Hardcore Bitcoiners are understandably skeptical about Blockstream’s Liquid sidechain. But as the Bitcoin ecosystem grows, we’re going to need more services backed by Bitcoin that Bitcoin itself can’t provide. Liquid is a semi-centralized side chain that — crucially — has no unnecessary shitcoin. This blog series will discuss some of the use cases that are now possible through Specter Hardware and Specter Desktop’s integration with Liquid that might interest Bitcoiners the most.
Stablecoin Self-Custody
Bitcoiners get your pitchforks ready: When this bitcoin bull market hits the manic pump phase, some will actually sell a bit of their stack. I know, it’s heretical to say so, but this is reality. If you’re a truly die-hard maxi, skip this post since it’ll be irrelevant for you.
For everyone else: what are you going to do if you sell some bitcoin and end up with, say, 3x your annual salary now sitting in USD on an exchange? Regulated U.S. exchanges have standard FDIC insurance on USD funds (covers up to $250k, same as any U.S. bank account; does not extend to stablecoins). So you maybe have some bank-like protections there. People in other jurisdictions will have to check if their exchanges offer any local fiat protections.
But either way you cannot leave all that fiat there.
I would be scared to transfer it to a bank account. I worry that my bank would flag my account for having such a huge influx of funds and that I’d be locked out until some years-long audit was completed. Is that likely? Legal? I have no clue. But Bitcoin has taught me to be wary of the banking system.
You could somewhat distribute the risk by converting your fiat proceeds to a stablecoin and then sending some to each exchange and Bitcoin neobank you use. It’s all still custodial but at least no single custodian has the power to totally wipe you out.
I’d feel much better if I could just self-custody my USD stablecoins. Cool, I’ll just get my shitcoin-friendly hardware wallet hooked up to Metamask and pay $50 in gas fees to move my ERC20 USDC stablecoin… wait, how did we end up here?! No! This is not the way!
Screenshot: Stuff Bitcoiners don’t want to look at
Okay, forget Ethereum. Say, did you know Tether is primarily on TRON now? OMG. Make it stop.
This is why the Specter DIY and Specter Desktop integration with Liquid is intriguing: Tether is also on the Liquid sidechain. And services like SideSwap.io, Liquiditi.io and Sideshift.ai make it easy to move between BTC, L-BTC (the “pegged-in” form of BTC on Liquid), and USDT.
SideShift.ai – No account required. No KYC. Just one small issue for U.S. users:
SideShift’s weird way of IP restricting U.S. users
On a completely unrelated topic, Mullvad is a great VPN service that even gives a 10% discount for paying with bitcoin. Anyway, where were we?
Once you swap BTC for Liquid USDT, you can custody that USDT in a Liquid sidechain wallet that you manage in Specter. You can secure that wallet with a Specter DIY or a Blockstream Jade hardware device. Or if you don’t have the hardware and just want to play, you can create a “hot” Liquid signing device directly in Specter Desktop (i.e. the keys are live in the software and not secured in a hardware device; obviously not safe for large amounts).
But wait, there’s more! Specter supports multisig Liquid wallets. And, yes, multisig Liquid wallets can hold any Liquid asset. That means your stablecoin self-custody can be just as secure and robust as your main bitcoin multisig cold storage. This is huge. Remember our other options: Trust an exchange, trust your bank, trust Ethereum, trust Tron.
Liquid multisig secured by bitcoin-only hardware wallets
Now, in reality, we’re still early. U.S. users are somewhat barred from entry. These asset swap services have decent liquidity but it is not infinite. We’ll need more adoption by more large exchanges before we’ll see enough liquidity to be able to sell huge bitcoin riches into Liquid stablecoins.
But the potential is there and — most importantly — the tools are already live. It’s worth playing around with some small swaps to Liquid USDT, create a multisig Liquid wallet in Specter (you can use hot signers for this experiment), and take full custody of your stablecoin. Create another Liquid wallet in Specter and move some of your stablecoin, just to see how it all works. Then swap it all back home to bitcoin.
I think that this is the most interesting and most compelling use case for the Liquid sidechain for hardcore Bitcoiners. But as always, don’t trust. Verify. Prove to yourself that there’s a real use case here. The Liquid integration in Specter DIY and Specter Desktop are just a starting point. Use the tools. See what’s possible. Exchanges will build up Liquid stablecoin support and liquidity if they see enough interest. They’ll follow where the community leads them.
How to get started:
- Update to the latest Specter Desktop release v1.7.0
- Run a local Elements “Liquid” node (current chain size: ~17GB).
- Create a hot wallet for Liquid in Specter Desktop.
- Or check out the Liquid supporting hardware wallets: Blockstream Jade or our Specter Hardware Wallet
- You can assemble a Specter HWW yourself with off the shelf-components (see shopping list) or buy pre-assembled kits at Seedsigner’s shop or the DIYnodes shop.
Thank you to our anonymous contributor for this blogpost!
