Blockstream, in partnership with a number of leading Bitcoin companies, has launched Bitcoin’s first production sidechain, Liquid.
Blockstream claims that Liquid will improve capital efficiency and market liquidity by facilitating rapid and secure transfers between accounts held at any participating exchange or brokerage.
The initial launch partners for Liquid include Bitfinex, BTCC, Kraken, Unocoin, and Xapo, and discussions are underway with another dozen major institutional traders and licensed exchanges.
Austin Hill, a co-founder of Blockstream, said:
We’re collaborating to address some key technical and business challenges while preserving Bitcoin’s core ethos of decentralization, innovation, and security.
Samson Mow, the COO of exchange and key mining pool operator BTCC (formerly BTCChina), commented:
BTCC is very excited to be working with Blockstream to roll-out this innovative application of sidechain technology. Liquid is both a practical application of sidechains that allows us to provide nearly instantaneous global interexchange transfers for our users, as well as a major technical milestone that showcases the adaptability of Bitcoin.
Members of the Bitcoin ecosystem, such as exchanges, payment processors, traders, and remitters, experience delays when moving bitcoin between accounts in different locations. The delays, dubbed Interchange Settlement Lag (ISL), result from a host of liquidity inefficiencies including latency and confirmation times that hinder the overall prospects of the Bitcoin ecosystem. Dealing with these issues requires market participants to maintain multiple balances and accounts across the market to avoid ISL, increasing overall capital requirements and exposure to the possibility of counterparty risk.
Zane Tackett, Bitfinex’s Product Development Director, noted:
By providing users a way to securely and instantly move funds across exchanges, Liquid allows participants to take advantage of trade opportunities like never before, minimizing spreads and increasing liquidity. Blockstream’s innovative solutions are definitely a game changer for the Bitcoin industry.
Liquid is an interoperable sidechain that extends the Bitcoin blockchain while adding an auditable, cryptographically-strong commercial privacy component. Using this arrangement, Liquid leverages the reliability and security of the Bitcoin network without trusting a centralized third party.
Jesse Powell, Kraken’s CEO, commented:
Bitcoin introduced global, secure, reliable settlement within hours — about a hundred times faster than legacy financial networks that settle within days. Kraken looks forward to global settlement in minutes with Blockstream and the rest of the Liquid sidechain.
Following publication of its sidechain whitepaper almost one year ago, and its accompanying open source Elements Project release in June, Blockstream looked at how the protocol-level technology could address real-world problems.
Using sidechain technology, Liquid reduces ISL by permitting rapid transfers between accounts held by the varied participants in a separate, high-volume and low-fee cryptographic system that preserves many of the security benefits of the Bitcoin network. In addition to increasing the security of funds normally subject to explicit counterparty risk, theoretically market liquidity conditions will be increased, and capital requirements for on-blockchain business models will be reduced.
Xapo’s COO Federico Murrone added:
We are enthusiastic about supporting Blockstream, which has one of the strongest development teams in the fintech industry, and their Bitcoin-based approach to financial innovation. Xapo works with some of the largest exchanges in the Bitcoin space and we believe that, by implementing Liquid, we can help solve several of their main pain points.
Sunny Ray, President & Co-Founder of Unocoin, noted:
Among other things, Blockstream is solving a critical liquidity issue which is paramount to tackling global remittance markets. Bitcoin is well suited to meet the needs of Asia, the largest inbound remittance market in the world. By leveraging Liquid, we accelerate our business path towards faster & more efficient international money transfers.
We further hope that this inspires others to build on these and other future improvements to the Bitcoin codebase and encourages others to take advantage of our work in both the original sidechain white paper and the implementation in Elements Project open source releases.