Introduction
In the new world of decentralization, the blockchain technology is best seen like the "800-pound gorilla in the room" and this is not totally untrue if we look at how far it had come in a short space of time and yet many are unwilling to participate due to the obvious loopholes present in the system, a decade after it was launched. Although, the technology succesfully solved the problem of double-spending in traditional payment system, it is not close in terms of overall performance in competing with this legacy payment system apart from the fact that it is more secure and decentralized.
Most existing systems can be classified into two major groups; centralised or decentralised, each has its own pros and cons and therefore it seems every available framework or solution is built with a huge compromise in mind; security and ownership is compromised for centralised systems while speed and availability is compromised for decentralized networks.
In short, Lightning Networks, Raiden to name a few are some of the recent solutions to have made some improvements to blockchain payment networks via the introduction of Payment Channels. And they have come at length to solve some of the speed-related issues of the blockchain, however, the implementation has brought up new issues of network cost and routing complexity which without fail deserve full attention if the performance of the blockchain is to be improved upon considerably and made ready for mass adoption by businesses, enterprise and institutional investors.
Thus far, the inability of existing payment and exchange options to refund a payment channel without performing the transaction on-chain is one of the major reasons why their solutions have not proved quite efficient and effective enough to drive wide blockchain and cryptocurrency adoption.
Therefore, in this article we shall look at an interesting project, Liquidity Network that is looking to change the course of history for this "800-pound gorilla" technology called blockchain!
Liquidity Network in the Spotlight
In simple terms, Liquidity Network best represent an exchange and payment protocol built on the Ethereum blockchain.
Liquidity Network addresses the issue of costs and complex routing associated with existing 2nd-Layer Payment solutions (e.g Raiden Network); improving the overall scalability of the underlying blockchain infrastructure and maintaining a decentralized environment to ensure user's security and control of own asset.
How Liquidity Network Solves Payment and Exchange related issues
Inorder to fully understand their approach, lets run quickly through the internal workings of existing 2nd-Layer payment options like the Lightning Network on Bitcoin blockchain or Raiden on Ethereum blockchain
How 2nd-Layer Payment Network works?
These networks allows the payment channels to be hosted on top of a blockchain. Inorder to establish a peer-to-peer payment channel, a two-party payment channel is created when both parties create a 2-out-of-2 multi signature transaction on the blockchain, with at least one party committing funds to the 2-of-2 ledger entry. Each party has a private key which can be use to make instanteneous transactions from the allocated channel funds but ONLY if both signs via their key. Consequently transactions are done at a lower cost and counterparty risk is avoided via the introduction of smart contracts
Note : Incase of dispute
Payment channel guarantees that the participants can only spend their rightful amounts and that the payment channel state can be written to the global blockchain ledger at any time
However, once the payment channel gets depleted, it has to be closed and refunded requiring atleast two expensive on-chain transaction in a process called Rebalancing. This means that new payment channel have to be created every time a party wants to make payment to another channel off-chain
Liquidity Network improvement to existing payment solutions
In the existing payment solutions, the issues of costs arise when a payment channel resources gets depleted, therefore Liquidity Network via their Revive Protocol will allow this channels to be funded via off-chain settlements without the need for on-chain transaction while the protocol runs on No-Cust hub architecture ensuring all party maintains a Non-Custodial wallet functionalities.
Offchain settlements Characteristics
Off-chain transactions can be separated into two main categories. The 2-party transactions are between 2 users, while N-party transactions are between more than 2 users:
- 2 party payment channels
- N-party payment hubs
The following are different types of 2-party channels:- Unidirectional
A unidirectional channel is between two parties; one of which deposits collateral of some sort (e.g. ether). The deposit is a security that encapsulates the maximum amount that will travel through the off-chain channel. Funds can only travel in one direction in a unilateral channel.- Bi-directional
A bidirectional channel is one between two parties that both deposit collateral. This channel allows funds to be sent in both directions. The risk with bidirectional off-chain transactions is that an illicit node on that channel (one of the two parties) can invalidate the previous transaction and steal fund from other party.- Linked payments
Linked payment channels are used in the case where two peers are not directly connected. Every member deposits some collateral in this network. With linked payments topography, the following considerations are taken into account: route finding, channel maintenance, transaction security, and congestion balancing.- 2-party payment Hubs
A 2-party payment hub is an extension of the above types, which includes more than just two people participating in a direct transfer of funds.
