What is Liquid Network?
Liquid Network is a Bitcoin sidechain that allows users to move Bitcoin between two networks with a bidirectional peg. Bitcoin used in the Liquid Network is referred to as L-BTC, and each L-BTC has a provably equal sum of BTC secured by the Liquid members called functionaries.
The Canadian project was initiated in 2015 and launched in May 2017 as a testnet. Nonetheless, in October 2018, version 1.0 of Liquid Network only made its debut on the Bitcoin network.
There are already hundreds of companies that have agreed to adopt this technology, including The Rock Trading, BitMEX, BnkToTheFuture, and recently, Bitfinex, which will soon launch the stablecoin Tether on the Liquid Network as well.
How does Liquid work?
A sidechain can be described as a separate blockchain that is attached to the parent by using a two-way peg that allows assets to be exchanged and transferred at a fixed deterministic exchange rate across the chain. It helps liquid to run independently of the main blockchain and use its own method for checking blocks.
A group of block signers gather transactions within the Liquid Network, instead of miners, and organize them into blocks, then sign them, and broadcast them across the network. Since the primary use of Liquid is for exchange settlement, block signers are typically exchanges, market makers, and major traders.
Traditional users also have the option to run full nodes and verify blocks and transactions. Users will usually use the network the same way they can use Bitcoin, with wallets, block explorers, and keys all operating in a similar manner. Because of its organization as a Federated blockchain, block time is only a minute, and full confirmation occurs in two blocks, which is leagues ahead of the 10-minute block time for Bitcoin and the six-block confirmations that many organizations require for larger value transactions.
The digital currency native to the Liquid Network is called L-BTC. The Liquid Bitcoin (L-BTC) asset is backed by a Bitcoin (BTC) two-way peg, which can be redeemed at any time.
By default, all liquid transactions are private, and even the asset type is encrypted. If you look at a transaction in a liquid block explorer, you would not be able to see the types of assets or the amount being transferred. Nevertheless, the chain remains publicly accessible due to advanced cryptographic proofs and a unique view key is available which allows you to share transaction information with appropriate parties while also preventing them from spending your funds.
Where does liquid development stands?
As of today, due to this lack of a GUI client or hardware wallet and only one active exchange, most daily Bitcoin fanatics should either open an account with The Rock Trading and download the command line client to use Liquid Bitcoin or just wait a few months until all participating exchanges have fully implemented the network and a user-friendly GUI wallet is released.
Soon, you’ll see liquid-related releases for GUI wallet support from GreenAddress, and Trezor and Ledger support for Liquid Assets hardware wallet.
In addition, the subsequent addition of digital assets to the Liquid Network linked to fiat currencies, and the implementation of Liquid on numerous exchanges, will allow amateurs and professional traders to transfer funds within two minutes, take advantage of arbitrage opportunities, and hold their funds in personal wallets while still enjoying their immediate access.