Blockstream recently announced the launch of Liquid , a product said to make transfers between exchanges faster, easier and safer. It does this by connecting exchanges together to form a "federation" of consensus about transactions. Liquid comes with its own native token called Liquid BTC or "L-BTC". All this sounds interesting except... it has already been done for many years by the Ripple network and currency XRP . Ripple works by establishing manually selected nodes (companies) which "come to consensus" about the state of the ledger, which is exactly what happens with Liquid's "federation". The only difference is Ripple has been working to on-board existing banks, whereas Liquid is on-boarding existing cryptocurrency exchanges. Of course, the lines between banks and exchanges are blurring as banks start accepting cryptocurrency , and large regulated exchanges like Coinbase make headway into traditional finance .

So nothing is new here at all. The one innovation Blockstream appears to claim is the "sidechain peg" aspect of Liquid which somehow allows the conversion of L-BTC to BTC (apparently within exchanges?). However, at the end of the day L-BTC isn't BTC just as XRP isn't BTC, and anyone can already exchange XRP or anything else for BTC. Perhaps there is no fee or major friction to go from L-BTC to BTC, but even that's no big deal since atomic swaps will allow any coins or tokens to do this too (and atomic swaps have been said to be on the roadmap of talented devs like Jonald Fyookball who are known to ship).

Why use BTC?

A Ripple wallet allows users to send XRP to each other. A similar Liquid wallet is said to be on the way, which raises the question why use BTC at all? Anyone who hasn't seen the Youtube movie Money as Debt should take time to watch. In entertaining fashion it explains how a highly efficient item actually used in the marketplace, in this case paper notes, ends up being assigned value on its own, while the valuable thing supposedly backing it up, gold, lay forgotten. The problem happens when someone steals the gold and people realize the paper is worthless. If BTC can't effectively be used for transactions due to high fees, while L-BTC settles much faster (at an estimated 1 minute) and cheaper then users will just transact with L-BTC tokens. One is left wondering why anyone would want to hold BTC, which entails security risk, at all? Unlike gold, BTC isn't desirable for any unique physical properties, as it's nothing more than digital information. What makes Bitcoins valuable is people wanting them because they can be used in trade for valuable goods and services. Holding them without moving them doesn't do anyone any good.

At least when Blockstream champions the Lightning Network it's about actually moving BTC. The problem is the Lightning Network has clear technical limitations, which after years of promises are still not demonstrably solved. Reading Blockstream's announcement pages gives the impression Liquid's use case is intentionally limited to professional users like exchanges or traders, while the Lightning Network is for consumer transactions. However, with no answers yet given for how Lightning is to deliver on its lofty promises one can't help suspecting it's just a red herring, keeping the masses satiated until directly transacting L-BTC via a large consortium becomes the real solution.

The Inferiority of Centralized Crypto Tokens

Ripple doesn't worry about 51% attacks, and transactions settle reliably in far less than 10 minutes. So why doesn't the cryptocurrency community elevate Ripple to the top of CoinMarketCap.com? The reason is to achieve such highly desirable characteristics other valuable things are traded in, in this case decentralization. A private group established, and for all intents and purposes, controls the Ripple network and currency. The currency wasn't mined into existence in an open competition allowing a fair, if not perfect, distribution. For XRP a few people simply decided how many units were to exist and which accounts had them. The distribution into the market was then centrally planned, with obviously high incentives to allot large sums to key players. To help facilitate wider distribution, it seems batches of XRP are offered for sale to prospective new banking partners, and unsold portions go back to the original owner, but are time locked to be inaccessible until a future date for further auction. The end result still gives large holders big stakes in the currency, and the market isn't entirely oblivious to all this. Mined cryptocurrencies like Bitcoin are better decentralized for key aspects like fairer initial distribution.

To be fair it's not yet known (or explained) how L-BTC will come into existence. There is a two-way peg to BTC, but it's unclear if quantities are one to one. It would be possible to match L-BTC with existing BTC, absorbing properties of fair distribution, but this requires a lot of technical work and complexity. It's simpler and far more tempting to simply create a token with some quantity, allow the market to establish a value as it has done for countless other cryptocurrencies and tokens, and allot some advantageous share to key insiders.

A final disadvantage of centralized cryptocurrency schemes is lack of immutability. Ask any "Big Blocker" how hard it was to raise Bitcoin's block size even a tiny bit. They will tell you Bitcoin is exceedingly hard to change, due to its lack of centralized leadership and decision making. This can be beneficial because holders of the underlying currency know key rules, like coin supply, can't change easily from underneath them. This isn't true with highly centralized cryptocurrency setups. An example is DASH. It's widely known some shenanigans at the launch resulted in the founder ending up with a large initial supply of the coin, though supporters downplay the incident. However, in addition the scheduled inflation of the coin was also later changed on a whim.

While a coin structured like Ripple's XRP, which uses distributed consensus in the form of hand-picked nodes, can't easily change rules without agreement, manufacturing consent is not as hard as it should be. All it takes is a majority to favor a change for whatever reason then to gang up on minority dissent and continue along without them if necessary. At the end of the day, the market will follow the agreed upon thought leaders or founders. That's what happened with Ethereum and Etherum Classic, after all, where the unchanged rules version of the blockchain didn't keep the original brand name.

While Blockstream and other Core team members may be applauded for producing reliable infrastructure software, the fact is they steadfastly refused to listen to or work with other technology experts who put forth practical and reasonable protocol design ideas. Accordingly, they should produce alternatives which justify their stubbornness. Their latest offering of Liquid, which hardly does anything the market hasn't already seen, is leaving the cryptocurrency community decidedly underwhelmed.