This is a draft.
L-BTC, or Liquid Bitcoin, is a Confidential Asset fully verifiable 1:1 backed BTC token created by Liquid, a federated sidechain pegged to the Bitcoin blockchain. Liquid is an implementation of Elements, an open source, sidechain-capable blockchain platform based on the Bitcoin codebase created by Blockstream.
A sidechan is a mechanism that allows tokens from one blockchain to be used securely in an independent blockchain which runs in parallel and uses a different set of rules, performance requirements, and security mechanisms. On a sidechain, one can move tokens back to the original chain through a two-way peg. Sidechains enable new functionality that may have security trade-offs or as a way to test new features that may not be ready for use on the parent blockchain. These are the new functionalities that Liquid enables:
- Confidential Transactions: Hides the amount from the information displayed at the blockchain, it's the most important feature for Bisq users.
- Issued Assets: Allows issuing tokenized fiat, securities, altcoins or digital collectibles.
- Federated consensus mechanism: allows 2 or 3 minute settlement times in normal conditions.
- In development: Schnorr signatures, which will improve network privacy and capacity.
All addresses in Liquid are blinded by default using Confidential Transactions. The asset and amount of a transaction is hidden to those watching the Liquid sidechain. Bisq users can mix their coins with all of Liquid federation BTC holdings just trading both assets.
Buy L-BTC is very similar to buying other privacy coins. The user L-BTC receiver needs to generate a proof of payment to be delivered in case of dispute. Otherwise, Confidential Transactions makes it impossible for a third party to verify if a payment was made. Next section provides detailed information on how to provide the blinding key to moderator or refund agent. L-BTC buyer should be familiar with this requirements, as failing to provide the blinding key will result in losing the mediation case.
Sell L-BTC is like selling any other [altcoin]. It just requires a wallet capable of receive L-BTC, like Greenwallet, and create a new Bisq account for this payment method.
Generate blinding key
Greenwallet or custodial wallets can't generate blinding keys. To provide blinding keys, install Elements Core full node -it's not necessary to connect Elements node to a Bitcoin full node- and follow this steps:
- Find the L-BTC address in the Bisq trade details.
- Open the GUI console window of your Elements Core full node, or use 'elements-cli'.
- Type the following command: dumpblindingkey <address>
The elements node console will return the blinding key in hex. This blinding key will be required and used in case of dispute to verify if a L-BTC payment was done.
How is the price of L-BTC determined?
L-BTC is a 1:1 BTC pegged token to Bitcoin, so high volatility is not expected. Buyers and sellers make their fixed price orders close to parity. There's no price feed with market % based prices for this market.
Why not just use the peg-in and peg-out mechanism to exchange L-BTC and BTC?
A peg-in -block BTC to create L-BTC- transaction requires 102 confirmations on the Bitcoin network (17 hours) before the funds can be claimed on the Liquid Network. Peg-out requires 2/3 Liquid functionaries approval and it takes about 17-35 minutes to complete. Bisq offers private, easy and secure L-BTC on and off-ramp.