Andreas Antonopoulos, the author of Mastering Bitcoin and a well-known Bitcoin proponent, spoke about Blockstream’s Liquid sidechain, the first Bitcoin production sidechain, during a Q&A session on YouTube. Here, the author also spoke about whether there was any competition between Bitcoin’s Liquid sidechain and XRP/ Ripple, with respect to use case.
Antonopoulos started by talking about the Liquid sidechain, wherein he stated that the product was designed by Blockstream, a well-known company in the Bitcoin space that has been a part of numerous projects related to Bitcoin. The initial discussion for a Bitcoin Liquid sidechain solution commenced in 2015.
Here, a sidechain refers to a separate blockchain that is connected to the main chain via a two-way peg, a mechanism that enables assets to be fungible at a predetermined rate. Andreas explained sidechain as,
“[…] you can move [value] from Bitcoin’s chain… to this other blockchain, use it [there for some purpose], and then move it back.”
Sidechain introduces a concept wherein a user of the main chain has to send coins to an output address, which is then locked up to avoid the user from using it for other purposes. This is followed with a confirmation that is transmitted through the chain after the initial transaction is completed. Succeeding this, the same amount of coins will be released on the sidechain, which can later be used by the user. The same concept applies when the coins are transferred from the main chain to the sidechain.
With Liquid sidechain, users can make use of Liquid BTC, which is a “one-to-one equivalent of Bitcoin,” to lock up 1 BTC on the Bitcoin blockchain, which then becomes 1 Liquid BTC that can be used on the Liquid sidechain. This enables faster and cheaper transactions, without burdening the Bitcoin blockchain.
Antonopoulos also said, “in the case of Liquid, it is first sidechain implemented by Blockstream,” adding that it has been in the beta stage for over a year. He stated that this sidechain is intended to be a “backend exchange-to-exchange pipeline” for transactions of the largest cryptocurrency in the space. It will ensure that the coin moves “very fluidly” between exchanges without the need for on-chain transactions.
“The idea being, you have exchanges around the world who must withdraw and deposit… bitcoin to addresses that belong to other exchanges. Every time they do a withdrawal or deposit, they are not only using up space on the Bitcoin blockchain, but they also need to pay fees.”
He further added,
“Liquid is essentially payment channels with exchanges that allow them to move money… between themselves directly, like a SWIFT network. Liquid uses a federated signing model. It is not a mined chain, but a signed chain. It uses a proof-of-authority [consensus algorithm]”
This was followed by the author stating that this sidechain solution is not suitable for end-users and consumers, but a solution for exchanges that manage large Bitcoin transactions, “in a network that is off-chain and commercial product.”
Antonopoulos also voiced his opinion on whether there is any competition between Liquid sidechain and XRP saying,
“I don’t think so. Ripple [XRP] has a different model in its consensus layer, as well as… how the currency is used within the network. I think the people who are interested in XRP are not interested in Bitcoin, even through a sidechain.”
He further added,
“There is a spectrum of applications here, from payment channels and atomic swaps with… [decentralized] Lightning Network, to a [distributed proof-of-authority] sidechain like Liquid, to XRP / Ripple. There is some overlap in those applications, but I don’t think the overlap is enough and… I think they differentiate enough that they don’t directly compete.”
Subscribe to AMBCrypto’s Newsletter
XRP/R3: Corda has the potential to scale vastly, says R3’s head of solution engineering Dave Hudson
Priya is a full-time member of the reporting team at AMBCrypto. She is a finance major with one year of writing experience. She has not held any value in Bitcoin or other currencies.