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Topic 101 of 179

Liquid Network

How Liquid is a Bitcoin sidechain with faster settlement, confidential transactions, and asset issuance — and where it fits in the Bitcoin scaling ecosystem alongside Lightning.

Beginner
8 min readUpdated July 2026Block Clarity Hub Editorial Team

What Liquid Is

Liquid Network is a Bitcoin sidechain operated by Blockstream. Users move BTC from Bitcoin L1 to Liquid (creating L-BTC), where transactions confirm in ~1 minute (vs ~10 minutes on L1). Liquid supports confidential transactions (hidden amounts and asset types), asset issuance (custom tokens beyond BTC), and higher throughput than Bitcoin L1. Liquid launched 2018 and has been operating steadily. It's a different scaling approach than Lightning — federated rather than trust-minimised, but with different capability trade-offs.

The Federation Model

Liquid is secured by a federation of ~15 organisations (exchanges, custodians, Bitcoin businesses) who jointly run the network's consensus. This differs from Bitcoin's fully decentralised model — federation members can technically freeze funds or reverse transactions if a supermajority agrees. In practice this has never happened, but the theoretical possibility exists. The federation model enables features Bitcoin can't easily support (confidential transactions, asset issuance) at the cost of adding trust.

Confidential Transactions

Liquid's confidential transactions hide amounts (using Bulletproofs, similar to Monero). Two users transacting in L-BTC can hide the amount from network observers while the network verifies conservation (inputs = outputs). This is useful for exchanges wanting to hide large transfers, businesses wanting confidential settlements, and institutional traders wanting to hide flow information. Bitcoin L1 doesn't support confidential transactions; Liquid does. Whether this is worth the federation trade-off depends on the use case.

  • Bitcoin sidechain with 1-minute confirmations
  • Confidential transactions (hidden amounts) via Bulletproofs
  • Asset issuance beyond BTC
  • Federation of ~15 organisations vs Bitcoin's full decentralisation

Key Takeaways

  • Liquid is a Bitcoin sidechain operated by a federation
  • Confidential transactions enable amount privacy on-Liquid
  • Trade-off: federation trust vs additional capabilities
  • Different scaling approach than Lightning; different use cases
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References & further reading

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