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.

Outlines

00:00

😊 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.

Keywords

💡multisig

Multisig refers to multi-signature Bitcoin wallets that require more than one private key to authorize a transaction. The video explains that Liquid uses a 11 of 15 multi-signature setup held by 15 entities globally to secure funds. This makes it much harder for funds to be stolen compared to a single exchange holding funds.

💡federated

Federated means that multiple separate entities work together to operate a system. The video describes Liquid as using a federated model where 15 companies each hold a key and coordinate to validate transactions, unlike a single centralized entity.

💡shielded

Shielded transactions hide the transacted amounts so they are not publicly visible on the blockchain. The video points out this privacy benefit of Liquid, making it hard to track user transactions and balances.

💡Peg

The Peg refers to Liquid's 1:1 backing of L-BTC by real Bitcoin stored in the federated multi-signature wallets. This peg would have to be broken by 11 of 15 entities colluding to steal funds.

💡irreversible

Transactions on Liquid become irreversible after 2 confirmations, meaning they cannot be reversed or changed. This is much faster than Bitcoin's typical 6 confirmations for irreversibility.

💡custody

Custody means a third party holds your funds rather than you directly controlling them. The video positions Liquid's federated model as superior custody compared to exchanges but still short of self-custody using your own hardware wallet.

💡confirmation

Confirmations refer to the number of blocks mined after a transaction to consider it settled. Liquid only requires 1 confirmation for settlements after just 1 minute of waiting.

💡assets

Assets means other tokens like stablecoins can be issued and transacted on Liquid beside L-BTC. This provides users more features and flexibility.

💡reputations

Reputations refer to the established identities and trustworthiness of the 15 entities that could be damaged if they compromised Liquid. This aligns incentives to properly manage funds.

💡tradeoff

Tradeoff means balancing strengths and weaknesses. The video frames Liquid as a tradeoff - improved security vs. exchanges but less control than pure self-custody Bitcoin, depending on user priorities.

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

Sign up at bitrefill.com for living on a Bitcoin standard

Buy gift cards for online shopping, travel, food and more with Bitcoin

Use code BTCsessions10 for special perks at bitrefill.com

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

is your bullish bit brought to you by

bitrefill tocom your onstop shop for

living on a Bitcoin standard sign up and

grab gift cards for eims gaming

e-commerce your travel needs food and

much more and you can buy them all with

Bitcoin and lightning sign up today and

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