Jameson Lopp, a Cypherpunk and Bitcoin enthusiast, spoke about Liquid Network and how it helps to decongest the Bitcoin network and provides a solution for Bitcoin’s well-known scalability problem, in an interview with Crypto Insider.
With Liquid’s full node binaries and source code launched on November 6, Lopp explained how the Liquid Network works. He went on to say that he was privileged to understand the flow of funds between exchanges due to his time at BitGo.
He referred to the fund flow between exchanges as “redundant” because if there were massive transactions of funds that had to flow from one particular exchange to other exchange it would be tedious and inefficient. He continued:
“It might be a little efficient to batch them up in in in a few transactions with a lot of outputs, but still at the end of the day they’re going to be creating a lot of transactions and a lot of UTXOs to essentially move money from one entity to another so you know this is highly inefficient.”
Lopp said that this type of fund transfer uses up a lot of block space just for sending money from one exchange to another back and forth, as users are rebalancing their accounts. Explaining an alternative to transferring these funds, Jameson Lopp said that it could be achieved by killing off privacy, after which point the funds would be sent by exchanges on a daily basis by forming an agreement. He added:
“Another way is that you can use a second layer network so hopefully one day all of the exchanges will also be integrated with one another on the Lightning Network and a lot of these cross exchange transactions can happen on the Lightning Network.”
He said that the Lightning Network adoption hasn’t actually happened as of now and that only a few exchanges have adopted it.
Lopp explained another method of transferring or transacting funds by using a second layer solution that is cryptographically tied to Bitcoin, like the Liquid Network. He said:
“Liquid just happens to be more permissioned than Lightning [Network], but a faster way to get it done and it also gives us a bit more congestion reduction in the near term and kind of provide a stop-gap solution at least until Lightning becomes a thing.”
According to Lopp, Liquid Network provides privacy aspects which would not necessarily be obtained by transacting on the Bitcoin network. Furthermore, Lopp opined that Liquid Network, when compared to the Lightning Network provides much better privacy.
Since a majority of the Bitcoin community is against the sidechain methods and its implementation, Lopp said:
“I mean, nobody is forced to use Liquid, so you know from a moral perspective I have no problem with it. And from a technical perspective, if people look at the security model and the privacy model that liquid offers them and they decide that Liquid is going to benefit their use-case then, by all means, I think they should use it.”
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