Liquid Learning Path

L-BTC

Understanding Liquid Bitcoin

Intermediate

Liquid Bitcoin (L-BTC)

L-BTC is the native asset of the Liquid Network and represents Bitcoin that has been locked into the Liquid federation's multisignature addresses. It maintains a 1:1 peg with Bitcoin, meaning each L-BTC is backed by one BTC held in the federation's custody.

Understanding how L-BTC works, its properties, and how it moves between the Bitcoin and Liquid networks is fundamental to working with the Liquid ecosystem.

Key Properties of L-BTC

Two-Way Peg

L-BTC is backed by real bitcoin held by the Liquid Federation. Users can convert BTC to L-BTC (peg-in) and L-BTC back to BTC (peg-out) at any time, maintaining the 1:1 value relationship.

Confidential Transactions

Like all assets on Liquid, L-BTC benefits from confidential transactions, which hide the amount being transferred. This provides greater privacy than native Bitcoin transactions.

Faster Settlement

L-BTC transactions are confirmed in approximately 2 minutes, compared to Bitcoin's average of 10 minutes (and recommended 6 confirmations). This makes L-BTC more suitable for trading and time-sensitive applications.

The Peg-in Process

Converting BTC to L-BTC involves the following steps:

  1. Generate a Peg-in Address - Using Liquid wallet software, generate a special Bitcoin address that's associated with your Liquid address.
  2. Send BTC - Send Bitcoin to this special address. This Bitcoin will be held by the Liquid Federation.
  3. Wait for Confirmations - Wait for the Bitcoin transaction to receive 102 confirmations (approximately 17 hours). This security requirement ensures the Bitcoin transaction is deeply embedded in the blockchain.
  4. Receive L-BTC - After the confirmations, an equal amount of L-BTC will be created and sent to your Liquid address.

A Note from Satoshi

The 102-confirmation requirement for peg-ins is a security measure to protect against blockchain reorganizations. While this introduces a delay, it's a necessary trade-off to secure the peg between Bitcoin and Liquid. Once the L-BTC is issued, you can transact quickly on the Liquid Network.

The Peg-out Process

Converting L-BTC back to BTC works as follows:

  1. Initiate a peg-out transaction in your Liquid wallet, specifying a Bitcoin address to receive the funds
  2. The L-BTC is destroyed on the Liquid Network
  3. The Liquid Federation releases the corresponding amount of BTC from their multisignature addresses
  4. The BTC is sent to your specified Bitcoin address

Unlike peg-ins, peg-outs typically require working with a member of the Liquid Federation, as there are additional security and regulatory requirements for withdrawing Bitcoin from the federation's custody.

L-BTC Use Cases

  • Exchange Transfers - Moving bitcoin between exchanges quickly and privately
  • Trading Pairs - Serving as the base trading pair for other Liquid assets
  • Private Transactions - Conducting confidential bitcoin transactions
  • Settlement Network - Enabling fast settlement between businesses and financial institutions

Asset Management

Asset Management→L-BTC
Intermediate
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