The Liquid Network is a sidechain protocol built on top of the Bitcoin blockchain. The Liquid Network was created by Blockstream but is governed by a federation of parties and operated on an open source blockchain platform called Elements. The Liquid Network offers several features not offered on the Bitcoin blockchain:
- Fast, Final settlements. Liquid blocks are added precisely every minute, compared to Bitcoin’s 10 minute, probabilistic block times. Additionally, reorganizations are disallowed, ensuring that two confirmations is sufficient to establish the final settlement of a transaction.
- Multiple Assets. Third parties can issue tokens—securities, stablecoins, and more–on the Liquid sidechain.
- Confidential Transactions. The Liquid Network allows transactions to mask the amount and asset type of a transaction from the otherwise public ledger, allowing users to transact more privately.
Bitcoin on the Liquid Network is known as L-BTC or Liquid Bitcoin, and using it is analogous to depositing cash at a casino in exchange for chips. In order to use Bitcoin on the Liquid Network, a user must lock up their bitcoin in a transaction known as a peg-in. This is achieved by depositing bitcoin to an address generated by the Liquid Network. When this deposit is confirmed, the user will be issued an equivalent amount of L-BTC and be able to transact on the Liquid Network. In order to peg-out and receive their bitcoin back, a user must deposit their L-BTC before the Liquid Network sends the bitcoin. Currently, the Liquid Network will only return bitcoin to a verified address.