The Bitcoin Liquid network was recently launched by Blockstream. Bitcoin Liquid is a side chain of the Bitcoin main chain. There has been surprisingly little hype surrounding its release and it has, to some extent, flown in under the radar. It went live on October 10th according to an announcement on the Blockstream blog and is the world’s first commercial Bitcoin side chain.
Who will use the Bitcoin Liquid network?
Bitcoin Liquid is aimed at those seeking to trade large amounts of bitcoin, namely exchanges. Some of the biggest names in the cryptocurrency industry are already partners of the Bitcoin Liquid network, including Atlantic Financial, OkCoin, Xapo, Bitfinex, Bitmax and BitMEX. The network token is the Liquid Bitcoin (L-BTC) which is backed by a two-way peg to Bitcoin (BTC).
To sum up the use case of the Bitcoin Liquid network, large institutions will be able to use it to settle big Bitcoin trades quickly and reliably. Large transactions are not reliable on the bitcoin main chain. The Lightning Network was not designed for large transactions and can experience delays. Additionally, transactions are limited to channel capacity. As per the Bitfinex CTO Paolo Ardoino –
“If there’s one thing our traders need, it’s speed. Liquid delivers that in spades. Liquid’s instant settlements will allow our traders to achieve faster Bitcoin deposits and withdrawals, more efficient arbitrage, and even better pricing through tighter spreads.”
Is there a need for the Bitcoin Liquid network?
In short, Bitcoin Liquid is something of a necessity. The transactions are faster and more secure. Moreover, transactions are confidential on the Bitcoin Liquid side chain. On the Bitcoin main chain, the person behind a wallet address can be easily traced via the IP address with rudimentary technical tools, and the wallets are said to be pseudo-anonymous, not private. But with the Bitcoin Liquid side chain, the amount and asset type are known only to the transacting parties.
It also has as issued asset feature which allows members to create their own tokenized asset. This means that a tokenized version of practically anything can be created, including digital fiat, precious metals, securities, reward points, etc. Perhaps one of the biggest advantages of Bitcoin Liquid is that block times are always one minute apart, instead of being probabilistic on the main chain, which is 10 minutes on average. Bitcoin main is secured by POW using miners, but Liquid is secured by a federation of trusted functionalities.
The Bitcoin Liquid network is certainly a welcome innovation for the whole Bitcoin ecosystem, which seems to be evolving and advancing rapidly, despite significant criticism. Bitcoin transactions are now fast, cheap, and unlimited, using a combination of Liquid and Lightning. Scalability issues are also largely mitigated with these two additions. The only remaining problems are privacy on the bitcoin main chain (possibly resolved with another privacy-based side chain) and the inefficient POW mining process. The Liquid network could be another yet another step on the road to hyperbitcoinization.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.