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Cryptographer Dr. Adam Back appears at the legislature to discuss the development of Bitcoin Layer 2 and the Liquid Network.

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Cryptographer Dr. Adam Back appears at the legislature to discuss the development of Bitcoin Layer 2 and the Liquid Network.

Cryptographer Dr. Adam Back was invited by Legislator Jason Hsu to the Legislative Yuan today to hold a special seminar on "Value-added Applications of Virtual Currency: Promotion of Digital Economy, Information Security Cryptography, and Financial Technology — Using Bitcoin Layer2 as an Example." Dr. Back also introduced the development status and practical cases of the Liquid Network to the participants.

Who is Adam Back

Adam Back is a British cryptographer with a Ph.D. He invented Hashcash before the advent of Bitcoin as a proof-of-work system to combat email spam. His concept was referenced by Satoshi Nakamoto in the creation of the Bitcoin blockchain, earning him respect and the title of "Bitcoin father" in the Bitcoin ecosystem and the cryptocurrency community.

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In 2014, Dr. Back founded the blockchain technology company Blockstream and serves as its CEO. Products launched by Blockstream include:

They also work on other innovative technologies such as stablecoins, RWA, aiming to improve the development speed and adoption of the Bitcoin ecosystem.

Silhouette of Adam Back in a legislative meeting Source

Liquid Network

The First Representative Bitcoin Sidechain

At the beginning of the lecture, Dr. Back introduced the Liquid Network, a federated sidechain developed by Blockstream with around 70 members responsible for network maintenance, including financial institutions and startups.

The goal of the Liquid Network is to enable faster and more private issuance of digital assets to enhance the functionality of the Bitcoin network. The native asset of the Liquid Network is Liquid Bitcoin (L-BTC). As an early Bitcoin sidechain, it has driven industry development and led to more Bitcoin sidechain projects such as Stacks, RootStock, Drivechain, among others.

Liquid Network vs. Lightning Network

Initially, Liquid Network and Lightning Network were seen as two major development paths for Bitcoin Layer 2. Dr. Back mentioned that the former now focuses more on retail use cases, optimizing for retail scenarios to allow merchants to quickly receive small payments from customers at low costs;

Meanwhile, Liquid Network focuses on financial transactions, providing tools for traders, financial institutions, and exchanges looking to transfer large amounts of Bitcoin or other tokens quickly and privately, supporting traditional financial frameworks and regulations, and providing the infrastructure and services for asset tokenization.

Liquid Network and Lightning Network serve different use cases and are more complementary than competitive. The former focuses on retail payment capabilities, while the latter lowers the barrier to asset tokenization.

Real-world Use Cases

Dr. Back highlighted three projects currently implemented on the Liquid Network during the legislative meeting:

  • MIFIEL: Developed on Liquid by a Mexican fintech company, issuing digital promissory notes to replace traditional paper notes, catering to the prevalent small promissory note mechanisms in the local financial market. By digitizing and putting them on the blockchain, security is enhanced, with approximately $200 million in circulating notes.
  • JPYS: A stablecoin pegged to the Japanese Yen, created in official collaboration with the Bank of Japan. It is used for inter-institutional clearing and not for general user transactions.
  • CSMSTR: A token issued by Luxembourg-based virtual asset service provider STOKR, representing micro-strategy stock tokens, offering a fast and 24/7 trading market under regulatory conditions.

In addition, Dr. Back pointed out potential applications on the Liquid Network, including bond issuance, tokenization of U.S. Treasury securities, tokenized funds, alternative assets, tokenization of mining contracts, sovereign debt, among others.