Jimmy Song, a Bitcoin developer spoke about the invention of the Liquid Network, whether it was centralized and if it could potentially harm Bitcoin’s reputation, during an interview with Crypto Insider.
Song opined that the Liquid network was a “good first step” towards sidechains, a mechanism that allows digital assets from one blockchain to be securely used in another blockchain. These assets can then be moved back to the original blockchain when necessary. He stated that Liquid Network adopted the Federated Trust Model where a “super majority” of participants were required to sign off before the transactions are successful. Jimmy further added:
“If I remember correctly, they have 23 and you need a super majority, or 1 + ⅔ or something like that… So Sixteen or Seventeen out of those twenty-three need to agree before any transactions go through but generally if it’s signed by people then it can go through fairly quickly because it’s a trusted, sort of, closed wall garden”
According to Jimmy, it was a good idea to provide liquidity between cryptocurrency exchanges. He gave an example of Korea and how there was a significant premium on cryptocurrencies for lots of time, this was because there was no liquidity. Most of the liquidity was not there due to the fact that fiat currencies were not being able to flow out. He added:
“So there are capital controls in Korea that make it very difficult, but when you have at least a bitcoin liquidity you can settle a little bit faster”
He added that individuals were constantly trying to arbitrage things which resulted in people bringing a lot of money into Hong Kong in order to bring more Bitcoins into Korea. Jimmy further opined:
“This mitigates that a lot and makes a lot of the bitcoin transfers a lot faster. Not even 30 minutes or something like that it’s almost instant with the sidechain”
Jimmy spoke about the cryptocurrency exchanges and how most of the Bitcoin network activities which were on-chain. These activities were from the people who wanted to arbitrage and most of this volume would be taken into the Liquid Network. As soon as it is verified that the other address is a participant of the Liquid Network, transfers will become more efficient and instant. He stated:
“Eventually, I imagine this will become sort of like a second layer network that’s more commercial and I think that’s a good thing. You know I like competition, I like innovation, I like when new things are tried out so it’s something that I’ve been thinking about for a while”
Jimmy further stated that there was a reason for calling it ‘Liquid’ as it provided liquidity to everybody and could also “even out” the prices. Furthermore, any participant on the network who did not have the same price as the other participants would reflect on the fiat currency of that country.
Also read: Study has found three-quarters of Bitcoin mining is based in China and warned of the potential risks that could result from the significant geographical centralization of the mining network