Liquid Lightning: A 4-Tiered Scalable Bitcoin Ecosystem

Posted 2 months ago by LN+

Brief Explanation of Liquid

The Liquid Network is a federated sidechain of the Bitcoin blockchain. It was developed to address Bitcoin's scalability and speed issues. Unlike the Bitcoin main chain, Liquid operates with a group of trusted functionaries, not proof-of-work miners, allowing for faster transaction processing and some privacy enhancements not available on Bitcoin's main chain. You can use Liquid with the Greenwallet by Blockstream.

Liquid Network Logo

The idea of Lightning Network on Liquid: "Liquid Lightning"

The concept of Liquid Lightning involves leveraging the Liquid side-chain to build a second Lightning Network. This network would benefit from Liquid's unique properties, like faster block times and enhanced privacy options. This not just a dream, Blockstream launched experimental support for Lightning on Liquid in 2019 already.

Liquid's functionality for a better lightning experience

Liquid's advanced features can significantly improve the Lightning Network experience. Key aspects include:
  • Lower Chain Fees and Faster Channel Management: Liquid's 1-minute block time can facilitate quicker and more cost-effective channel management compared to the main Bitcoin blockchain, especially during high on-chain fee times on the base Bitcoin layer.
  • Advanced Op-Codes: Liquid's scripting system offers more flexibility than Bitcoin's. This could enable more advanced features in channel management.
  • Privacy Enhancements: Liquid supports Confidential Transactions and Confidential Assets, which enhance privacy by hiding transaction amounts and asset types, though it should be noted that addresses are still visible.

Interoperation between Bitcoin Lightning and Liquid Lightning

One of the most exciting aspects of Liquid Lightning is the potential for interoperability with the existing Bitcoin Lightning Network. Advanced wallets could seamlessly pay invoices on either network using submarine swaps, a method for exchanging assets across different blockchains or layers. Liquid Lightning has native support for atomic swaps, which simplifies implementation significantly. 

Enhanced scalability through layered innovation

The Liquid Network presents a dynamic scalability solution, distinguishing itself with the capability to expand its block size as needed. This flexibility ensures enhanced scalability without imposing any risks on the foundational layer of the Bitcoin blockchain. Envisioning a multi-layered architecture, the ecosystem could evolve into a four-tiered system, each tier catering to specific use cases and striking a unique balance between key factors such as security, risk, and convenience.

4-Tiered Scalable Bitcoin Ecosystem

  1. Bitcoin Base Layer: Serving as the bedrock with maximal security and decentralization, ideal for large, non-urgent transfers, long-term storage and and an achor for other layers.
  2. Bitcoin Lightning Network: Offering faster, smaller transactions with reduced fees, suitable for everyday payments and microtransactions.
  3. Liquid Network: Enhancing efficiency for larger, rapid transfers and trading, with added privacy features and quicker settlement times.
  4. Liquid Lightning: The newest tier, combining the strengths of Liquid and Lightning Network, proposing a solution for instant, low-cost transactions, potentially with advanced features not currently feasible on the Bitcoin Lightning Network scalable to global levels.

This stratified approach allows users to choose the most appropriate layer for their transaction needs, aligning with their priorities whether it be speed, cost, or privacy, thereby unlocking a diverse range of applications and use cases within the Bitcoin ecosystem.

Risks associated with Liquid Lightning

While Liquid offers many benefits, it's important to recognize its risks, particularly its reliance on a federation. This structure introduces an element of trust, different from the trustless model of the main Bitcoin blockchain. However, for small transactions and quick exchanges, these risks might be acceptable, especially since it's unlikely users would store large amounts on Liquid Lightning.

Implementation challenges

Key challenges in implementing Liquid Lightning include:
  • Developing an Ecosystem of Client Software: Robust client software needs to be developed for users to interact with Liquid Lightning, and ideally we should not rely on a single team. In Bitcoin Lightning we have at least 4 large teams working on client software. Liquid Lightning needs at least 2-3 teams as well. The good news is that Lightning in general is designed to run on any blockchain similar to Bitcoin, which is why it was relatively easy to start Lightning on Litecoin (an altcoin based on Bitcoin). Liquid Lightning was also relatively easy to implement according to Blockstream who has already created Lightning support for Liquid on Core Lightning.
  • Bootstrapping Liquidity: Sufficient liquidity must be ensured for the network to function efficiently. This is possibly the biggest hurdle on the short term.
  • Mobile Wallet Support: Wallets need to be developed or adapted to support Liquid Lightning and submarine swaps between it and Bitcoin Lightning. Blockstream has made good progress on this front with Greenwallet.


Liquid Lightning presents an innovative approach to scaling Bitcoin transactions. Its potential for faster, cheaper, and more private transactions, coupled with interoperability with the existing Lightning Network, makes it a promising development in the cryptocurrency space.


Middle Way ₿⚡

Middle Way ₿⚡ wrote 2 months ago

Great article, but I hope our current lightning is not quite dead yet. And Liquid can be useful already to help us balance the channels. Read this.


LN+ Admin wrote 2 months ago

Agreed, and thank you for the link!

Middle Way ₿⚡

Middle Way ₿⚡ wrote 2 months ago

Thank you. It would be really cool if you added PeerSwap badge and made it selectable as a filter in your node explorer (like Nostr or Donors). It is currently hard to find peers that have this installed.


LN+ Admin wrote 2 months ago

OK, is PeerSwap capability somehow possible to pick up from the LN gossip, so people don't need to manually set it in their profile?

Middle Way ₿⚡

Middle Way ₿⚡ wrote 2 months ago

No, not yet.

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