Bitcoin L2 Solution Liquid Network, Made By Blockstream, Adds A Lot Of Features To Bitcoin But Also Suffers From Severe Centralization

Layer 2 solution continue to be a hot topic in the world of cryptocurrencies, Bitcoin like others also has some Layer 2 solutions and Liquid Network is a major one launched by Blockstream.

Liquid Network is an independent ledger from Bitcoin and works on its own, but like all the layer 2 solutions they settle their transactions on Bitcoin's main chain for maximum security. Liquid provides fast, secure and confidential transactions on Bitcoin.

Although Liquid has the ability to provide extended programmability to Bitcoin, this is something that other solutions also provide. What differentiates Liquid from others is the ability to add anonimity to its transactions, adding a layer of privacy and security to Bitcoin transactions.

The major problem with Liquid is that a selective number of members called the Liquid Federation are the ones who create and validate the new blocks on the blockchain. The members of this federation are exchanges, crypto organizations, trading desks and some developers. In total, they are 60 members, who control the Liquid side-chain, making it very centralized and extremely dependent of centralized units.

Liquid network has a very simple way of operating, users can lock their BTC and receive L-BTC, the inverse is also valid. The main factor of Liquid Network being a good solution is its privacy, Liquid allows for private transactions to be done and be hidden from third parties.

The problem with this privacy solution is that the federation will have access to this private information, meaning that it's not fully private, users have to trust the federation to not leak their personal information.

It's not only the information that has to be trusted to the federation, with every block being validated by the federation, trust has to be given in every transaction made, as the federation will always have the choice to not validate a transaction that they do not approve.

Having a central entity operating a blockchain doesn't seem like a good idea and might lead to abuse of power by these enetities. Although Bitcoin was launched with a premise of being decentralized, immutable and trustless, this layer 2 solution seems to do everything that's opposite to that.

Bringing more privacy to Bitcoin seems like an excellent idea, but the execution here seems to be failing in a epic way and it seems that Blockstream wants to try to take some control of Bitcoin transactions made on their layer 2 solution. That's not how Bitcoin is supposed to work.