Liquid Network is in the news today after it announced its protocol upgrade, Dynamic Federations (DynaFed) for 04 October.
Both the Liquid Network and the Lightning Network are the two leading Layer 2 protocols on Bitcoin. While they both aim to improve Bitcoin’s scalability for faster payments, there is a line of distinction between the two.
Liquid is a sidechain-based settlement network for traders and exchanges. It claims that Bitcoin transfers on Liquid are fully settled within two minutes, enabling faster and confidential transactions on the network.
According to the network, DynaFed will be the most extensive upgrade to the Liquid sidechain to date. It is expected to improve decentralization, security, and network flexibility.
While the Bitcoin mainchain uses a proof-of-work algorithm for verifying blocks, the Liquid sidechain makes use of functionaries. The upgrade is set to bring a major change by allowing the addition and removal of these functionaries without affecting network operations.
Like validators, functionaries propose and sign the blocks to be added to the chain. However, they are currently limited to 15 on the Liquid Network. As they are specialized physical devices that operate and secure the network, hikes in functionaries will promote decentralization.
According to the aforementioned announcement, users running a Liquid node will need to upgrade to Elements v0.18.1.11 or newer versions. Additionally, developers parsing the blocks will also need to update their code. On the other hand, users accessing Liquid from Blockstream Green, AQUA, SideSwap, Marina, or CoinOS will not be impacted.
Another upgrade to look forward to on Bitcoin is Taproot, which will be developed in part by Blockstream’s research team.
The Taproot soft fork is due to launch in November on the Bitcoin network. It will be the most significant upgrade since SegWit. It intends to improve scripting capabilities and privacy on the Bitcoin Network.