Due to the increase in transaction fees generated by the activity of Ordinals in the Bitcoin time series, many Bitcoiners have sought workarounds to keep their transaction fees low during these periods. Although Layer 2 Bitcoin options such as the Lightning Network offer lower transaction fees, it may not be practical for Bitcoin users to migrate their entire holdings to Lightning, as many Lightning wallets are wallets, which means that users must rely on a trusted third party. to keep their money. While this precautionary approach may be appropriate for the small amounts users are likely to spend, many bitcoiners will feel uncomfortable not having self-custody of their bitcoins. In addition, achieving self-booking of a large stack on Lightning would require significant technical knowledge and still necessitate dealing with Bitcoin time series. However, the appeal of lower transaction fees has prompted some bitcoiners to explore alternative solutions.
One particular challenge for Bitcoin customers following a dollar-cost-averaging (DCA) stacking strategy is withdrawing small amounts, ranging from $5 to $100 in bitcoin, from exchanges to the time chain. This practice often leads to the accumulation of many unspent transaction outputs (UTXOs), which complicates the management of coin control and potentially leads to higher fees when combining UTXO inputs for larger transactions. Hence, alternative low-fee options have emerged to address this issue.
Liquid Bitcoin (L-BTC) From Blockstream’s liquid side chain And Wrapped Bitcoin (WBTC), an ERC-20 token on the Ethereum network, are two prominent alternatives that aim to enhance liquidity and functionality while theoretically reducing transaction fees. Let’s dive into the differences between L-BTC and WBTC, as well as the pros and cons of each:
Liquid-Bitcoin (L-BTC) on Blockstream’s Liquid Sidechain:
- L-BTC runs on the Liquid side chain, which is a separate blockchain built on top of the Bitcoin network.
- Liquid A Federal consensus The model, in which a group of trusted employees validates transactions on the Liquid network.
- L-BTC facilitates interblockchain transactions with other assets issued on the Liquid side chain, providing Enhanced privacy features and confidential transactions.
- Pros of L-BTC: Faster transaction confirmations due to shorter block times, improved privacy features, compatibility with other assets on the Liquid sidechain, and the ability to leverage Bitcoin liquidity for cross-chain transactions. Network participants can run their own node to Check Proof of Reserves And Linking their Bitcoin to Liquid without the need for a third party member. Liquid does not perform KYC/AML procedures for users to obtain L-BTC.
- Cons of L-BTC: Reliance on a federal consensus model, limited availability of “decentralized” applications compared to Ethereum, and the need to trust employees. In addition, users Requires a third party conjoint member to connect from the fluid to the main chain.
Bitcoin (WBTC) file on Ethereum:
- Started with SaberAnd BitGoand now defunct Republic Protocol (REN)WBTC is an ERC-20 token on the Ethereum blockchain, using the Ethereum smart contract function to lock bitcoins and issue WBTC tokens.
- Includes WBTC Governance multiple entities Which are part of a Decentralized Autonomous Organization (DAO), Traders providing liquidity, One custodian, BitGowho owns bitcoin reserves, and token holders who participate in voting.
- WBTC leverages the extensive Ethereum ecosystem (if that’s what you want), enabling seamless interoperability with Ethereum-based decentralized applications (dApps) and smart contracts.
- Faster transaction transfers and lower fees Compared to the main Bitcoin chain.
- Pros of WBTC: Integration with the Ethereum ecosystem, wide availability of so-called “decentralized” applications, Decentralized governance that includes many stakeholdersand the ability to profit from Bitcoin liquidity within the Ethereum network.
- Cons of WBTC: Slower transaction confirmations and higher fees during network congestion on the Ethereum network, reliance on a single custodian entity to hold bitcoin reserves, and the need to trust a custodian. Unlike L-BTC, WBTC carries less counterparty risk, as its governance is not well defined. You cannot run your own node, and connections and connections depend only on WBTC merchants. Finally, WBTC Merchants are required to implement KYC/AML procedures to verify user identity.
- NB: WBTC has some limited use for those who use it Tron protocol.
Regarding potential failures or risks, it is important to note that both L-BTC and WBTC rely on trusted brokers and custodians for their operations. Failures in custody, governance, or regulatory compliance may lead to risks to users’ funds or to the stability of these systems. Although there are no major failures reported, there are risks and users should exercise caution and do their due diligence when dealing with L-BTC or WBTC.
