High network congestion on Bitcoin has prompted the revival of an old, nearly forgotten scaling solution that makes BTC transactions fast, private, and cheap. The Liquid Network, a federated Bitcoin “sidechain,” has experienced a significant increase in transaction volumes, attracting the attention of key industry players.
Increased Transaction Volumes on the Liquid Network
Data from mempool.space reveals that the Liquid Network has observed some of its highest transaction volumes in years over the past week. Previously, Liquid blocks had been devoid of transactions for an extended period. However, recent activity has seen 2 to 6 transactions appearing in almost every block.
“Ordinals are boosting Liquid adoption,” said Samson Mow, CEO of Blockstream, in an X post on Jan 3. This resurgence of activity has caught the attention of executives and founders of Blockstream, the Bitcoin technology provider that kickstarted the Liquid Network back in October 2018.
The increase in transaction volumes is considered the “act IV” of high fees driving innovation and adoption of alternative BTC technologies, as noted by Blockstream CEO Adam Back. He mentioned that similar waves of adoption have occurred in the past and that challenging fee environments often lead to the exploration of alternative solutions.
Liquid Network: A Federated Bitcoin Sidechain
The Liquid Network functions as a federated Bitcoin sidechain, utilizing Liquid Bitcoin (LBTC) as its core asset for paying transaction fees. LBTC is a derivative token backed 1:1 by actual BTC. The peg and blockchain are maintained by a geographically distributed set of member institutions known as “functionaries.” This decentralized maintenance reduces the chances of network failure.
“You can lead a #bitcoin horse to water but will only drink when the mempool is on fire and starts singeing its tail,” stated Adam Back. The rise in activity on the Liquid Network appears to be linked to Boltz, a non-custodial Bitcoin exchange that facilitates direct redemption of BTC on the lightning network for LBTC, and vice versa.
While the lightning network provides an alternative scaling solution for swift payments, high base-layer fees can render it impractical for regular small transactions. Recognizing this, Anita Posch, founder of Bitcoin for Fairness, has started recommending Boltz to Bitcoin users in developing countries during high fee environments. She also offers user education on how to use the Liquid Network effectively.
Furthermore, Francis Pouliot, CEO of Bull Bitcoin, a Canadian non-custodial exchange, has observed a significant increase in user interest for LBTC on their platform.
Bitcoin has faced multiple fee spikes this year due to the introduction of Ordinals, a new protocol enabling the minting of NFTs and tokens on the Bitcoin blockchain. This additional blockchain activity has led some critics to label it as spam. In response, OCEAN, a new Bitcoin mining pool funded by Jack Dorsey, has chosen to filter out Ordinals transactions from the Bitcoin blocks it mines.
