Liquid Network

Liquid holds bitcoin in a multisig controlled by fifteen hardware security modules and issues a matching token, L-BTC, on its own chain. The network went live on September 27, 2018 with 23 member companies and was announced publicly two weeks later. It is fast and private on the wire, and it is not self-custody in the way a hardware wallet is.

How it works

Fifteen machines called functionaries, operated by separate incorporated companies in different jurisdictions, run the Liquid chain and guard the money.

Block production rotates: one functionary proposes a block every 60 seconds and the others sign it. Because the signer set is fixed and known, blocks do not compete, so there are no orphans to wait out and a transaction is treated as final after two blocks. That is the appeal for trading desks. Nothing here is proof of work, and the chain would stop rather than fork if enough functionaries went dark.

Custody works through a threshold. Bitcoin pegged in sits at an address needing 11 of the 15 keys, each stored in a tamper-resistant hardware module, so several members would have to fail or collude at the same time before the reserve moved. Peg-in itself is slow on purpose, requiring 102 confirmations on bitcoin before the matching L-BTC is credited. Peg-out is the part people miss: releasing bitcoin from the reserve is a member function, so an ordinary holder leaves by selling L-BTC or using a swap service rather than by pressing withdraw.

Privacy on Liquid is Confidential Transactions. Amounts and asset types are hidden from everyone except the sender and receiver, proved correct with range proofs so nobody can inflate the supply in secret. The graph of which output paid which is still public, so this is confidentiality about how much, not about who.

The chain also lets anyone issue an asset. In practice that means dollar stablecoins moved between trading venues, plus securities and loyalty-style tokens, all riding the same confidential rails as L-BTC.

Where you see it

Liquid shows up between businesses far more than it shows up in consumer wallets.

Its daily job is settlement: moving dollars and bitcoin between exchanges and market makers in a minute instead of an hour, without broadcasting position sizes to anyone watching a block explorer. Wallets that speak it include Blockstream Green, SideSwap and the Jade hardware wallet, and swap services let you trade L-BTC against the assets issued on the chain.

For somebody buying bitcoin to keep, the useful facts are short. A Liquid address does not look like a bitcoin address, so a wallet will normally reject it rather than let you burn coins, which is a genuine safety net. The total L-BTC in circulation is public and can be compared against the reserve address, so the backing is auditable in a way a custodial exchange balance is not. And the trade you are making is explicit: you gain speed and confidentiality, you give up the property that made you want bitcoin, which is that no group of companies can decide whether you get your money back.