For more than a decade, Bitcoin has been gaining in both popularity and relevance around the globe. Its success has spawned countless knock-offs, outright scams, and only a handful of short-lived actual competitors. At the end of the day though, Bitcoin has persisted, remaining the backbone of the digital asset sector. For this to remain the case, Bitcoin must continually increase its functionality and efficiency to meet the needs of its users.
With this in mind, various solutions to allow for Bitcoin to remain competitive well in to the future are in the works. One example of this is the ‘Lightning Network’ – a wildly popular layer-2 solution built primarily to allow for BTC to scale. However, the Lightning Network is not the only layer-2 solution built to operate atop the Bitcoin network. Those looking elsewhere for increased functionality should pay close attention to Canadian outfit, Blockstream, and its solution called the ‘Liquid Network’.
What is Liquid Network?
As it stands, there are essentially no single layer networks which offer each stability, decentralization, and scalability required for true mass adoption. This is where layer-2, or off-chain protocols, come in to play.
While they come in different shapes and forms, a layer-2 solution is simply a protocol which offers unique features, while remaining anchored to a base layer network. Although complex, such structuring allows for users to leverage the inherent characteristics of a Proof-of-Work (PoW) network like Bitcoin, while also experiencing the scalability and functionality afforded by those leveraging consensus mechanisms like Proof-of-Stake (PoS).
With regards to the Liquid Network, the following are two of the main benefits afforded through its implementation.
- Quick transactions
- Anonymity
Also noted as a benefit of its increased quickness, is the ability for users of the Liquid Network to more readily take advantages of arbitrage opportunities. Most notably though, is the ability to utilize smart-contracts for the issuance of various types of assets and financial instruments. This includes stablecoins, NFTs, and security tokens.
In 2021, Blockstream successfully raised $210M in a Series B funding round. The proceeds of this capital raise were expected, and continue to be used for further development of custom ASIC devices, and of course, the Liquid Network.
To learn more about the technical aspects behind how Liquid Network functions, Blockstream provides an overview here.
Why Does it Matter?
So layer-2 solutions can offer increased speed, privacy, and functionality to networks like Bitcoin. Why does this matter though?
The fact of the matter is that, while Bitcoin has managed to remain atop the world of digital assets to date, the network must continue to grow in order to survive. Without layer-2 solutions, the network simply cannot scale to the extent needed if expected to operate as a financial medium on a global scale.
As stated, layer-2 solutions like the Liquid Network simultaneously leverage both the characteristics which make Bitcoin great, and those of its more modern counterparts. This is an extremely useful approach, as while latter can easily be coded into existence, the former is something more than decade in the making that is near irreproducible.
Real-World Usage
Blockstream is forward thinking with more than just the Liquid Network. It also became a trailblazer within the Bitcoin mining sector when it introduced BMN1 – a digital security or ‘security token’ built atop its layer-2 solution.
These tokens were structured to provide investors with exposure to BTC through the fractionalization of hash-rate. In doing so, it demonstrated the benefits of Liquid Network by simultaneously raising capital and providing investors with the ability to gain exposure to Bitcoin mining practices.
To learn more about the Liquid Network, and BMN1 tokens, make sure to check out the BMN 1 Q3 Report – a study generated by Security Token Market (STM) on how such solutions successfully mitigated the negative effects of crypto-winter by more than 47%.
