The Liquid Network is a federated sidechain of Bitcoin that allows anyone to issue digital assets and take advantage of its many features including faster settlement, Confidential Transactions, and trading with reduced counterparty risk. Liquid enables increased functionality via the familiar Bitcoin blockchain architecture, while not compromising on base-layer security.
A variety of different assets can be issued on the Liquid Network:
The best example of this is Liquid Bitcoin or L-BTC. Bitcoin can be pegged 1-to-1 into the Liquid Network and is verified by anyone running a Liquid full node. Alternatively, anyone can create a token representing any other cryptocurrency. For exchanges this can be particularly attractive, as it requires no additional technical support for new or untested blockchains – in other words, an exchange can save time, resources, and money.
Liquid token issuers can tokenize fiat by receiving deposits into associated bank accounts and issuing the corresponding number of tokens to the depositor. As with any real-world item represented digitally on a blockchain, audits are required to ensure outstanding tokens match held deposits.
These types of tokens can be issued for specific purposes including granting access to certain digital platforms and services, digital event ticketing, identity, and more.
The Liquid Securities platform can be used to issue digital securities such as bonds, stocks, or derivatives that can be held directly in a non-custodial Liquid wallet.
Liquid Network Benefits
The Liquid sidechain benefits from block times that are faster than Bitcoin’s base layer. Blocks are produced every minute, and transactions are considered fully settled after two confirmations. This is particularly attractive when taking advantage of arbitrage opportunities on various exchanges, where time is of the essence.
Confidential Transactions are enabled by default on Liquid. While a record of transactions is maintained, both the amount transacted and the asset type are obfuscated from the public view. If necessary, the receiver may share their private blinding key with any third party, should they need to externally verify the amount or asset type. Cross-exchange transfers for large amounts also benefit from this feature by preventing frontrunning.
Given the confidential and expedited nature of Liquid transactions, people utilizing Liquid assets in trading environments can enjoy reduced counterparty risk when storing their tokens directly in a personally held Liquid wallet and moving funds when opportunities arise. In these cases, trust is minimized by spreading it to all Liquid federation members, as opposed to a single exchange.
Learn more about Liquid.
Read about the BTSE token, the first exchange token on the Liquid Network.
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Note: BTSE Blog contents are intended solely to provide varying insights and perspectives. Unless otherwise noted, they do not represent the views of BTSE and should in no way be treated as investment advice. Markets are volatile, and trading brings rewards and risks. Trade with caution.