Blockstream has released new details about Liquid, its sidechain platform for exchanges and institutional traders. The company has spent years developing second-layer technologies to help Bitcoin scal
Blockstream has released new details about Liquid, its sidechain platform for exchanges and institutional traders. The company has spent years developing second-layer technologies to help Bitcoin scale. Alongside its c-lightning implementation, Blockstream built Liquid as a commercial sidechain using code from its Elements project.
Lightning handles small, fast payments outside the blockchain. Liquid tackles a different problem: large transactions and transfers of non-Bitcoin assets. The platform moves value off the main Bitcoin chain with strong security. Instead of miners, "Strong Federations" signers, a distributed group the company calls functionaries, create blocks. This trades some decentralization for speed, but Blockstream reasoned that users already trust exchanges and payment processors with deposits. Liquid lets these companies transfer funds off-chain with settlement within minutes, enabling faster arbitrage between trading pairs.
Blockstream announced Liquid in October 2015 and has tested it for years, collaborating with major exchanges from the start. The company said it wanted to "address some key technical and business challenges while preserving Bitcoin's core ethos of decentralization, innovation, and security."
This month, Blockstream introduced Issued Assets to Liquid, letting people create and trade tokens on the sidechain. Companies could issue tokenized fiat currency, physical assets like gold coins, or entirely new digital goods. Blockstream demonstrated it at Consensus 2018 by creating tokens for merchandise items. Attendees received paper wallets containing tokens that represented stickers and hoodies. When they redeemed the tokens for the physical goods, the digital assets vanished from the ledger.
Issued Assets could enable tokenization of existing financial instruments on Liquid, similar to how Tether uses the Omni Layer protocol. A Liquid-based stablecoin would offer faster confirmations and stronger privacy. Liquid's confidential transactions mask the amounts involved, something token issuers will want.
The platform gains an edge over standalone blockchains by tying into Bitcoin's security and maturity. Bitcoin's network provides the bedrock that independent chains don't have. As Blockstream continues shipping infrastructure, Liquid shows the company is building technologies that let Bitcoin scale to real-world commerce.
