What is Liquid Network?

The Liquid Network is a private and federated sidechain built on the Bitcoin blockchain, developed by Blockstream. Launched in 2018, it serves as a scalable and confidential platform designed to facilitate faster and more efficient transactions compared to the Bitcoin mainchain.

At its core, the Liquid Network operates as a separate blockchain that runs in parallel to the Bitcoin blockchain. It employs a federated consensus model, involving a set of trusted functionaries, also known as functionary nodes, who collectively validate and confirm transactions on the network. This consensus mechanism allows for faster block generation times, enabling quicker settlement of transactions.

One of the notable features of the Liquid Network is its focus on confidentiality. Confidential Transactions (CT) are integral components that enhance the privacy of transactions conducted on the network. Confidential Transactions obscure the transaction amounts, making it difficult for external parties to trace and analyze transaction details.

The Liquid Network supports the issuance of various assets, not limited to its native token Liquid Bitcoin (L-BTC). Users can tokenize other assets, such as stablecoins or security tokens, and transfer them securely on the Liquid sidechain. This tokenization capability opens avenues for creating asset-backed tokens and facilitates the development of tokenized financial instruments.

One of the primary use cases of the Liquid Network is enabling faster and more confidential inter-exchange transfers. Traders can leverage Liquid Bitcoin (L-BTC) to move funds between participating exchanges quickly, reducing the settlement times and seizing arbitrage opportunities.

While the Liquid Network enhances transaction speed and privacy, it operates within a federated model, introducing a level of trust in the functionary nodes. Users interested in the features offered by the Liquid Network, including faster settlement and enhanced privacy, should be aware of the trade-offs associated with the federated consensus model compared to the decentralized nature of the Bitcoin mainchain.