LIQUID BITCOIN! What is it? And what are the Pros and Cons?
Summary
TLDRThe 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.
Outlines
😊 Liquid—A Federated Bitcoin Sidechain
Liquid is a federated Bitcoin sidechain that sits between self-custody and keeping funds on an exchange. It uses a federated 15-of-15 multisig model held by entities around the world to secure the Liquid Bitcoin peg. This provides fast, private, secure Bitcoin transactions with low fees. Liquid also supports other assets like stablecoins. Users can secure Liquid using hardware wallets like the Blockstream Jade.
Mindmap
Keywords
💡multisig
💡federated
💡shielded
💡Peg
💡irreversible
💡custody
💡confirmation
💡assets
💡reputations
💡tradeoff
Highlights
Liquid sits in a middle ground between full self-custody and exchanges
Liquid uses a federated 11-of-15 multisig wallet to secure bitcoin
11 of 15 entities would need to collude to rug pull Liquid's bitcoin peg
Federated model offers negligible fees, 1 minute block times, 2 minute transaction irreversibility
Liquid transactions are shielded so amounts are not transparent on-chain
Stablecoins and other assets can be issued on Liquid
Same infrastructure as Bitcoin allows Liquid to be secured by hardware wallets
Liquid provides medium-term storage before on-chain Bitcoin transaction
Some Bitcoin purists avoid Liquid's federated model
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Blockstream Jade hardware wallet secures Liquid bitcoin
Blockstream Green wallet enables access to Liquid network
To each their own - personal choice on using Liquid vs on-chain
Transcripts
I'm Ben with the BTC sessions and this
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use code BTC sessions 10 for some
special
perks liquid sits in this this Middle
Ground where it's not as good as full
self- custody but it's also nowhere near
as bad as sitting in The Exchange and
the reason for that is it is a what's
known as a Federated multisig so you've
got 15 companies around the world
geographically dispersed that hold an 11
of 15 multisig wallet and this
Federation when Bitcoin goes into it
liquid Bitcoin is created one for one in
order to rug pull that Peg 11 of the 15
entities would have to simultaneously
collude and then destroy the Peg and
also their
reputations but it's not impossible but
it's
also astronomically less likely than a
single exchange going down rug pulling
you or getting hacked and so the the
tradeoff is that Federated multi- model
um the benefit is the fees are are
negligible uh the block times are one
minute so
a single minute you get a confirmation
after two minutes the transaction is
irreversible and also the the
transactions are shielded meaning that
um if somebody looks on chain you
actually cannot see the amount
transacted um so it's it's not
completely transparent for uh the
average user to see even what what
you're doing um you can also have you
can have stable coins and stuff issued
on liquid so you can utilize different
assets and because it's shielded you
actually can't tell which asset is being
transacted and then finally of course
because the infrastructure is the more
or less the same as Bitcoin as well in
terms of how the chain works that's why
you can secure it with Hardware so you
can have liquid Bitcoin and secure it
with I've got a blockstream jade here
and I use blockstream green for that so
that's kind of again with the tradeoff
with the Federated multi-a you get those
benefits and so I I wouldn't sit in
liquid forever but for me as like a a
medium-term I'm going to let it build up
and then it'll do an onchain transaction
to get the best of the best with my
Hardware
onchain I'm okay with that I think
that's totally fine but it's to each
their own and some people may be purists
and may not want to do that but that's
where I'm
at
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