Liquid overview

Liquid is a Bitcoin sidechain operated by a federation of functionaries. It provides faster settlement, confidential transactions, and native asset issuance. Together, these are the properties that make AMP2 possible.

Sidechain basics

Liquid is connected to Bitcoin through a two way peg. Bitcoin is locked on the main chain and an equivalent amount of LBTC is minted on Liquid. LBTC functions as the native currency for paying transaction fees and can be pegged back out to Bitcoin.

Liquid runs its own block production with a target of ~1 minute per block, compared to Bitcoin's ~10 minutes. Blocks are produced by a federation of geographically distributed functionaries that collectively sign each block. This federated consensus model trades Bitcoin's fully decentralized mining for faster, more predictable finality.

Confidential Transactions

All Liquid transactions use Confidential Transactions (CT) by default. CT hides the transaction amounts and asset types from everyone except the transaction participants. Only the sender, receiver, and anyone holding the blinding key can see what was transferred and how much.

For AMP2 integrations, this means:

• Asset balances are not publicly visible on the blockchain.
• Third parties cannot determine which asset type a transaction carries.
• Issuers maintain visibility through their wallet descriptors and blinding keys.

Issued Assets

Liquid supports native asset issuance: any participant can create a new asset type on the network. Each issued asset has:

• Asset ID: a 64 character hex string derived from the issuance transaction. This is the canonical identifier used throughout AMP2.
• Reissuance token: an optional secondary output created during issuance that grants the holder the ability to mint additional supply later.
• Contract metadata: on chain data embedded in the issuance transaction: name, ticker, domain, precision, version, and issuer_pubkey.
• Precision: determines how the smallest unit (satoshi) maps to display units. A precision of 8 means 100,000,000 satoshis = 1 display unit (like Bitcoin). A precision of 2 means 100 satoshis = 1 display unit (like cents to dollars).

Assets can be registered in the Liquid Asset Registry for ecosystem wide visibility, including icons and verified domain ownership.

UTXO model

Like Bitcoin, Liquid uses an unspent transaction output (UTXO) model. Every asset balance is composed of discrete outputs from previous transactions. When AMP2 constructs a transaction (issue, send, reissue, burn), it selects UTXOs as inputs and creates new UTXOs as outputs.

This matters for AMP2 integrations because:

• The PSET (Partially Signed Elements Transaction) format represents these UTXO based transactions before they are fully signed.
• UTXO locking in AMP2 lets issuers freeze specific outputs, preventing them from being spent.
• Wallet balances are the sum of all unspent outputs owned by a wallet descriptor.

Network environments

AMP2 connects to the appropriate Liquid network through its configured Elements node. Testnet and mainnet use different xpub derivation paths and different AMP2 server URLs.

Why this matters for AMP2

Every AMP2 operation (issue, send, reissue, burn) ultimately produces a Liquid transaction. Understanding Liquid's confidential, UTXO based asset model helps you reason about:

• Why transactions return PSETs that need signing
• Why wallet descriptors (not addresses) are the registration unit
• Why LBTC is needed in every wallet for fee payment
• Why restriction enforcement happens at PSET signing time, not at the network level

References

• Liquid Technical Overview
• Liquid Asset Registry
• Confidential Transactions