Bitcoin’s First Sidechain is Blockstream’s ‘Liquid’

On October 13, Blockstream announced its first sidechain project: Liquid. The first production sidechain is a platform that will allow rapid liquidity between Bitcoin exchanges and brokers. Five services collaborated with Blockstream’s developers, Bitfinex, BTCC, Kraken, Unocoin, and Xapo will operate the private chain together sharing order books. Liquid will provide processors reduced accounting time within trading to produce a more fluid exchange arrangement.

Founding member and Chief Instigator, Austin Hill states:

“As a Bitcoin-centric company, we are excited to be delivering a real-world solution that moves the ecosystem forward.”

Blockstream Founding member and Chief Instigator, Austin Hill

It's been nearly a year since Blockstream released its white paper “Enabling Blockchain Innovations with Pegged Sidechains” and it looks as though the startup is finally making sidechains a reality. Sidechains are separate blockchains that are interoperable with each other and can add additional properties to the Bitcoin network. These distinct and separate chains act as vessels that can allow solutions to problems like block intervals, transaction structure, and security.

For quite some time, many in the community have viewed sidechains as vaporware, a product that is announced to the public but never comes to fruition. Now, Liquid is looking to to prove naysayers wrong with its production chain launch.

The exchanges and brokerages involved with the Blockstream chain will not only participate with the new system but also act as customers paying fees. Liquid is expected to be released sometime in Q1 of 2016 and will add a high-volume and low-fee cryptographic platform to the current Bitcoin blockchain. The service executes its protocol by using shared technology with its partners acting similar to multi-sig technology, but uses a Byzantine round robin consensus to confirm transactions and agreements made.

The system avoids soft-forks within the Bitcoin client by using a federated peg, and the POW is substituted by the number of functionaries that verify incoming blocks.  Austin Hill, founding member of Blockstream and team “Chief Instigator” explains that a set of rules has been designed to make sure signatures are valid:

 "As long as the transaction is constructed, and the private key is correct, and the unspent transaction output is valid, then all of the signers who are running nodes approve the transaction."

The Chief Instigator says Liquid is the first move towards a commercial sidechain market, and the Blockstream code is an open-source protocol that anyone can help improve. Crypto-community members have been pretty excited that possibly in 2016 sidechains will go beyond the vaporware stage and actually produce real-world applications and value. Certain aspects of 2.0 technology have already appeared to help financial markets such as Coinprism’s colored coin application “Open Assets” through NASDAQs trading platform. It's only a matter of time when services like Blockstream’s sidechains join hands with current innovative blockchain technology that's reshaping traditional finance.

Blockstream is an accelerator for open assets, cryptocurrencies, and smart contracts by researching and designing platforms for 2.0 blockchain concepts. The startup was founded in 2014 and has roughly 50 contributors adding to the project. The core team consists of well-known Bitcoin architects, cryptographers, cypherpunks, and entrepreneurs with the belief that sidechains will have a significant impact on emerging technologies. Some of these known team-members are Adam Back, Matt Corallo, and Gregory Maxwell, who've contributed quite a bit to the project. The organization has so far raised US$21 Million from venture capital investment from Blockchain Capital, AME Cloud Ventures, and private investors. 

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