Liquid Confidential Transactions
TL;DR
Confidential Transactions (CT) on the Liquid Network hide the amount and type of asset being transferred from everyone except the sender and receiver, enhancing financial privacy.
🕵️ What is Blinded?
Unlike Bitcoin, where the ledger is fully transparent, Liquid uses Confidential Transactions to hide:
- Transaction Amounts: The number of SATs or assets sent.
- Asset Types: Whether you are sending L-BTC, USDt, or a custom token.
🔑 How It Works: Blinding Keys
Each Liquid address has two parts:
- Spend Key: Used to authorize the movement of funds.
- Blinding Key: Used to encrypt/decrypt the transaction details on the ledger.
When you send a payment, the SDK generates a shared secret with the receiver. Only the participants with the correct blinding keys can “unblind” the transaction to see the amount.
🛡️ Privacy vs. Auditability
- The Federation: Validates that no new coins are created out of thin air using “Range Proofs” (cryptographic math), but they never see the actual numbers.
- Observers: Can see that a transaction occurred between two addresses, but they see the amount as “Confidential.”
- Recipients: The Breeze SDK automatically handles the unblinding process using the wallet’s master blinding key, so the user sees their balance normally.
📊 Comparison: Bitcoin vs. Liquid
| Feature | Bitcoin (Base Layer) | Liquid (Sidechain) |
|---|---|---|
| Visibility | Public & Transparent | Blinded & Confidential |
| Amounts | Exposed to all | Hidden via Range Proofs |
| Assets | Native BTC only | Multi-asset (all blinded) |
| Linkability | High (Chain Analysis) | Low (Blinded metadata) |
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