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Can Blockstream’s Liquid ‘Sidechain’ Improve Bitcoin Security?

Blockstream announced on its website on Tuesday (Oct. 13) its first production sidechain, known as Liquid.

In a statement, Blockstream said Liquid will help improve … well … liquidity and capital efficiency through “rapid and secure transfers between accounts” held at either exchanges or brokerages.

The company said it would be launching with Bitfinex, BTCC, Kraken, Unocoin and Xapo, and that discussions are underway with another dozen players in the alternative currency marketplace, ranging from traders to additional exchanges.

Blockstream said that there are delays in the bitcoin market when moving the virtual currency between accounts — an event known officially as Interchange Settlement Lag — tied to technical and liquidity inefficiencies that include both latency and confirmation. As a result, according to the statement, parties on either side of the transaction must have multiple balances and accounts to ensure settlement.

Liquid provides instantaneous fund movement across exchanges, the company said, which helps to minimize spreads. In addition, the Liquid sidechain adds a security layer through “cryptograpically strong” privacy — maintaining the bitcoin staple of not using a third party for transactions.

Just recently, experts have weighed in on the future of both the bitcoin and the blockchain, with findings from Greenwich Associates noting that a majority, or nearly three-quarters, of financial experts surveyed expect blockchain technology to achieve success even if the digital currency does not. Blockchain, those queried said, does not necessarily need bitcoin to impact the virtual market, given that its prime function is to help streamline the speed and accuracy of transactions. According to responses, it is the need for speed that helps determine the blockchain’s value. Blockchain startups already, and for some time, have been attracting the interest of venture capitalists, with Boost VC having put up as much as $52 million in the space over the past few years.

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