Blockstream (npub1jg5…6n8n) LiquidNetwork (npub1nyy…7gan) is a federated side chain for Bitcoin. It's built over Elements, source which was derived from Bitcoin-core (the free code upon which the Bitcoin main blockchain was built and which still powers the vast majority of Bitcoin full nodes).
What does all that mean?
Mostly it provides an infrastructure for managing ₿ liquidity while overcoming many of the limitations and issues with performing transactions on the main blockchain, but also while maintaining a security, custody, and transaction processing model as close to Bitcoin's as possible and without additional the complexity, costs, and risks, of a separately exchanged (floating valuation) token.
Which limitations and issues?
Bitcoin transactions on the main chain take, on average, 10 minutes to be processed from the (peer-to-peer) mempool through a miner and into a block on the blockchain.
It's generally considered prudent to wait for at least six blocks of confirmation before treating a transaction as "settled" (no longer subject to the risk of a block re-organization or "double spend" cancellation).
Thus transaction settlement is likely to take an hour, and may take twice that in some cases.
Also this assumes that the transaction is among those to be selected for the first available block. But other transactions may be offering higher fee rates; thus Bitcoin transaction processing is effectively an ongoing auction for space in any upcoming block. Lower bids can take much longer (days, even up to two weeks, to be included in a block (processed to that first level of confirmation). Block congestion can make urgent transactions cost over 10x the fees of the low bidders.
Overall, transactions on the main chain can be slow, expensive, and offer relatively high uncertainty with regards to settlement delays.
The Lightning Network (LN) can provide means to alleviate some of these issues. But it's far more complex than the Bitcoin main chain and somewhat more complex than simple Bitcoin transactions over Liquid™.
To use LN you (and your counter parties — anyone you wish to transact with) must establish and maintain liquidity. That means you have to perform some special transactions on the main Bitcoin blockchain in the form of smart contracts which lock some quantities of Bitcoin funds for outbound and inbound usage.
That generally requires at least one on-chain transaction. But, without Liquid™, managing your LN liquidity (adding funds or moving funds to save self custody storage, removing it from being committed to those smart contracts, would also require (potentially slow, relatively expensive) on chain transactions.
How does Elements/Liquid solve these issues?
Using a wallet or other tools with Liquid support, you can conduct your transactions on the side chain directly (if your counter party accepts L-BTC, the Liquid asset tokens which are pegged 1:1 against BTC on the main chain.
You can exchange Bitcoin for L-BTC through many exchanges you're an advanced user, you could peg in your satoshis and claim the equivalent number of L-BTC sats (less any fees).
Transactions on the Liquid side chain are almost always processed in on minute and can be considered settlement after just two confirmations.
Liquid functionaries use HSMs, hardware signing modules, in lieu of "proof-of-work" (PoW) mining to construct new blocks of transactions. So, no "wasted" energy; but, more importantly, much less variability in the block issuance cadence.
Also the fee rates on Liquid are measured in centi-satoshis — a hundredth of those on the main chain.
By itself this wouldn't provide much value until there was wide enough adoption of Liquid L-BTC to ensure that you could usually do your transactions using it directly.
But, there are services, such as Boltz - Non-Custodial Bitcoin Bridge (npub1psm…8970) and Changelly which maintain liquidity on Liquid, the main Bitcoin blockchain, and in LN channels. So these can be used to resolve most of the liquidity management issues for LN.
Also you can arrange with some exchanges and services to accumulate your Bitcoin in smaller transactions as L-BTC (on the side chain, but in your own wallet — so self-custodied throughout). Then you can exchange more substantial amounts back out to the main chain (keeping it in self custody — perhaps on a hardware wallet securely stored in a vault or safe deposit box throughout the process).
(Remember you can direct payments to newly generated addresses (Bitcoin or Liquid]) without touching your wallet in cold storage. You export a wallet descriptor (xpub, ypub, zpub "key") and the "read only" wallet you import that into can securely generate new payment addresses while not exposing your funds to any risk of theft or misappropriation).
This all may sound complicated. But mostly it's just a few "tricks" of using the wallets with Liquid L-BTC support and using liquidity exchange services when doing so will save time and on fees over doing those transactions on the main blockchain.
The main Bitcoin blockchain and mempool will get more congested (and much more expensive to use) as Bitcoin becomes more successful — as it advances towards global adoption. That's a necessary aspect of its design and of the security and censorship resistance tradeoffs that were baked into its implementation.
Liquid provides infrastructure to mitigate these eventualities. Eventually it's likely that there will be a mesh of transparently interoperable Elements/Liquid side chains to support the scalability that global Bitcoin adoption will require. (Lightning over Liquid™ — LoL — has already been implemented and demonstrated as a technology so it's available long before there's demand for it).
Liquid was intentionally designed to operate almost identically to Bitcoin's core and it's a permission-less system in the same ways that Bitcoin is (except that there's no "mining" on the side chain). Integration of Liquid support by developers of Bitcoin wallets and other tooling has been described (by most of those who have done it) as easy, almost trivial.
On top of all that, Liquid offer many features which are not available on the main blockchain.
But you probably already so lots of information about those on the website.
