Bitcoin technology operation Blockstream have recently provided further details on their Liquid sidechain offering, which appears to be shaping into an incredible development for the wider ecosystem. Over the last few years, Blockstream have been quietly working away on the second-layer technologies which will be vital in developing a Bitcoin network which continues to work for users and market participants for years to come. As well as work on their own Lightning client, c-lightning, Blockstream have been developing Liquid as a commercial sidechain offering aimed at exchanges and the largest market-participants, which leverages numerous aspects of their open-source Elements project.[1][2]
Whilst the much-discussed Lightning network seeks to tackle off-chain micropayments, Liquid takes aim at facilitating larger transactions and those which are denominated in other assets. The sidechain technology is aimed at commercial operations and enables powerful secure transfers, away from the main Bitcoin chain. Based on the “Strong Federations” concept outlined in a white paper, Liquid isn’t beholden to miners for block-signing, instead relying, on a “distributed group of “signatories”, or functionaries, to create blocks”.
Whilst this system clearly relies on a degree of trust in the aforementioned signatories, with Liquid, Blockstream appear to be focussing on working with the largest exchanges and payment processors to enable off-chain means of transferring assets with strong security. As these companies tend to be already given a degree of trust from users lodging deposits with them, true trustlessness can be sacrificed in the name of speed and efficiency. Allowing exchanges to transfer funds off chain, with finality down to the minute will be a particularly useful addition to the Bitcoin market. Such a mechanism would facilitate an important efficiency gain for inter-exchange transfers, enabling more effective arbitrage between different exchanges and various trading pairs.
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