Demystifying how CityCoins works

The world of crypto involves an ever-evolving blur of industry lingo, and similar terms are often confused with one another. This is especially true when new crypto projects are built on top of one another, as is the case with CityCoins, the Stacks Protocol, and Bitcoin. BTC, Stacks tokens (STX), and CityCoins like MIA are all created through mining, and users can Stack STX and MIA to earn additional crypto tokens. Given the importance of the dynamics between these three projects and the fact that not everyone knows the difference between “Stacking” and “Staking”, it’s worth clarifying a few key points:

CityCoins like MIA are built on Stacks, and Stacks is built on Bitcoin

MiamiCoin is a programmable token that is powered by the Stacks protocol. Stacks is a layer-1 blockchain that recycles Bitcoin’s PoW to settle transactions in a way that is both secure and resource-efficient. The purpose of Stacks is to create a network that enables a wide range of smart contracts, digital assets, and decentralized apps to be easily deployed and connected back to Bitcoin.

Why build on top of Bitcoin? Because no other network can match Bitcoin’s ability to serve as a reliable and secure “source of truth”. In order to make full use of Bitcoin’s real-world advantages, Stacks can work around Bitcoin's limited speed by using microblocks that result in near-instant confirmation. As a result, CityCoins like MiamiCoin can exist within the programmable layer Stacks has built on top of Bitcoin, which enables impressive throughput rates and low transaction fees while taking full advantage of Bitcoin’s unrivaled security and state finality.

CityCoins involve Mining and Stacking — but not Staking

New MiamiCoins are mined by spending Stacks tokens (STX), and MIA holders can Stack their MIA tokens to earn STX tokens. From there, these STX tokens can be further Stacked to earn BTC. In order to understand how this process works and where these STX and BTC yields are coming from, it’s necessary to take a closer look at the Stacks Protocol’s design.

Most importantly, minting new STX tokens and validating the network requires both mining and Stacking. This process, Proof of Transfer (PoX), underpins the entire Stacks ecosystem. Here’s how it works:

1. Miners spend BTC for a chance to mine new blocks: To mine new STX blocks, miners must spend a certain amount of BTC for a chance to earn newly minted STX from each block they successfully validate.
2. STX Stackers earn BTC in exchange for securing the network: This BTC is transferred to other network participants who have Stacked their STX (i.e. locked up their STX for a period of time) in a dedicated smart contract protocol in order to accrue BTC rewards. 100% of the BTC spent mining new STX is kept by the STX Stackers.
3. Winning miners receive new STX tokens: The Stacking protocol uses the amount of BTC each miner committed as an input and combines it with a verifiable random function (VRF) in order to select the winner of each block. The more BTC a miner commits, the higher their chances of winning the STX rewards from that block.

STX miners lose the BTC they commit to each block cycle regardless of whether or not they successfully mined the block. As a result, Stack’s PoX protocol has been compared to Proof of Burn (PoB). However, this is an inaccurate comparison since none of the BTC that STX miners commit is actually destroyed. Rather, this BTC is distributed as rewards to users who help secure the Stacks network and is used to incentivize various forms of ecosystem participation. And because this protocol builds on Bitcoin’s consensus protocol in a seamless, resource-efficient way, PoX is essentially a form of “Recycled Proof of Work”. 

MiamiCoin utilizes a similar PoX mining process as Stacks, except instead of committing BTC for a chance to earn new STX tokens, MiamiCoin miners spend STX for a chance to mine new MIA tokens. Additionally, 30% of the STX used to mine new MIA is sent to Miami city’s crypto wallet to encourage participation and benefit local residents. As a result, in addition to enabling a wide range of smart contracts and dApps, MIA has built-in reward mechanisms which users can use to earn both STX and BTC.

Stacking is similar to (but better than) Staking

All of this begs the question – how is Stacking different from staking? Many crypto users are familiar with the concept of staking, which also involves locking up crypto assets in a smart contract protocol in order to receive crypto rewards. On the surface, this is fairly similar to the process of Stacking STX and MIA outlined above. However, there are fundamental differences between the two.

Most notably, staking rewards are typically paid in the same crypto asset that is being staked. By contrast, when you Stack a crypto asset your earnings are denominated in another cryptocurrency. 

Example: When you stake ETH, you earn additional ETH. When you Stack STX you earn BTC, and when you Stack MIA you earn STX.

This also means that Stacking MIA does not increase the circulating supply of MIA. Since staking ETH frees up more ETH in the form of rewards, this may create more selling pressure for ETH, which creates more downside selling pressure in some instances. While price fluctuations are difficult to extrapolate based on this mechanism alone, this potential issue does not arise when Stacking MIA or STX. 

Staking is typically associated with networks that rely on a Proof of Stake (PoS) consensus mechanism, and these projects are impossible to launch in a way that ensures equal opportunity for participation for everyone (more on this below). Additionally, given how PoS consensus protocols work most staked crypto funds are perpetually at risk of being slashed due to unfavorable variations in network activity.

Recycled PoW and Stacking are central to CityCoins’ fair launches

Every PoW blockchain is brought into existence the moment multiple miners with zero inherent advantages decide to kickstart the network. By contrast, PoS blockchains rely on early network participants who have an economic stake in the system and are willing to put up the capital to establish the network. In other words, it’s pretty much impossible for a PoS crypto project to conduct a fair launch, since pre-mined tokens must be distributed to early decision-makers in order to activate and run the network.

While PoW protocols have taken some heat lately given how resource-intensive this consensus mechanism can be, Bitcoin’s role as the ultimate “trust machine” remains undisputed. And in order to scale Bitcoin’s inherent advantages in previously unimaginable ways, STX and MIA are combining Bitcoin’s security features with a growing array of community-owned applications and smart contract deployments. Additionally, by using BTC as a form of PoW currency, the PoX protocol eliminates the need for miners to consume significant amounts of electricity and computing power by recycling Bitcoin’s output. This, in turn, allows anyone to mine STX or MIA without the need for sophisticated hardware.

Lower barriers to entry are essential for a civic-minded, community-driven project like CityCoins, and ultimately the only way this project could be launched in a fully decentralized way without pre-mined tokens was through Stack’s recycled Proof of Work. This setup allows CityCoins to provide full creative autonomy for its users while making full use of Bitcoin’s security and Stacks’ built-in reward mechanisms. As a result, CityCoins is both independent and interconnected — just like the cities and communities the project is designed to benefit — and this duality is directly embedded in CityCoins’ core architecture.