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The Bitcoin blockchain is a complex system of varying protocols. Two protocols, Stacks and Ordinals, are often mistaken for one another or lumped in as the same thing. However, there are some key differences between Stacks and Ordinals that you should be aware of.

Smart contracts are a key component of decentralized finance (DeFi). These programs can automatically execute an agreement so long as a specific set of pre-written conditions are fulfilled. Smart contracts remove the need for third parties or intermediaries and add to DeFi's trustless model.

Smart contracts began on Ethereum but have since been adopted by many other blockchains, including Solana, Stellar, and Waves. And now, even the crypto industry's biggest player, Bitcoin, has delved into this useful technology through Stacks.

Stacks (formerly known as Blockstack) is a Layer-2 solution implemented on the Bitcoin blockchain in 2018. Since then, it has undergone its second mainnet launch, giving way to the Stacks we know today.

Stacks is linked to the Bitcoin blockchain via its proof of work consensus mechanism. While Ethereum is often known as the prime place for using smart contracts, Stacks brings a similar capability to Bitcoin.

The official Stacks whitepaper states it "enables smart contracts and decentralized applications to trustlessly use Bitcoin as an asset and settle transactions on the blockchain." Put simply; Stacks lets you use smart contracts and decentralized applications (DApps), features that were not previously present on the Bitcoin blockchain.

Many DeFi applications, such as automatic market makers (MMs) and liquidity pools, need smart contracts to function. So, without such capabilities, Bitcoin remains very limited in what it can offer. With Stacks, and therefore smart contracts, many doors are opened.

While Stacks is a Bitcoin Layer-2 solution, it does not use the proof of work mechanism. Rather, it uses something known as proof of transfer. Proof of transfer is a modified version of proof of burn. By burning their STX tokens (which we'll discuss later), miners can mine on the Stacks blockchain.

The Stacks whitepaper also reveals that the name "Stacks" is an acronym. Here's what each letter stands for:

As you can see, the Stacks solution focuses on several elements, including security, scalability, and trust. The protocol's Clarity smart contracts protects users from bugs and exploits.

Stacks does not allow the creation of Bitcoin-based NFTs, as it is a Layer-2 solution. However, its smart contract abilities can be used in NFT trades. Stacks also has its own NFT marketplace, wherein all products are priced with STX.

The Stacks protocol also comes with its own crypto asset, STX. We briefly mentioned this crypto previously, but it's important to understand its purpose and functionality within the Stacks ecosystem.

STX is used to pay network fees, conduct payments within Stacks-based DApps, and reward miners for securing the blockchain.

The Stacks protocol has its own network of important contributors, including miners. Miners must burn their STX tokens to mine via the proof of transfer mechanism. However, for a Stacks block to be mined, a Bitcoin transaction must first take place on the original blockchain. For each Stacks block, there must be a Bitcoin block it is linked to.

Throughout early and mid-2023, Bitcoin Ordinals became a very hot crypto topic.

Many choose Ethereum over Bitcoin simply because the former blockchain offers so much more. Ethereum has long since been known as the prime blockchain for NFT creation, minting, and sales, whereas the Bitcoin blockchain serves as the ledger used for Bitcoin transactions. In short, Bitcoin wasn't very versatile.

However, many Bitcoin enthusiasts have been eager to tackle this versatility issue with some useful blockchain solutions, including Stacks and Ordinals. We already know what Stacks is, but Ordinals brings a whole new element to the game: Bitcoin NFTs.

The Bitcoin Ordinals protocol launched in January 2023. This is a Layer-1 protocol used for numbering satoshis. Like Stacks, Ordinals gives the Bitcoin blockchain extra capabilities, but the two are not one and the same.

Bitcoin NFTs, or Bitcoin Ordinals, are made using satoshis. Satoshis are tiny fractions of single BTC coins, with one Bitcoin containing 100,000,000 satoshis. Though minuscule, satoshis can transfer data, which can then be tracked.

This is done by inscribing data onto the satoshi, a process made possible by the Ordinals protocol. By attaching extra data to an individual satoshi, such as comments or messages, a non-fungible token (NFT) is effectively made. For instance, a satoshi could be inscribed with information on a digital file's location, making it an NFT.

However, because the Bitcoin blockchain does not use smart contracts, neither do Ordinals. This separates Bitcoin NFTs and other well-known NFT-capable blockchains like Ethereum, Solana, and Cardano.

Though Ordinals is a 2023 phenomenon, it was made possible via the 2021 Bitcoin Taproot update, which enabled satoshi inscription.

It's easy to confuse Stacks and Ordinals due to their similarities, but both protocols have different applications. So, when should you use either of these Bitcoin solutions?

If you want to utilize smart contracts using Bitcoin, Stacks is your solution.

Say, for example, you want to create, mint, or trade Stacks-based NFTs or secure your NFTs using Bitcoin's protection. Via the Stacks protocol, this is all possible. Additionally, you can use Stacks to create decentralized apps, which isn't directly possible on the Bitcoin blockchain.

If, on the other hand, you want to create or trade Bitcoin-based NFTs, the Ordinals protocol will serve you well. Because Ordinals is a Layer-1 solution rather than Layer-2, it allows for the generation of non-fungible tokens directly on the Bitcoin blockchain, not a separate chain like Stacks.

Though Stacks and Ordinals have different natures and purposes, it is undeniable that both solutions offer their own great perks. If you love Bitcoin but also want to reap the benefits of DeFi and all its versatility, both of these protocols may serve you well.

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Bitcoin Stacks vs. Ordinals: What's the Difference? - MUO - MakeUseOf