right? So one example would be Arkadiko, which is a stablecoin, but the collateral for that stablecoin is earning Bitcoin for people. Similarly, there is another smart contract where people are locking up capital and earning Bitcoin yields. There's something like a billion dollars locked today in that smart contract. And people are earning something like a 10% Bitcoin rewards from there.
So the interesting thing here is that as I mentioned that there's a trillion dollars worth of Bitcoin that's largely sitting passive. Like, it's not actively deployed into smart contracts right now, unlike Ethereum and some of the other projects out there. And I think that's the space we are operating in.
But interestingly, developers are building all sorts of additional things as well. Bitcoin NFTs have been very popular recently because developers see the value in the ownership of an NFT actually being registered at Bitcoin because Bitcoin is so decentralized, so durable. So they're bringing NFTs to Bitcoin, they're bringing DeFi to Bitcoin, they're bringing all sorts of things like DAOs and so on. It's a very, very kind of, like, exciting time to be in the Bitcoin ecosystem right now.
JARED BLIKRE: And I'm wondering how the fees stack up for Bitcoin smart contracts. That's one of the big complaints with Ethereum-- smart contracts, the gas fees, et cetera. What are the costs here?
MUNEEB ALI: So the ways tax is designed is that it is a separate layer. It's a separate programming layer. And then thousands of transactions on the Stack side, they settle on Bitcoin in a very energy efficient way. So you're at the Bitcoin layer, you're not paying very high gas fees. Only the miners that are operating the Stacks there, they're operating at the Bitcoin level. So in many ways, it's pretty much like a scalability solution, and in fact, the energy efficient scalability solution for Bitcoin as well.
DAVID HOLLERITH: Yeah, Muneeb, I'm sort of wondering. You know, I'm thinking about-- I think a project like Stacks is-- in the fact that it's fairly unique, you know, you sort of, on the one side, you have, you know, people who say Bitcoin should only be used as a payment system and a store of value asset. And then you have the other people who maybe are looking at Ethereum and they're saying, you know, that's where you need to build it. That's where the scalability is. So I'm curious how you sort of navigate those two types of criticism that you perhaps get from time to time in the community.
MUNEEB ALI: Yes, so I think if you look at today's use of Bitcoin, it's mostly used as a store of value. Most people kind of, like, buy and hold Bitcoin, or they would trade it on centralized exchanges. So I think that's kind of, like, step one. Step two is when people start deploying their Bitcoin in a decentralized way. For example, you could trade it on decentralized exchanges. You could participate in decentralized lending protocols, which is something that a lot of Bitcoiners actually like to do. They like decentralization. They like to be in control of their own assets. So that's step two.
But step two cannot happen without full smart contracts, which is what Stacks kind of, like, brings. And step three is these all sorts of different applications like NFTs, DAOs, social networks, and whatnot, and all these different applications settling on Bitcoin. They're benefiting from the security of Bitcoin. And sometimes where the argument start is a lot of people don't want to change Bitcoin. We actually agree with that. So the way the Stacks are designed, it does not require any changes from Bitcoin at all.
And I think that was actually the hard technical challenge to crack. And that's why we haven't seen a lot of applications built around Bitcoin because you can't really change Bitcoin to add capabilities like Ethereum. So we were able to do it without changing Bitcoin. And I think that was a key to unlock for us.
JARED BLIKRE: And just, could you get into some of the, I guess, some of the details regarding the taproot activation that happened over the weekend? Just, how might this affect building applications on top of Bitcoin?
MUNEEB ALI: Yeah, so I think-- I'm a big supporter of Taproot. It is by far the biggest upgrade to Bitcoin that has happened over the years. And I think what this proves is that, yes, Bitcoin can actually upgrade, but just the scrutiny level or the bar is very, very high for whenever even small changes are being introduced to Bitcoin, which is a really good thing. You want your base layer to be very durable and very, very secure.
So effectively, what Taproot does is that, A, it reduces the size of certain complex transactions that can be implemented-- they can be expressed as a simple transaction on Bitcoin. And B, it makes those complex transactions more private. Taproot is not adding any new programming ability to Bitcoin. What it is doing is that the existing programming ability, Bitcoin has this thing called Bitcoin Script.
And some people would argue with you that every Bitcoin transaction is sort of a smart contract transaction because you're using Bitcoin Script to do it. They're fairly limited. What Taproot does is that it makes those types of limited use cases much more practical, much more efficient. So we will see new types of applications being built.
But if you're trying to compare them to systems like Ethereum or Solana that have fully expressive smart contracts, that's not what Taproot is doing. That is the thing that you can do with Stacks. So I think there's basically some of the arguments that get into the nuances of what is a limited smart contract or a limited script versus a fully expressive smart contract in which you can build anything on top.
JARED BLIKRE: We're going to have to leave it there, but appreciate you stopping by, Muneeb Ali, Hiro CEO and Stacks founder, along with Yahoo Finance's David Hollerith.