Blockstream recently announced that is expanding into new territories with the launch of the Liquid Network. This is a bitcoin sidechain that is intended to add additional functionality and make it possible for transactions to be done faster. It would also help with increased security and tokenization of various assets.
Sidechains work by creating a second data layer for the Bitcoin blockchain. It copies the latest version of the ledger and keeps it on a separate network. The transactions that happen on the sidechain do not need to be included in the main blockchain. The result is that there are no transactions fees and the blockchain is not filled up with the records.
One great feature that the Liquid Network has is that it has a two-way peg. This means that data can be transferred between two networks seamlessly. This allows for easy resolutions of various transactions.
This is all because Liquid uses a native asset called Liquid Bitcoin. This is what allows for seamless data transfer between the sidechain and the main blockchain. Plus, it can be redeemed at any time on the network.
In a statement, Blockstream said
The participating exchanges and Bitcoin businesses deploy the software and hardware that make up the Liquid network so that they can peg in and out of the Bitcoin blockchain and offer Liquid’s features to their traders. Liquid provides a more secure and efficient system for exchange-side bitcoin to move across the network
Exchanges would be the main beneficiaries of the new easy transfers. Mining groups are left out, but they would still be able to benefit if Liquid Bitcoin is traded in for actual bitcoin. The main drawback is that the sidechain is not as decentralized as the main blockchain network. To function as it does, it requires a network of trusted functionaries. However, Blockstream assures users though that no single entity would be able to control the entire network.
Lightning Versus Liquid
Though the Liquid Network is in some ways similar to the proposed Lightning Network, the Liquid Network has some key differences. The main one is that Lightning is meant for microtransactions. Small payments done on Lightning would be free of charge and have minimal risks.
Whereas the Liquid network is intended for larger institutions and exchanges. It would allow for large transactions to be cleared faster and not incur massive fees. All of these transactions would need to be done using Liquid Bitcoin though.
The launch of Liquid has been a long time coming. It was first announced in 2015 and received $55 million funding in 2016. The release of the network was originally projected for the first quarter of 2018.