LIQUID BITCOIN! What is it? And what are the Pros and Cons?

Summary

The script discusses Liquid, a federated multiparty signature sidechain that aims to strike a balance between self-custody and relying solely on exchanges. Liquid offers fast transactions, negligible fees, and transaction privacy while still allowing users to secure their funds with hardware wallets. The federated model means 11 of 15 entities would need to collude to compromise Liquid. The tradeoff is worthwhile for some as a medium-term solution before moving funds back to the Bitcoin blockchain for maximum security.

Takeaways

• 😃 Liquid provides a middle ground between self-custody and keeping funds on an exchange
• 🔐 It uses a federated multi-sig model across 15 globally distributed entities for security
• 🌎 11 of 15 entities would need to collude to compromise the peg and destroy their reputations
• ⚡ Liquid has fast 1 minute block times and transactions are irreversible after 2 minutes
• 🤫 Transactions are shielded so amounts are not transparent on the blockchain
• 🪙 Other assets like stablecoins can be issued on Liquid
• 😎 Liquid can be secured with hardware wallets like Blockstream Jade
• 🤔 The tradeoff is the negligible fees but funds are not fully self-custodied
• 📈 For medium term holding Liquid provides good security
• 🚀 For maximal security, onchain transactions to hardware wallets are recommended

Q & A

What are the benefits of using Liquid over keeping Bitcoin on an exchange?

Liquid sits in a middle ground where it's more secure than an exchange but not as secure as full self-custody. The main benefits are fast 1 minute block times, low fees, transaction shielding, and the ability to secure it with hardware wallets.

How does the federated multi-sig model of Liquid work?

Liquid uses a 11 of 15 multi-signature wallet held by 15 geographically dispersed companies. For the peg to fail, 11 of the 15 companies would need to simultaneously collude and destroy the peg and their reputations.

What types of assets can Liquid support?

In addition to Liquid Bitcoin, Liquid can also support stablecoins and other digital assets. The confidential transactions used by Liquid hide the specific asset being transacted.

How are Liquid's transactions kept private?

Liquid uses confidential transactions that shield the transacted amounts, so observers cannot see the actual amount of assets being sent.

How can Liquid be secured with hardware wallets?

Liquid uses the same infrastructure as Bitcoin, so hardware wallets like the Blockstream Jade can generate addresses and sign transactions on Liquid while keeping private keys secured.

What is the risk of the Liquid federation colluding to destroy the peg?

While not impossible, it is extremely unlikely the 11 entities would collude and destroy the peg and their business reputations. The federated model makes this astronomically less likely than a single exchange failing.

Why doesn't the speaker want to keep funds on Liquid forever?

The speaker views Liquid as secure for medium term storage, but still advocates holding one's highest security funds using on-chain self-custody Bitcoin for long term storage.

What confirmation times can a user expect when transacting on Liquid?

Liquid offers 1 minute block times, so transactions receive a confirmation after 1 minute. After 2 confirmations (2 minutes) transactions are considered irreversible.

How does Liquid compare to keeping Bitcoin at an exchange or in self-custody?

Liquid is more secure than storing funds at a single exchange due to its distributed federated model, but less secure than full on-chain self-custody which has the highest security for Bitcoin.

What hardware wallet does the speaker use with Liquid?

The speaker uses a Blockstream Jade hardware wallet along with Blockstream Green to secure his Liquid Bitcoin.