Since its 2018 debut, Blockstream has promoted Liquid as a promising solution to Bitcoin’s scaling problems. Unlike the Lightning Network which proliferates with no federation, Liquid is a federated sidechain managed by 15 functionaries.

In other words, it’s a managed fork of Bitcoin meant to reduce latency and fees.

Liquid’s reception has been muted at best. According to critic Udi Wertheimer, “no one’s using it.” In fact, he notes, the meme crypto Dentacoin is often more used than Liquid.

Co-founder of The Bitcoin Company, BenTheCarman, is similarly unimpressed. “It is a fork of bitcoin with a few fancy things added (tokens, confidential transactions, covenants) and bundled together with a 1 minute block time, federated custody, and some Blockstream branding.”

On a typical day, there are more tweets about Liquid than there are transactions on its network.

Read more: What are sidechains and could they really make altcoins obsolete?

Where did all the money go?

In 2021, Blockstream raised $266 million Canadian dollars ($210 million) at a $4 billion valuation, in part to monetize the Liquid Network. Baillie Gifford led the Series B round, which also attracted investment from iFinex, the parent company of Tether.

In addition to heading the development of Liquid itself, Blockstream develops financial products that trade on the Liquid network, including bitcoin-pegged L-BTC tokens, dollar-pegged USDT tokens, merchandise vouchers, and even securities.

Former CSO Samson Mow cited the Blockstream Mining Note as an example of a product that could be tokenized using the Liquid Network. The Blockstream Mining Note represented shares of Blockstream’s mining operations.

Liquid attracted attention from players like Bitfinex, BitMEX, and Bitso. Blockstream bragged about attracting $1.1 billion in network value when it closed its Series B round. However, it became clear that Liquid has its own scalability issues.

As a fork of Bitcoin, Liquid inherited most of the issues that make it difficult for Bitcoin to scale at the blockchain level in the first place. Nevertheless, it actually benefits from lower usage, insulated from the actual Bitcoin network’s congestion and high transaction fees.

L-BTC: Another pegged, trust-based token

The entire Liquid network depends on one, simple promise: 1 L-BTC will always be worth 1 BTC.

In order to gain liquidity, users, and credibility, Liquid must convince Bitcoiners to custody their real bitcoin into the 11-of-15 multisig controlled by Liquid functionaries. To that end, it offers attractive features for users to peg-out real BTC and get into its Liquid network.

For example, it offers one-minute block time instead of Bitcoin’s ten minutes. It also introduced federated custody with a multisig wallet and an accountless, two-way peg using its proprietary, pegged asset.

L-BTC as a form of ad-hoc custody works on the same principle as swapping ETH tokens for a “wrapped” or “staked” stand-in token on another blockchain.

Read more: Replacement cycling attacks risk millions in Bitcoin Lightning Network

Of course, L-BTC depends on Blockstream and its 14 other functionaries being trustworthy enough to not disappear with the original BTC or fall victim to a massive exploit.

For its part, Blockstream says the bitcoin is being held in a multi-signature wallet that requires 11 of the 15 functionaries to sign off on a transaction. It also notes that functionaries have never stolen any Liquid users’ BTC since inception.

Despite red flags, Blockstream still promotes Liquid

Naturally, Liquid has its supporters. Blockstream has spent untold millions on its development and continues to issue press releases about new features regularly.

Blockstream investor Brad Mills claimed that Liquid can be part of the solution for scaling Bitcoin. BenTheCarman pointed to flaws in Liquid’s competitor. For example, the Lightning Network recently disclosed a cycling attack vulnerability.

Blockstream seems anything but discouraged, of course. With billions raised to fund projects like Liquid, the firm has ample support. However, Liquid’s lack of any serious adoption, concerning centralization, and a reliance on L-BTC to never de-peg suggests that the resources Blockstream spends on the project will ultimately be wasted.

Update December 19, 16:45 UTC: A previous version of this article mistakenly referred to BenTheCarman as Ben Price.

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The post Blockstream’s pricey Liquid sidechain is flawed and underused appeared first on Protos.

Two weeks ago the infamous “Volcano Bitcoin Bond” finally made its way to the El Salvador legislature for final approval — a legislature completely controlled by Nayib Bukele’s New Ideas Party.

