What are the different types of participants in the Liquid Network?

The Liquid Network is an open network that anyone can freely participate in. Anyone can set up a Liquid node or wallet and connect to the network, send and receive transactions, peg in bitcoin, and issue assets.

Meanwhile, members of the Liquid Federation exclusively fulfill certain key tasks that are vital to the Liquid Network’s security and operation.

Different Types of Participants in the Liquid Network

On the Bitcoin network, participants can be broadly categorized into three main groups: miners (mining full nodes), full nodes, and light wallet users. Similarly, on the Liquid Network, there are a number of different types of participants, each with varying levels of trust, security, and permissions on the network.

The structure of the Liquid Network is a little more complex than that of the Bitcoin network. Participants can be categorized across two different dimensions:

• Membership: Refers to the relationship between the participant and the Liquid Federation—specifically: have they joined the Liquid Federation, or are they a regular user?
• Technical: Refers to the hardware and software used by the participant.

Every participant always falls into at least one category within both dimensions. For example, a Liquid Federation member running a Liquid node.

Being a federation member provides the participant with access to special hardware and software such as the Liquid functionary and bridge node, as shown below.

*Functionary participation is currently fully subscribed but will be expanded on the launch of Dynamic Federations.

Membership

There are two types of participants on Liquid: the users that freely access the network, and the Liquid Federation members that operate the network.

Users

Liquid users include both individuals and businesses. Users can run either a Liquid node or a light wallet. Anyone can be a user: there is no specialized hardware, and the software required is open source and free to download.

Liquid Federation Members

The Liquid Federation comprises incorporated companies that have joined as federation members. As part of their role, members have ongoing duties to maintain and secure the network.

Liquid Federation members can do everything that users can do and have the following additional permissions and responsibilities:

• PAK List Entries for Peg-Outs: Members can add their Bitcoin wallet addresses to the Peg-out Authorization Key (PAK) list, enabling them to complete peg-outs.
• Direct Connections with Bridge Nodes: Members can set up bridge nodes that connect directly to Liquid functionaries via Tor. Bridge nodes can be either private or public. As a form of DoS protection, users can connect their Liquid nodes to public bridge nodes only.
• Operate a Bridge Node: Using the direct connection, members can provide bridge node services to Liquid node users.
• Governance: Members contribute to the decision-making process behind the development of the network, for example, voting on the Liquid Federation board elections.
• Operate a Functionary: Members that meet further criteria can gain access to purchase and operate Liquid functionaries, the specialized hardware that generates blocks and secures the bitcoin on the network.

Note: 15 of the Liquid Federation members run a functionary, which is currently the technical maximum supported by Liquid. The upcoming Dynamic Federations (DynaFed) deployment will expand functionary ownership among the federation.

Technical

The distinction between technical participants is based on the hardware and software used on the Liquid Network. While some hardware and software are exclusive to the Liquid Federation, others can be freely used by anyone. 

Functionaries

The Liquid functionaries sit at the heart of the network. A functionary is a specialized server device that includes a Hardware Security Module (HSM) for securing the functionary’s private keys. Each functionary simultaneously serves two key roles:

• Block signers: Functionaries take turns proposing and signing blocks.
• Watchmen: Functionaries manage and secure the BTC held on the network through the federation multisig wallet.

Functionary hardware is operated by a subsection of the Liquid Federation (currently 15 of the members operate a functionary).

Bridge Nodes

Bridge nodes connect Liquid nodes to the functionaries and act as an additional layer of protection against Denial of Service (DoS) attacks. Only Liquid Federation members can operate Bridge nodes.

Liquid Nodes

Liquid nodes can trustlessly validate transactions on the Liquid sidechain, initiate peg-ins, issue new assets, and send and receive transactions. They connect to the network via bridge nodes. Anyone can run a Liquid node using Elements.

Light Wallets

Light wallets are mobile and desktop wallets that do not download the Liquid blockchain to verify their own transactions; instead, they rely on a trusted Liquid node. Light wallets are used to send and receive transactions on the Liquid Network only. Anyone can download and use a light wallet (e.g. Blockstream app).