N-Party Payment Hubs
N-party payment hubs remove much of the computational work that 2-party hubs require as pertains to rebalancing collateral. This makes transfers cheaper, faster, and allows more users to participate in the hubs. Liquidity Network Hub offers free offchain channel registration. Comparing to 2-party payment channels which requires complicated routing topology, Liquidity Network Hub offers simple routing
N-party payment hubs lower the barrier of entry that are necessary to join a hub, thereby creating more liquidity!
Source : @originalworks
Further more, the effect of these concepts on the overall Liquidity Network payment and exchange capabilities is summarised in this chart below
However, we shall examine how this solutions will impact blockchain mass adoption in the subsequent header.
How Liquidity Network improves blockchain-related issues
The introduction of the No-Cust hub Architecture and Revive Protocol will have great impact on the performance of the underlying blockchain in the following ways
- Better Transaction Per Seconds(TPS)
TPS is the unit of measurement to determine the speed of the transaction and present blockchain lags behind in this area as the chart above reveals when compared with other conventional payment options. However, since payment channels allows transactions to be made without the need of first computing on the blockchain, it makes the whole transaction process fast and efficient. While the Payment networks created from the interactions of this channels improves the scalability of the whole network.
- Reduced Transaction Cost
One of the loophole of the present payment solution is the extra cost required when refunding a channel. Liquidity Network removes the need for that since payment channels can be rebalanced off-chain once depleted via the revive mechanism which ensures the network remains redundant. By employing previously used channels, depleted channels can be refunded via linked-payment in an off-chain mode, in a process similar to IP routing. Hence, micropayments are a prominent feature of transaction on the Liquidity protocol.
- Highly Scalable For different users
Liquidity Network is driving blockchain scaling solution via the introduction of these new concepts as they relieves the workload on the blockchain, reduces network congestion and renders the transaction process fast and adaptable for different use cases as summarised in the chart below
Liquidity Network Architecture in a Nutshell
Built on the Ethereum blockchain, Liquidity Network thrives on the concept of universal hub to drive transaction between each parties instantly, at a lower cost in an off-chain fashion. Although funds is locked between only two users, it is accessible to thousands of other users on the same hub.
Fun Facts
The speed of the network/hub is dependent on the bandwidth andThe funds are secured by the blockchainHubs offer free channel registrationFunds are only transferred between users and never held on a serverSmart contract ensures counterparty risk is avoidedAnyone can run their own hub serverUsers can remove their funds from the hub's smart contract which the hub operator cannot prevent
Features of Liquidity Network Architecture
Introducing Liquidity Network Exchange
Having seen that Liquidity Network has the potential to host many applications,one of the child elements which has invariably affected the efficiency of the blockchain, Exchanges is easily implemented. Ensuring that a decentralised exchange can maintain its good characteristics while inheriting those of the centralised exchanges( which are very common). Apart from this, some of its relevant features includes
Low setup cost
Low maintenance cost
Operation does not depend on blockchain functionality
Ability to handle multiple users per hub
Highlighting the full features and benefits of Liquidity Network
Final Thoughts
Blockchain technology alone is not sufficient to drive business on to new heights due to its inherent limitations. Just like the internet which required the advent of social media before businesses start realising the potential; the blockchain also needs new concepts to ensire businesses thrive on the network.Liquidity Network offers practical solution to the numerous issues confronting blockchain adoption as an instrument for payment and exchange to drive mass adoption.
Use Case
Salary disbursement
Liquidity Network could serve this use conveniently because it maintains users privacy within the network. Therefore, Salary could be disbursed to different grade of workers at once, the differences in salary structure does not matter. All that is required to make it carry out the proper execution is a smart contract. Which removes the need for manual error or manipulation.
In otherwords the process is automated.
Synopsis
Vs Other Exchanges
Vs Other Off-chain solutions
Vs Other Payment solutions
- Liquidity Network Application Prototype
Mobile
Desktop
Roadmap
Meet the team
Watch this video
Useful Resources
- Liquidity Website
- Liquidity Whitepaper
- Liquidity Nocust Paper
- Liquidity Revive Paper
- Telegram
- Github
This article is submitted for 
lqd2019