While final rubber-stamping occurs through an economic commission, also made up almost exclusively of New Ideas party members, it’s worth talking about more than just why the Volcano Bitcoin Bond has been widely mocked by financial experts. Specifically, why two companies deeply intertwined in the crypto industry — Bitfinex and Blockstream — are supporting a fascist.

The Bitcoin Volcano Bond

At face value, while naive and not properly incentivized for anyone who understands bonds, the concept of the bond and de-dollarization for El Salvador isn’t necessarily a bad one. After numerous horrendous, violent, and often US-incited civil wars, El Salvador found itself with a currency pegged to the US dollar, and in 2001 finally decided to simply dollarize.

Dollarization, while great for having a stable currency (USD), isn’t in a non-US territory’s best interests because these countries don’t have access to the US Treasury or Federal Reserve banks. In other words, they can’t request more dollars when they run out.

This is a particular problem for a country like El Salvador, which depends heavily on remittances so citizens can earn enough to survive and has always had more imports than exports.

So, in a sense, the Bitcoin Volcano Bond (and making bitcoin legal tender) has been viewed as the first step toward “de-dollarization” — an attempt to wean El Salvador off the US dollar, establish its own currency (perhaps backed by an asset like bitcoin), and reverse the economic conditions that have been prevalent for decades.

Read more: Bitcoin trackers reveal Saylor and El Salvador both rekt

Why the bond doesn’t work

There are much better explanations for why the Bitcoin Volcano Bond is silly, the best I’ve read being Matt Levine’s over at Bloomberg: “Is this a good investment? I don’t know; it depends on whether (1) El Salvador pays you back and (2) bitcoin goes up over the next 10 years. Helpfully there are other investments that depend on the same factors. For instance, you can just buy Bitcoin. Or El Salvador has other international bonds; you can buy them.”

Basically, the main issue with the bond is that its main benefit — that it exposes purchasers to bitcoin — can be wholly substituted by simply purchasing bitcoin. Meanwhile, the alternative bonds that Levine mentioned have been struggling, selling at discounts and getting offered to Chinese investors and the Chinese government as a nice purchase.

Front-facing fascism

On every other scale besides simply economic, Nayib Bukele has, while embracing the title dictator supposedly ironically, pretty much actually gone full fascist.

Indeed, he altered the constitution so he could run for president again, moved the army into the legislature to have bills that he’d proposed passed, and uses the military to target anyone he decides is an enemy of the state.

“It brings back memories of the [violence of] the 70s and 80s,” said Oscar Salguero, a Salvadoran-American software engineer who has decades of experience in finance. “History is repeating again and it’s really sad.” In the past, said Salguero, Salvadorans, “had some human rights, had Miranda rights… but now, with the Bukele regime, all of that went away.“

There is nothing cute or funny about Nayib Bukele being an authoritarian, fascist dictator. Really, it’s bad for almost everyone, especially the people of El Salvador.

So what’s in it for Bitfinex and Blockstream?

Recently, as troops have surrounded the suburb of Soyapango and indiscriminately murdered and arrested many individuals, Bitfinex and Blockstream executives have been taking cute pictures with the dictator-in-chief.

Read more: Nayib Bukele takes Bitcoin to the United Nations General Assembly

Seen front and center with Bukele are Bitfinex and Tether CFO Giancarlo Devasini and Bitfinex and Tether CTO Paolo Ardoino. Also featured on the far left is dictator enjoyer Max Keiser.

Which leaves many people — including those who are crypto industry proponents — scratching their heads and wondering “Why? Why are Bitfinex and Blockstream becoming bosom buddies with a fascist government?” 

The answer might be simpler than it seems.

99 problems but citizenship ain’t one

One of the alterations to the Bitcoin Volcano Bond that hasn’t been called out as a glaring red flag is, through buying enough of the bonds, an individual can acquire El Salvadoran citizenship. 

While El Salvador maintains extradition treaties with countries like the US currently, its move toward allying with China and its rift with the International Monetary Fund (IMF) makes it easy to wonder how tightly extradition policies will be enforced with Bukele at the helm in the future.

“Bukele needs strong allies internationally,” said Salguero, “strongmen have always sought allies in the private sector.”

And it appears that, in exchange for a promise of citizenship and an always welcoming country, the Bitfinex, Blockstream, and Tether teams are happy to oblige the technofascist dream.

