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A Summary:

The table below shows a summary of the key differences between Lightning & Liquid. For users wanting to take advantage of the unique properties of both Liquid and Lightning it is possible to build Lightning networks on Liquid, which will allow the sidechain to scale further.

1. Transaction Size


The Lightning Network is optimised for processing micro to small-sized transactions. Users send payments to each other by finding a pathway of Lightning channels through the network that connects the sender to the recipient.


The Liquid Network is optimised for processing medium to large-sized transactions. Unlike Lightning, Liquid operates via a sidechain: a unique blockchain that allows users to transact with tokens that are 1-to-1 exchangeable for bitcoin (BTC) called Liquid Bitcoin (L-BTC).

There are no limits to the size of a transaction on the Liquid Network (technically 21 million BTC would be the limit!).

2. On- and Off-Ramps


The opening and closing of Lightning channels represent Lightning’s on- and off-ramps.

In order to set up a Lightning channel, two Bitcoin users need to fund a multisignature address on the Bitcoin network. Once funds have arrived in this address, they can only be accessed with a signature requiring both the channel users’ private keys.


There are two options for on- and off-ramping from the Liquid Network:

  1. The “two-way peg”
  2. Swapping BTC <> L-BTC on an exchange/swap platform

3. Speed


Payments via the Lightning Network can be made almost instantly. Since Lightning payments do not require confirmation on the blockchain they can take place as quickly as an internet connection will allow: potentially allowing for millions of transactions per second.


In contrast to Lightning, the Liquid blockchain produces blocks to confirm transactions, which makes its transactions slower. Nonetheless, transactions are still significantly faster than on the Bitcoin blockchain. New Liquid blocks are produced at regular one-minute intervals—ten times faster than the average Bitcoin block—and two confirmations are required for a transaction to be considered settled. This means that Liquid transactions take around two minutes. This timeframe is typically sufficient for traders moving funds between exchanges and private wallets, but will generally be too slow for retail transactions such as buying coffee.

4. Privacy


The Lightning Network provides users with a greater degree of privacy than on-chain transactions with Bitcoin, which can be observed in real time. Since Lightning payments are routed through a series of nodes, neither the recipient nor a relay node can know for certain where a transaction originated.


In contrast, the Liquid Network’s protocol is designed so that the amount of funds and type of asset transferred are not revealed to anyone other than the sender and recipient. This is made possible by a cutting-edge cryptographic protocol developed by Blockstream called Confidential Transactions.

5. Custody


Generally, users of Lightning must hold their keys online until a channel is closed. Lightning nodes also require ongoing monitoring and rolling backups. Although hacks are not known to have happened to date, when nodes are online it is theoretically possible for attackers to steal sensitive information and even private keys.


With Liquid, keys can be held offline in cold storage, making it impossible for funds to be stolen without physical access to the private keys. Through Blockstream Green, Liquid users can also take advantage of a hardware wallet, keeping their L-BTC private keys permanently offline.

6. Trust Model


The Lightning Network allows for transactions to be secured by the Bitcoin network without being directly broadcast to it. Since users of a Lightning channel co-sign every change in balance of the channel, either user can choose to broadcast a settlement transaction at any time. As long as both parties are constantly monitoring the channel state (via their node or wallet service), this makes Lightning highly trust-minimised since neither of the channel’s users need to trust each other in order to transact.


Liquid’s trust model is based on a federation consisting of 15 hardware security modules (HSMs) attached to host servers (known as functionaries). The functioning of the BTC:L-BTC two-way peg relies on two thirds or more of the Federation functionaries acting honestly. Whilst some trust is required, the distributed Federation model is still significantly superior to the trust model that most traders are exposed to, whereby they entrust their funds to a single exchange.

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