Lightning is optimised for processing micro to small-sized transactions, whereas Liquid is optimised for processing medium to large-sized transactions.
There are no limits to transaction size on Liquid (technically 21 million BTC would be the limit!).
2a/ On- and Off-Ramps
Lightning’s on- and off-ramps are the opening and closing of Lightning channels.
Lightning users can also swap out of their channels with submarine swaps.
2b/ Liquid Bitcoin (L-BTC) are created via a peg: BTC are transferred to the federation and temporarily locked, and this process releases an equivalent amount of L-BTC on Liquid.
However, most users will prefer to swap BTC for L-BTC (and vice-versa) through exchange platforms.
3/ Speed
Payments via Lightning can be made almost instantly.
In contrast, Liquid produces one-minute blocks to confirm transactions, which makes the process slower, but sufficient for trading applications.
4a/ Privacy
A degree of monitoring is possible with Lightning since individual nodes can record the channel and direction information from transactions they are asked to process.
While this method of surveillance has limitations, it still represents a privacy concern.
4b/ Liquid’s protocol is designed so that the amount of funds and type of asset transferred are not revealed to anyone other than the sender and recipient.
This is made possible by a cutting-edge cryptographic protocol developed by @Blockstream called Confidential Transactions.
5a/ Custody
Generally, Lightning users must hold their keys online until a channel is closed.
Although hacks are not known to have happened to date, when nodes are online it is theoretically possible for attackers to steal sensitive information and even private keys.
5b/ With Liquid, keys can be held offline in cold storage, making it impossible for funds to be stolen w/o physical access to the private keys.
Through Blockstream Green, Liquid users can also take advantage of a hardware wallet, keeping L-BTC private keys permanently offline.
6a/ Trust Model
The Lightning Network allows for transactions to be secured by the Bitcoin network without being directly broadcast to it.
As long as both parties are regularly monitoring the channel state (via a node or wallet), this makes Lightning highly trust-minimised.
6b/ Liquid’s trust model is based on a federation consisting of 15 hardware security modules.
Whilst some trust is required, the distributed model is significantly superior to the trust model that most traders are exposed to, whereby funds are entrusted to a single exchange.
7a/ Conclusions
The Lightning and Liquid Networks are complementary layer-2 solutions that allow Bitcoin to be used for a greater range of applications, and by a greater number of people.
7b/ The Lightning Network provides an excellent means for making small transactions quickly and cheaply, where the very high levels of security provided by on-chain transactions is not required.
Typically, this will be in applications such as retail and gaming.
7c/ Liquid allows for medium to large Bitcoin transactions to be undertaken with a high degree of confidentiality and security, and a reasonable degree of speed.
This makes it suited to trading and lending applications.
8/ The table below shows a summary of the key differences between Lightning & Liquid.
For users wanting to take advantage of the unique properties of both Liquid and Lightning it is possible to build Lightning networks on Liquid, which will allow the sidechain to scale further.
Liquid is a #Bitcoin sidechain built for traders & exchanges & includes new tech not available on Bitcoin.
Learn about the new tools, libraries, webinars, tutorials, projects, & tech being built for the #LiquidNetwork. 🌊 liquid.net
Nigiri is a one-click personal #Bitcoin network and #LiquidNetwork. It provides a command line interface that manages a selection of docker containers to have a ready-to-use Bitcoin and Liquid regtest environment so you can write code and test quickly. nigiri.vulpem.com
Liquid.Coach is a browser-based tool for Liquid devs & power users for doing operations like checking the balance of an address, creating & importing a PSET (Partial Signed Elements Transaction) or even sign it, all from the browser! medium.com/@vulpem/announ…
Bitcoin is great but, for traders and exchanges, a bit slow.
Liquid, a Bitcoin sidechain, extends and optimizes Bitcoin for traders by enabling fast, confidential transactions.
Here's how that works and why you should use it. ⤵️
Like Bitcoin, Liquid records every transaction on a public blockchain. Liquid's blockchain is built with Elements, a sidechain project based on the Bitcoin Core codebase.
Use the Liquid block explorer to browse the sidechain's transaction history.