The Liquid Network is a sidechain-based settlement network that enables faster, more confidential Bitcoin transactions and the issuance of digital assets.
As a sidechain of Bitcoin, Liquid allows you to move bitcoins (BTC) between the Bitcoin mainchain and the Liquid sidechain through a verifiable 1-to-1 peg.
Who Is Liquid For?
The Liquid Network is primarily designed to improve the efficiency of the cryptocurrency trading market. Users include retail traders, OTC trading desks, exchange platforms, and asset issuers.
What Is Liquid Used For?
Liquid is used to:
- Facilitate faster Bitcoin transactions: Non-variable, one-minute block times with two-block transaction finality.
- Improve the confidentiality of Bitcoin transactions: Transaction amounts and asset types are not visible to third parties.
- Issue new assets: Anyone can issue assets on Liquid, including stablecoins, security tokens, and digital collectibles. These assets enjoy the same speed and confidentiality features as Liquid Bitcoin.
Some examples of ways people are using Liquid include:
- More efficient arbitrage: Faster Bitcoin and stablecoin settlements enable traders to more quickly “close the loop” than their competitors.
- Reducing front-run risk for large trades: Transaction amounts of large OTC trades are not visible to third parties on the Liquid blockchain, preventing competitors from acting on the information before settlement
- Minimizing settlement risk: Multiple interoperable assets on the same chain enable simple atomic swaps of one asset for another when conducting large OTC trades.
- Stablecoin issuance: Tether has issued USDt on the Liquid Network.
- Gaming asset tokenization: Upcoming battle royale video game Lightnite has tokenized its in-game items on the Liquid Network.
What Is a Sidechain?
Bitcoin sidechains such as Liquid are blockchains that facilitate the transfer of assets to and from the Bitcoin mainchain via a two-way peg. The amount of BTC circulating on a sidechain is always verifiably equal to the amount of BTC “locked” on the Bitcoin mainchain.
While sidechains are interoperable with the Bitcoin mainchain, they operate independently of the Bitcoin network itself. Sidechains depend on Bitcoin; Bitcoin does not depend on sidechains.
Note: The Liquid Network is an implementation of an Elements-based sidechain. Elements is an open-source sidechain platform from Blockstream, based on the Bitcoin codebase.
Why Use a Sidechain?
Making changes to Bitcoin’s protocol to address the niche needs of certain users, such as cryptocurrency traders, is very difficult due to Bitcoin’s high degree of decentralization. Even if achievable, changes may not be desirable due to a risk of compromising Bitcoin’s unique strengths of immutability and censorship resistance.
Sidechains, on the other hand, operate at a lower degree of decentralization. They provide an environment where new features can be deployed quickly without affecting the Bitcoin mainchain.
Importantly, sidechains can provide these features without exposing the user to the risks connected with new, independent cryptocurrencies, such as low liquidity and price volatility.
What Is Liquid Bitcoin?
Liquid Bitcoin (L-BTC) is a special type of asset on the Liquid sidechain. Its supply is verifiably backed 1-to-1 with bitcoin (BTC) held on the Bitcoin mainchain.
L-BTC is created when BTC is moved to the Liquid Network and destroyed when BTC is moved out of the network. The process of moving BTC to Liquid is known as a peg-in, and moving BTC out of Liquid is known as a peg-out.
Aside from its uses in trading, L-BTC is also needed to pay for transaction fees when transacting any type of asset on Liquid.
What Are Issued Assets?
Liquid was built using the Elements platform, which enables the issuance of multiple assets on the same blockchain. Assets issued independently on Liquid are called Issued Assets.
While there are subtle differences between the security models for L-BTC and Issued Assets, for the most part, all assets on Liquid look and function the same: they share the same base features which include 1-minute block times, Confidential Transactions, and Bitcoin-style smart contracts.
Issued Assets can be used for various purposes including stablecoins, digital collectibles, security tokens, reward points, vouchers, and more.
How Does Liquid Work?
Liquid is run by the Liquid Federation which consists of a group of the leading exchanges, trading desks, wallet providers, payment processing services, and other financial institutions. No single member has control over the network.
Unlike on Bitcoin, blocks on the Liquid sidechain aren’t mined using proof-of-work. Instead, blocks are signed by 15 Liquid functionaries in a round-robin. The Liquid functionaries are specialist hardware units operated by a subsection of the Liquid Federation, geographically dispersed around the world.
While anyone can run a Liquid node and verify the state of the network, the Liquid functionaries are the “beating heart” of the network, signing transactions, generating blocks, and securing the BTC held by the network.
Download a Liquid Wallet
The easiest way for most users to get started with sending and receiving Liquid assets is Blockstream Green, available for all major operating systems across mobile and desktop.
You can quickly purchase small amounts of L-BTC with an Apple Pay or a debit card on the official Liquid Network site (currently available to 20+ countries). You can also easily convert BTC to L-BTC on various exchanges as well as through peer-to-peer trading platforms. See our full list of platforms and services that have integrated with Liquid.
Run a Liquid Node
Anyone can permissionlessly validate the information on the Liquid sidechain by installing a Liquid node. You can also use your Liquid node to initiate a peg-in or issue an asset.
You don’t need to be a Liquid member to offer Liquid-based features to your users. Check our technical documentation for basic details on how to start integrating your platform or application.
Join as a Member
The Liquid Federation comprises key industry participants such as exchanges, OTC desks, wallet providers, and payment processors. If you wish to join the federation, submit your interest through the Liquid Network official site.