Liquid Network
Bitcoin was the first and most important cryptocurrency, but its protocol has limitations that hinder the development of the network. Bitcoin's main problems have been slow and expensive transactions, lack of scalability and limited functionality that does not allow for bilateral and transactional transactions and the issuance of other assets on the blockchain as can be done with Ethereum, BNB Chain, Solana, Cosmos and other newer networks.
To solve these problems, developers have begun to create Layer-2 networks or sidechains that not only extend the functionality of the Bitcoin protocol but also reduce the load on the network. One such solution is the Liquid Network.
What is Liquid Network?
Liquid Network is a Bitcoin sidechain for fast, cheap and confidential transactions and the issuance of digital assets such as stablecoins, tokenized shares and other financial instruments.
Liquid Network was launched on 10 October 2018, but the sidechain technology was first described in a Whitepaper called "Sidechain Elements" in 2014. The network began testing three years before the leading network launched in 2015.
The protocol was developed by Blockstream, which has also released the popular Green Bitcoin wallet and the Jade hardware wallet. Liquid Network connects numerous exchanges, brokers and other financial institutions, including Bitfinex, BitMEX and OKCoin.
In 2021, Blockstream raised $210 million at a $3.2 billion valuation in a Series B funding round, earning it unicorn status. Blockstream's investors include big names such as Google, Tesla iFinex, Bitfinex's parent company and Tether.
Liquid Network features
Liquid Network is based on another well-known Layer-2 solution, the Lightning Network (LN). Like Liquid Network, LN provides lightning-fast and extremely cheap Bitcoin transactions but has more limited functionality than that network.
In addition, Liquid Network was initially focused on attracting large financial institutions and exchanges and is designed to handle high-volume transactions. Therefore, the main layer of users were institutional and retail investors, retailers, exchange platforms and issuers of digital assets. Due to this feature, Liquid Network has been dubbed the "federated sidechain of bitcoin".
Another feature of Liquid Network is confidential transactions. Sidechain transaction amounts and asset types are hidden from third parties. Liquid Network transactions are executed outside the Bitcoin blockchain, so users pay a minimal fee to the network.
Liquid Network ecosystem and other areas of Blockstream's business
In addition to the Layer 2 network itself, one of the critical products of the ecosystem was Elements, a platform for creating and running Liquid Network-based sidechains, providing developers with the necessary tools, including for transaction privacy and issuing Liquid Assets digital assets.
Another significant product of the Liquid Network ecosystem is SideSwap. It is a decentralized exchange (DEX) for exchanging "liquid assets" and converting native bitcoin into LN L-BTC tokens. For now, only L-BTC pairs with USDt and EURx stablecoins and several tokens from other issuers are available on the exchange. However, their number is likely to grow over time.
In addition to SideSwap, the Liquid Network ecosystem also includes the popular decentralized P2P exchange Hodl Hodl, which allows bitcoin to be exchanged for fiat currencies via smart contracts without intermediaries.
Another essential part of the Liquid Network ecosystem is Liquid Federation, also known as the "Federation", a group of cryptocurrency companies that includes exchanges and other financial institutions. It includes around 60 companies, such as Bitfinex, Bitbank, Huobi, Poolin, BitMEX, and Cobo. This group is the validator network for Liquid Network, providing sidechain, transaction validation, security, asset management, and other important decisions regarding the ecosystem.
In addition to developing a sidechain solution for Bitcoin, Blockstream is also involved in mining activities. Its main product in this area is Blockstream Energy. The company produces modular Bitcoin mining units (MMUs) and Jade hardware wallets that can even mine Bitcoin.
L-BTC token
The protocol team has released its token called Liquid Bitcoin (L-BTC), which is a wrapped version (Wrapped) of Bitcoin on the Liquid Network and pegged to the original coin's exchange rate at a 1-to-1 ratio.
Any user can exchange native Bitcoin for L-BTC and back. The LBT-C token is used to pay Liquid Network fees for transactions.
Liquid Assets
On the Liquid Network, anyone can issue their own so-called Liquid Assets, which can be linked to another asset or be individual units. Several thousand different assets have already been published on the Liquid Network. Also, any user can launch a full Liquid Network node and become a whole network member.
Remember that the obligations to the owners of assets other than L-BTC lie with the issuers, which are not directly related to Blockstream.
A tool called Issues Assets provides the issuance of liquid assets in any quantity. This tool supports the execution of transactions, their confidentiality, and the burning of assets.
Liquid assets, including L-BTC, are supported by several wallets:
- the Aqua, Blockstream Green and Elements Core hot wallets;
- the Blockstream Jade hardware wallet.
Conclusion
While sidechains like Liquid Network certainly have the rad benefits of extending the capabilities of the underlying network and reducing the burden on it, they will never have the same level of security and decentralization as Bitcoin.
