How to use Bitcoin’s sidechain: peg-in, peg-out, and swaps.
The Liquid Network is a Bitcoin sidechain that enables faster, more confidential transactions and the ability to issue tokenized assets. While it offers advantages in transaction speed and privacy, it sacrifices the decentralized nature of Bitcoin’s network. Liquid is a federated network, meaning it is managed by over 70 different entities, including exchanges, wallets, companies developing on the Lightning Network, and other participants.
When moving bitcoin to Liquid, it is converted to L-BTC (Liquid Bitcoin) at a 1:1 ratio.
Required tools
To operate on the Liquid Network, you need wallets that support L-BTC and other Liquid assets. This guide uses:
- Blockstream Green: a multi-platform wallet with native Liquid support
- SideSwap: a user-friendly app for Liquid operations
- Boltz: a non-custodial exchange service for swaps
The first step is to create a Liquid wallet on Blockstream Green, followed by one on SideSwap.
Creating a Liquid wallet on Blockstream Green
To create a Liquid wallet on Blockstream Green, start by creating a Bitcoin on-chain wallet:
- Open Blockstream Green and create a single-sig Bitcoin wallet by clicking New Wallet.
- Save your seed phrase offline and confirm it.
- After creating the Bitcoin wallet, add a Liquid account:
- Click the three dots in the top-right corner and select Add New Account.
- Click Assets and choose Liquid Bitcoin.
- Select Standard to create a single-sig Liquid account.
Creating a Liquid Wallet on SideSwap
To create a Liquid wallet on SideSwap:
- Select Create New Wallet.
- Save your seed phrase offline.
- Confirm you’ve saved the seed phrase by clicking Confirm.
Performing a peg-in to Liquid
A peg-in transfers Bitcoin from the main blockchain to Liquid Network. To do this:
- Navigate to the Peg-in/Peg-out section (bottom-right icon).
- Click Peg-in.
- Use the generated address to send on-chain bitcoin from an external wallet.
- Wait for transaction confirmation (small amounts require 2 confirmations, while larger amounts may need up to 102 confirmations, ~17 hours).
The cost for a peg-in/peg-out on SideSwap is 0.1%.
To check your wallet balance and confirm L-BTC receipt:
- Click the Assets section.
- Look for the L-BTC asset.
Once the peg-in is confirmed, you can send L-BTC to another wallet.
Performing a peg-out from Liquid
A peg-out converts L-BTC back to bitcoin on the main blockchain:
- Select the Peg-in/Peg-out option.
- Choose Peg-out.
- Enter the L-BTC amount and the on-chain Bitcoin address for receiving funds.
- Set fees and confirm the transaction.
How to perform a swap
Unlike peg-ins, which lock on-chain bitcoin to mint L-BTC, swaps exchange existing on-chain bitcoin for L-BTC. Swaps are faster than traditional peg-ins because they use existing liquidity on Liquid, eliminating the need to wait for network confirmations.
Through Boltz, you can swap bitcoin across four networks:
- Bitcoin on-chain
- Lightning Network
- Liquid Network
- Rootstock
Boltz fees:
- 0.5% for LN to Bitcoin swaps
- 0.25% for LN to Liquid and LN to Rootstock swaps
- 0.1% for all other swap types
