Blockstream announced that it will launch its first Sidechain, called Liquid, with Bitcoin exchanges Bitfinex, BTCC, Kraken, Unocoin, and Xapo. Liquid will allow the exchanges to transfer funds amongst each other quickly, with Bitcoin as the ultimate counterparty if a transaction is disputed.
In Liquid, participating exchanges will put funds into a shared multi-signature wallet with a Byzantine round robin consensus protocol used to process transactions. The partner exchanges will pay a monthly subscription fee to Blockstream for the service.
Liquid will run as a parallel blockchain to the Bitcoin Blockchain, where certain rules are hard coded into the chain. Bitcoin can be sent into the Liquid sidechain, transacted around, and taken out of the sidechain back into Bitcoin.
Blocksteam first announced the Sidechains concept a year ago after raising $21m in VC funding. While there has been some community skepticism over the viability of Sidechains, Blockstream has also been working on a similar innovation called the Lightning Networking. Lightning may allow decentralized and instant payments through a protocol built on the Bitcoin Blockchain. Where Sidechains needs to utilize a separate blockchain in order to function, the Lighting Network doesn't.
With 5 exchanges trying out the technology, it will be interested to see if Liquid, and sidechains, will be a useful solution for efficient value routing built on Bitcoin.