{"id":37318,"date":"2020-04-15T13:36:36","date_gmt":"2020-04-15T10:36:36","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=37318"},"modified":"2025-08-29T15:16:05","modified_gmt":"2025-08-29T12:16:05","slug":"what-is-the-liquid-network","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/what-is-the-liquid-network\/","title":{"rendered":"What is the Liquid Network?"},"content":{"rendered":"
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1<\/span><\/p>\n

What is the Liquid Network?<\/strong><\/p>\n

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Liquid Network is Bitcoin\u2019s federated sidechain, serving as a settlement and payments network for cryptocurrency exchanges, market-makers, brokers and other market participants.<\/p>\n

The sidechain is built on the Elements<\/a> codebase and uses Strong Federation<\/a> technology.<\/p>\n<\/div>\n<\/div>\n

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2<\/span><\/p>\n

How did the Liquid Network come about? <\/strong><\/p>\n

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In autumn 2014 Blockstream published<\/a> a white paper on sidechain technology titled Sidechain Elements.<\/p>\n

In June 2015 Blockstream announced the release of open-source code and a test network for Sidechain Elements. The code was designed to let developers experiment with sidechain functionality, initially enabling the creation and transfer of digital assets.<\/p>\n

Late in 2015 Blockstream announced its first commercial application, Liquid, based on sidechain technology. Liquid was launched in testing.<\/p>\n

In December 2016 the US Patent and Trademark Office (USPTO) published a Blockstream patent application related to sidechains.<\/p>\n

In January 2017 Blockstream presented a new project white paper, containing an updated consensus mechanism and trust model, and describing mechanisms that return funds to the parent chain in case of failure.<\/p>\n

In May 2017 the first commercial sidechain-based application from Blockstream entered beta.<\/p>\n

In July 2018 Blockstream introduced Issued Assets (IA), a tool that lets users create their own tokenised assets on the Liquid sidechain.<\/p>\n

In October 2018 Liquid was officially released.<\/p>\n

In November 2018 Blockstream publicly launched the block explorer blockstream.info for the Liquid sidechain and the Bitcoin network. The tool allows users to track Bitcoin addresses to which sidechain transactions are linked. Blockstream also released a client for running a full node<\/a> on Liquid.<\/p>\n<\/div>\n<\/div>\n

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3<\/span><\/p>\n

Why is the Liquid Network needed?<\/strong><\/p>\n

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Existing blockchains<\/a> still struggle with scalability.<\/p>\n

Theoretically, the simplest remedy is to increase block size, allowing more transactions per block and lower fees. This approach demands additional hardware to run full nodes, excluding resource-constrained nodes and undermining decentralisation. Bitcoin Cash<\/a> took that route.<\/p>\n

Another solution is sharding. It partly abandons parallel processing of all transactions\/blocks. The network is divided into sections that can operate independently. Section A interacts with one series of transactions; section B with another.<\/p>\n

This can double throughput (with two sections), as nodes no longer process everything simultaneously. By partitioning the blockchain into sections, the number of supported operations can be increased step by step. Each section, or shard, can process transactions on its own. Implementing this model is difficult, and splitting a classical blockchain into hundreds of parts threatens consensus mechanisms.<\/p>\n

Yet another solution is the Lightning Network, an off-chain micropayments technology that operates partly independently of Bitcoin\u2019s blockchain. It offers virtually \u201cunlimited\u201d scalability, since miners need not confirm every transaction. However, some properties and integrity of Bitcoin\u2019s blockchain are partly forfeited in this model, though it is a more acceptable compromise for small payments.<\/p>\n

Another approach is to create a sidechain pegged to Bitcoin\u2019s blockchain. A sidechain is a second-layer solution, operating partly off-chain relative to Bitcoin\u2019s main chain.<\/p>\n<\/div>\n<\/div>\n

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4<\/span><\/p>\n

How does the Liquid Network work?<\/strong><\/p>\n

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The Liquid sidechain is a separate, private blockchain with a two-way peg to the parent chain.<\/p>\n

Transfers use so-called L-BTC tokens. They are pegged 1:1 to bitcoin.<\/p>\n

A user on the parent chain first sends coins to a withdrawal address, where they are \u201clocked\u201d by members of a federation to prevent them being spent elsewhere.<\/p>\n

The federation is a group of operators acting as an intermediary between the main chain and one of its sidechains. It guarantees interoperability and the ability to switch from the main blockchain<\/a> to the sidechain at any time.<\/p>\n

The federation also ensures that each bitcoin converted to the sidechain corresponds to an equivalent bitcoin frozen in a swap wallet that serves as a bridge. They can be unlocked only once a sufficient number of key-holders attest to the payment\u2019s authenticity.<\/p>\n

For additional security this happens after a waiting period. The equivalent amount is then transferred to the sidechain, and the user can spend it. The reverse process applies when sending coins from the sidechain back to the main blockchain.<\/p>\n

Operations executed on the secondary chain are not recorded on the main chain, so fees can be much lower or even zero.<\/p>\n<\/div>\n<\/div>\n

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5<\/span><\/p>\n

What are confidential transactions?<\/strong><\/p>\n

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Confidential Transactions (CT) make the transferred amount visible only to the transaction\u2019s direct participants or to a third party they designate.<\/p>\n

CT allows private \u201cmemo\u201d data (for example, refund addresses) to be sent without increasing transaction size by reusing most of the top-level cryptographic protection.<\/p>\n

CT are based on the Pedersen commitment scheme\u2014letting a user keep certain data secret while making it binding (immutable) for the future.<\/p>\n<\/div>\n<\/div>\n

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6<\/span><\/p>\n

What are Issued Assets?<\/strong><\/p>\n

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Issued Assets are a tool that lets users create their own tokenised assets on the Liquid sidechain.<\/p>\n

These assets can represent existing financial instruments (tokenised fiat, cryptoassets, attested assets such as gold coins) or entirely new assets.<\/p>\n

Main features of Issued Assets:<\/p>\n