Answer Guy / JimD
npub1tr…pe2z6
2024-08-01 16:13:46
in reply to nevent1q…wf29
Author Public Key
npub1trhp4evegd6sgavspfytt2d6j20s0duxqpxvpkrs8lje67tfdrqs8pe2z6Published at
2024-08-01 16:13:46Event JSON
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"content": "nostr:npub1jg552aulj07skd6e7y2hu0vl5g8nl5jvfw8jhn6jpjk0vjd0waksvl6n8n nostr:npub1nyyhnqahf3cgqzcc927x7eqyd2msgplfe27ddn6hpgu2m200wh2s0s7gan is a federated side chain for Bitcoin. It's built over Elements, source which was derived from Bitcoin-core (the free code upon which the Bitcoin main blockchain was built and which still powers the vast majority of Bitcoin full nodes).\n\n\nWhat does all that mean?\n\nMostly it provides an infrastructure for managing ₿ liquidity while overcoming many of the limitations and issues with performing transactions on the main blockchain, but also while maintaining a security, custody, and transaction processing model as close to Bitcoin's as possible and without additional the complexity, costs, and risks, of a separately exchanged (floating valuation) token.\n\n\nWhich limitations and issues?\n\nBitcoin transactions on the main chain take, on average, 10 minutes to be processed from the (peer-to-peer) mempool through a miner and into a block on the blockchain.\n\nIt's generally considered prudent to wait for at least six blocks of confirmation before treating a transaction as \"settled\" (no longer subject to the risk of a block re-organization or \"double spend\" cancellation).\n\nThus transaction settlement is likely to take an hour, and may take twice that in some cases.\n\nAlso this assumes that the transaction is among those to be selected for the first available block. But other transactions may be offering higher fee rates; thus Bitcoin transaction processing is effectively an ongoing auction for space in any upcoming block. Lower bids can take much longer (days, even up to two weeks, to be included in a block (processed to that first level of confirmation). Block congestion can make urgent transactions cost over 10x the fees of the low bidders.\n\nOverall, transactions on the main chain can be slow, expensive, and offer relatively high uncertainty with regards to settlement delays.\n\nThe Lightning Network (LN) can provide means to alleviate some of these issues. But it's far more complex than the Bitcoin main chain and somewhat more complex than simple Bitcoin transactions over Liquid™.\n\nTo use LN you (and your counter parties — anyone you wish to transact with) must establish and maintain liquidity. That means you have to perform some special transactions on the main Bitcoin blockchain in the form of smart contracts which lock some quantities of Bitcoin funds for outbound and inbound usage.\n\nThat generally requires at least one on-chain transaction. But, without Liquid™, managing your LN liquidity (adding funds or moving funds to save self custody storage, removing it from being committed to those smart contracts, would also require (potentially slow, relatively expensive) on chain transactions.\n\n\nHow does Elements/Liquid solve these issues?\n\nUsing a wallet or other tools with Liquid support, you can conduct your transactions on the side chain directly (if your counter party accepts L-BTC, the Liquid asset tokens which are pegged 1:1 against BTC on the main chain.\n\nYou can exchange Bitcoin for L-BTC through many exchanges you're an advanced user, you could peg in your satoshis and claim the equivalent number of L-BTC sats (less any fees).\n\nTransactions on the Liquid side chain are almost always processed in on minute and can be considered settlement after just two confirmations.\n\nLiquid functionaries use HSMs, hardware signing modules, in lieu of \"proof-of-work\" (PoW) mining to construct new blocks of transactions. So, no \"wasted\" energy; but, more importantly, much less variability in the block issuance cadence.\n\nAlso the fee rates on Liquid are measured in centi-satoshis — a hundredth of those on the main chain.\n\nBy itself this wouldn't provide much value until there was wide enough adoption of Liquid L-BTC to ensure that you could usually do your transactions using it directly.\n\nBut, there are services, such as nostr:npub1psm37hke2pmxzdzraqe3cjmqs28dv77da74pdx8mtn5a0vegtlas9q8970 and Changelly which maintain liquidity on Liquid, the main Bitcoin blockchain, and in LN channels. So these can be used to resolve most of the liquidity management issues for LN.\n\nAlso you can arrange with some exchanges and services to accumulate your Bitcoin in smaller transactions as L-BTC (on the side chain, but in your own wallet — so self-custodied throughout). Then you can exchange more substantial amounts back out to the main chain (keeping it in self custody — perhaps on a hardware wallet securely stored in a vault or safe deposit box throughout the process).\n\n(Remember you can direct payments to newly generated addresses (Bitcoin or Liquid]) without touching your wallet in cold storage. You export a wallet descriptor (xpub, ypub, zpub \"key\") and the \"read only\" wallet you import that into can securely generate new payment addresses while not exposing your funds to any risk of theft or misappropriation).\n\n\nThis all may sound complicated. But mostly it's just a few \"tricks\" of using the wallets with Liquid L-BTC support and using liquidity exchange services when doing so will save time and on fees over doing those transactions on the main blockchain.\n\nThe main Bitcoin blockchain and mempool will get more congested (and much more expensive to use) as Bitcoin becomes more successful — as it advances towards global adoption. That's a necessary aspect of its design and of the security and censorship resistance tradeoffs that were baked into its implementation.\n\nLiquid provides infrastructure to mitigate these eventualities. Eventually it's likely that there will be a mesh of transparently interoperable Elements/Liquid side chains to support the scalability that global Bitcoin adoption will require. (Lightning over Liquid™ — LoL — has already been implemented and demonstrated as a technology so it's available long before there's demand for it).\n\nLiquid was intentionally designed to operate almost identically to Bitcoin's core and it's a permission-less system in the same ways that Bitcoin is (except that there's no \"mining\" on the side chain). Integration of Liquid support by developers of Bitcoin wallets and other tooling has been described (by most of those who have done it) as easy, almost trivial.\n\nOn top of all that, Liquid offer many features which are not available on the main blockchain.\n\nBut you probably already so lots of information about those on the website.",
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