Bitcoin: Liquid operators move 870 BTC without permission

Bitcoin: Liquid operators move 870 BTC without permission

By NassiroV | CryptoPress360 | 1 Jul 2020

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Bitcoin has long been criticized for its poor performance. To overcome this problem, various solutions have been created, including Liquid. Unfortunately, the centralization of the sidechain created by Blockstream seems to pose problems.

Liquid Network

As we saw in the introduction, the Liquid Network is the response imagined by Blockstream to the scalability problem of Bitcoin. Indeed, the Bitcoin network can only process a limited number of transactions per second . What is more, in times of high usage, transaction costs can reach exorbitant amounts.

Thus, Liquid is a sidechain . A sidechain is a blockchain that exists in parallel with another blockchain. Users can transfer BTCs there (side chain) which will be converted to Liquid BTC (L-BTC) at a rate of 1: 1. These L-BTCs can then be exchanged or transferred to the Liquid blockchain without overloading the Bitcoin blockchain.

Unlike Bitcoin, this channel is not secured by minors, but by trusted operators . This design has led to a lot of criticism of the centralization of the network.

The exposed model

On Friday night, developer James Prestwich posted a Twitter thread regarding a surprising event on the Liquid network.


Thus, operators of the Liquid network would have “stolen” 870 BTC ( $ 8 million), since the transaction was 2015 blocks old .

“For a little less than an hour, the“ 2-on-3 backup ”controlled 870 bitcoins. This violates Liquid's security model [and] we know this because Liquid holds bitcoins. " Said Prestwich on Twitter.

As a reminder, the “2-on-3 backup” refers to the 2 keys among the 3 belonging to operators and necessary to sign a transaction deemed “emergency” for the network.

Unfortunately - and this is due to the conception of Liquid - it is impossible to know the reasons for this “seizure”:

“We do not know what caused it, because the behavior of the Liquid federation is confidential and closed. " He added

Obviously, the reactions were not long in coming. Adam Back said this was a known problem, but not resolved because of the COVID-19 crisis:

“This is a known problem. The corners are automatically scanned as part of the HSM anchoring process. Funds are secure because keys are offline and geo-distributed. We planned to address this issue by upgrading the HSM, which is a manual process for security, but the containment due to the covid made this difficult. " He replied

Whether the “flaw” is known or not, this does not change the criticism of the Liquid network. Long presented as a “ trustless ” network , the truth could be quite different: operators can access funds as they see fit. Bad news for the sidechain similar to the Lightning Network.

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Hi, and welcome to my blogs! ​I’m Nassir, a thirty-something American/Moroccan guy who loves to travel and write, especially about Crypto world. I have been blogging and trading cryptocurrencies for a while. I hope that you find my articles beneficial.


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