“What you see now is the same as in previous regimes,” said Mario Gómez, a Salvadoran software engineer who was forced to flee El Salvador after being arrested for criticizing the bitcoin legal tender law. “It’s called ‘Mano Dura,’ essentially the ‘hard hand on crime.’”

Gómez continued, “It’s kind of natural that Bukele is finding allies on this spectrum of political ideologies. It’s not that surprising to me… that it involves Bitfinex, Tether, and Blockstream.”

Blockstream doesn’t want to be mentioned

Blockstream marketing and communications director Fernando Nikolić reached out to me to ask me to “remove Blockstream from this piece entirely.”

I let him know there is zero chance that will happen.

The bonds that are supporting Nayib Bukele will be hosted on the Liquid Network, a Blockstream platform. Besides this, Samson Mow, who was CSO at Blockstream regularly made appearances in El Salvador, with Nayib.

The levels of separation are minimal and CEO Adam Back along with former CSO Samson Mow admit to how much they’ve helped move the bond forward and have supported Nayib.

Sad state of affairs

The Bitcoin Volcano Bond, which still hasn’t begun trading or been fully approved, is likely to save a regime that’s quickly running short on cash. “Bukele needs it for his image and for the possible liquidity he can get to help the government function,” said Salguero, “and, obviously, for the electoral campaign in 2024.”

“All of these corrupt cryptocurrency companies are eager to go to El Salvador,” he added.

And there’s little room to deny Salguero’s claims. Bukele, who has lost heaps of money on his bitcoin purchases (there’s actually no verification that he bought any at all), parted ways with many NGOs, simply ignores the constitution, and used military force to maintain control of the population, has done everything in his power to openly express that he is a dictator.

Salguero ended the interview tonally defeated. “As a tech guy with knowledge of finance,” he said, “I feel powerless.”

Update 15:03 UTC, Dec 9: Added section “Blockstream doesn’t want to be mentioned” to provide further context.

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The post Opinion: Bitfinex goes full fascist appeared first on Protos.

Bitcoin development giant Blockstream and Jack Dorsey’s fintech venture Block (formerly Square) are breaking ground on an off-grid solar-powered Bitcoin facility in West Texas.

Announcing the project at the Bitcoin 2022 conference in Miami, Blockstream chief exec Adam Back said the $12 million project is intended to be a “proof of concept” for 100% renewable Bitcoin mining.

Back, whose Haschcash anti-spamming system is incorporated into the Bitcoin mining process, said: “This is a step to proving our thesis that Bitcoin mining can fund zero-emission power infrastructure and build economic growth for the future,” (via CNBC, our emphasis).

The unspecified location will draw power from Tesla’s Megapack 12- Megawatt (MW) rechargeable batteries which in turn will store solar power generated by a 3.8MW photovoltaics (solar panel) farm.

“You’re making a sort of calculation of the optimal economic mix between solar and battery,” Back explained.

“There’s 3.8MW of solar and one MW of mining, so you can see you have to over-provision, because the peak solar input varies during the day and, of course, it’s not there at night.”

Read more: [NZ hydro-powered data center will curb crypto mining if locals need energy]

Texas governor could use an off-grid solar Bitcoin mining farm

According to Back, onlookers will be able to see, in real-time, Bitcoin being mined with its solar power by a publicly accessible dashboard detailing the power output and BTC return. The Blockstream head hopes it will encourage more outfits to join their solar efforts.

Indeed, traditional Bitcoin mining places a heavy burden on local infrastructure. Replacing them with off-grid, solar-powered alternatives could be welcome in a state like Texas — it faced a particularly tough time last year due to unexpected strain on its power grid, thanks to an uptick in Bitcoin mining outfits.

Facing re-election last summer, Governor Greg Abbott campaigned on the belief that more mining could inspire energy companies to build more power plants in the state.

“Texas is open for crypto business,” Abbott tweeted in June, after crypto-friendly legislation passed. Only, the influx of mining firms left Texas’ power grid struggling. Residents were urged to curb their energy use — particularly air-conditioning.

After the unexpectedly warm weather waned, Abbott feared similar strains in the winter. The governor reportedly pleaded with local miners to help Texans get through the cold snap by switching off their machines should the grid begin to fail amid high demand. Only two firms reportedly agreed.

That February, a struggling grid left millions without power for days, with hundreds dead.

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Out now: the first four episodes of our ongoing investigative podcast series Innovated: Blockchain City.

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