I've mostly stuck with the lightning network, but I've come across some discussions about the liquid network lately. So, liquid network uses L-BTC, which seems to have low transaction fees similar to lightning, but I haven't really tried it since I don't view it as real bitcoin.
I totally get that lightning network is BTC. But for me, liquid network is L-BTC and I can't shake the feeling that it's more like an altcoin.
So, is the liquid network really just another altcoin or is it legit bitcoin?
I don't like the federated sidechain model, for this reason I consider L-BTC even worse than a (decentralized) altcoin. It is maybe better than completely centralized coins like BNB and XRP but not by much. I would place it in a very similar category than Ethereum's wBTC.
In theory, the Liquid federation could simply set up a Paypal-like IOU service. The incentive model (the incentives for or against the custodians to steal BTC) would be more or less the same. The blockchain (sidechain, in this case) has at least one small advantage: it makes the IOU structure more transparent. But it still is an IOU structure. It's extremely unlikely that the Liquid Federation will cheat, but they are not really better than a bank.
Lightning is completely different, as in this case the Bitcoins are owned by the users themselves, there is a way to unilaterally exit the system, and there is a clear punishing mechanism if some party misbehaves.
I read however that Liquid is investigating a transition to a slightly more decentralized structure. In this case it could become interesting for me. But it still isn't there. The DynaFed update from 2021/22 isn't really a dynamic federation as the original members are still in control and they can't be "driven out" by new federation members. It's a top-down mechanism, even dPoS is more decentralized.
I do not entirely consider it as an altcoin as it is not totally separate from bitcoin main chain.
At best it is a token but since it is still connected to bitcoin, I would not consider it as an altcoin. I can compare it to ethereum's many networks. It is still ethereum but in different networks so that you can avoid the high gas fees of ethereum main chain.
If it is bitcoin, why not call it BTC. It is called L-BTC. Lightning network is also another layer which is called offchain layer but it is still called BTC. BTC is BTC and not L-BTC. But BTC is pegged with L-BTC.
It is totally separate from bitcoin blockchain. But not only that, it is not also included in any of bitcoin BIP.
There are many other coins that are altcoins but pegged with bitcoin.
Because Lightning Network is trustless. However, if you have a federation, and initial signers are still needed, then that federation is far from being trustless. You cannot even change them, so it is the same problem, as with "signet challenge": once deployed, you are doomed to live with it (of course, it is possible to add some better mechanism, and then compromise initial keys, but nobody is planning those kinds of actions in the near future).
When it comes to LN, some people think, that LN-related improvements should be also BIPs. But well, LN by itself, is far from being added into Bitcoin Core, so as long as it is the case, there is no strong incentive to make BIPs like that.
In which ratio they are pegged? 1:1? Some other constant? Because if it is just UTXO-based, and it contains only some dust, no matter how many ALTs are created, then it is far from being "pegged", because there is no "peg", if you can produce new coins, out of thin air, and if there is no fixed BTC:ALT exchange rate (in LN, it is 1:1000).
Because BTC refers to something you control yourself.
Yes, Lightning is still "BTC", but your ownership of it is conditional on you keeping track of presigned transactions and broadcasting them before a timelock expires.
Neither, i would say it's federated Bitcoin sidechain. Liquid network only peg Bitcoin and doesn't have it's own coin either.
Because only federation member can perform peg-out (convert L-BTC to BTC), even though you can perform peg-in (BTC to L-BTC) by yourself.
Bitcoin Lightning network is a network of decentralized peer-to-peer nodes and payment channels
Lightning is something like a smart contract. Two parties open a payment channel and lock their bitcoins
Settlement on the Bitcoin blockchain occurs only when the channel is closed
Liquid is something entirely different. Liquid is a sidechain that has nothing to do with BTC
But I think you can trust the people who started Liquid more than the people who started various scam shitcoin networks like Ethereum, Solana, Tron, etc. They could have released their own shitcoin token and sold it to degenerates, but they didn't. Adam Back is one of the founders of Liquid, and unlike fraudsters like Vitalik Buterin, Justin Sun, and other creators of various scam shitcoins, he has morals and ethics
So I would trust Liquid more than Ethereum, Solana, Tron, and other scam shitcoin networks
I used to think that the main advantage of Liquid is confidential transactions. That is exactly how they promote it themselves on their website.
When I send a Liquid transaction from the Aqua wallet, the wallet provides two block explorer links: one to the confidential transaction, and another to the unblinded transaction. For some reason, it never occurred to me to doubt the actual level of confidentiality and check what is visible through those links. Today I finally did - and I was shocked.
For me, the main purpose of confidential transactions is protection against AML abuse. I usually send bitcoins to exchanges via Lightning, because in that case the exchange does not know where the bitcoins came from or where they were before, and therefore has no grounds to label them as "tainted". I naively assumed that Liquid works the same way. It does not.
A "confidential transaction" in the Liquid block explorer hides only the asset type and the amount. An external observer cannot distinguish a transfer of 100 bitcoins from a transfer of 0.01 USDT. But that is where confidentiality ends. The entire interaction graph of every address is fully public. And if AML operators decide to label any address I have ever received funds from as "dirty", they can just as easily label my address as dirty as well - for exactly the same reason they do this on any other blockchain: because I once received something from a tainted address.
I decided to post this here so that no one builds illusions about this network. Truly confidential Bitcoin transfers today are possible only via Lightning and via Ark.
But if someone wants a Bitcoin bank, why should he use Liquid, instead of something like Cashu which is a lot more private and also cheaper then Liquid BTC (0-1 sat TX fees inside the mint and only Lightning fees between mints)