It should be noted that 11 of the 15 Liquid Union employees would need to collude in bad faith to withdraw users from their linked bitcoins, thus reducing the possibility of acting in bad faith. How the rug is drawn on WBTC isn’t certain, but with only one custodian of locked BTC, the central point of failure is one of WBTC’s major weaknesses. What is clear is that for both L-BTC and WBTC, there are increased risk trade-offs from self-holding.
From a Bitcoin-only perspective, the use of L-BTC or WBTC may have ethical implications, as it can be seen as a deviation from the original vision of Bitcoin as an independent, decentralized network. Bitcoiners can argue that the Bitcoin code undermines the basic principles of the network and leads to additional risks and complications. They emphasize the importance of Bitcoin’s sovereignty, security, and censorship resistance.
However, proponents of L-BTC and WBTC would argue that issuances of bitcoin tokens can enhance liquidity, scalability, and functionality, thus benefiting the overall ecosystem. Both tokens could be alternatives that allow bitcoin users to access the benefits of other blockchain networks — such as faster transaction confirmations, interoperability with dApps, and additional financial tools.
WBTC has an advantage over L-BTC when accessing other cryptocurrency systems and activities. However, Blockstream’s Liquid Network provides a platform where L-BTC can be exchanged for various digital assets, including stablecoins such as USDT (tether) And L-CAD (Canadian Dollar Gift Certificates issued by Bull Bitcoin). This feature allows users to access various digital assets and expand their options for trading, remittances, and other financial activities within the liquid ecosystem.
In addition, according to previous announcements, The Liquid Network will be used to issue El Salvador Bitcoin bonds (Most recently modified to a Volcano mining property rights). This demonstrates the network’s ability to facilitate the issuance and management of tokenized financial instruments, further expanding use cases beyond the simple exchange of assets.
All things considered, L-BTC is an excellent choice over WBTC due to its distinct advantages over transaction fees and faster conversion times. While WBTC is based on the Ethereum (and Tron) network, which is prone to duplication Congestion issues and high feesL-BTC provides faster and more cost-effective transactions. Leveraging the Liquid Network, L-BTC offers lower fees, faster confirmations, and improved scalability, making it a more efficient and practical solution for willing bitcoin holders. With L-BTC, users can enjoy the benefits of the main Bitcoin chain while bypassing the limitations and challenges associated with WBTC on the Ethereum network.
In order to make the most of L-BTC for the purpose of lower fees, it is well suited for short and medium term holding strategies.
A three-step process to take advantage of the benefits of L-BTC
- Withdraw from exchange to L-BTC: There are a number of Exchanges that support L-BTC It allows you to withdraw directly to a wallet that supports L-BTC (green wallet or Aqua). This allows you to bypass additional transfers or transfers, ensuring that you retain your L-BTC benefits throughout the process. An additional feature is the option to store L-BTC in cold storage using a device such as Jade Blockstream.
- Wait for the perfect UTXO class: Keep adding to your L-BTC stack until you have accumulated enough satoshis to create the desired Unspent Transactions Output (UTXO) class. This step helps to improve control over the coins and simplify future transactions.
- Install with SideSwap or similar service: When transaction fees are low, you must link funds to reallocate funds to the main Bitcoin chain. You can take advantage of such a service side changewhich facilitates the conversion of L-BTC into BTC, taking into account Transfer fee is about 0.1%. It is important to consider these fees when planning your transactions to ensure accurate cost calculations.
By following this flow, you can effectively use L-BTC for short and medium term trading, taking advantage of lower fees and faster transaction confirmations. This approach can be particularly beneficial in a perpetually high-fee environment, as L-BTC offers a cost-effective solution compared to on-chain Bitcoin transactions.
Currently, popular Bitcoin exchanges such as Swan, Strike, CoinCorner, Relai, Amber, River, and Bitonic currently do not support L-BTC withdrawals. However, just like many combined Lightning withdrawals, they are likely to respond to L-BTC demand.
For Bitcoin users looking for an alternative to the main chain, L-BTC offers a compelling option compared to WBTC on Ethereum. The advantage of L-BTC is that it uses Bitcoin itself, ensuring closer alignment with the principles and vision of the Bitcoin network. By leveraging L-BTC, users can take advantage of faster confirmations, enhanced privacy features, and compatibility with other assets on the Liquid sidechain. From the perspective of preserving the integrity of Bitcoin’s core principles, L-BTC is a preferred choice for Bitcoin users looking for alternative, lower-fee options while maintaining a direct connection to the Bitcoin network.
