1. NOCUST Hub Structure

Nocust is in short for “Non-custodial”. Liquidity Network operates in the non-custodial form. What is the significance of this form of operation? Well, the fund stays with the users and Liquidity Network offers the medium for exchange or swap of the funds. This is contrasting with many centralized solutions as also a few crypto-exchanges which prefer to hold customers' funds. 

The problem with custodian form of operation is the fear of loss of users’ funds. This issue is more so in the crypto-world where a dime a dozen crypto-exchanges spring up only to shut shop within a few months of operation. What happens to customer funds in such cases? You guessed it. While there are many operations which may not have nefarious intentions but they definitely are prone to hacking attack. The stealing of Bitcoins to the tune of 4 billion USD since 2009 is a testimony to that fact; we are not even talking about other coins, and the amount of stealing that has happened. The other risk that exists is that the centralized operators falling under the pressure of governments or regulatory authorities and caving-in to the demands of customer details or funds. This risk has been witnessed across centralized exchanges covering real-world financial transactions over the last many decades.  

Having learned from the mistakes and risks of custodian form of working, Liquidity Network offers the non-custodian operation. The users can rest assured that their funds are safe with them, can be accessed by private keys known only to the users, and can use the Liquidity Network to transact securely.

A user can withdraw his funds at any point, and the hub owner or the network cannot stop the user in any manner. This feature, therefore, should instill confidence in users to use Liquidity Network. 

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2. REVIVE

We mentioned earlier that Liquidity Network is an assimilation of Hubs which can interact with each other for fund transfer and payments. This means that there needs to be a robust algorithm that over-looks such transactions and rebalances payment channels. Revive is such an algorithm and hence forms an integral part of the Liquidity Network. Rebalance of payment channels off-chain is enabled by Revive.

Much like the transactions themselves, the rebalancing too is completed off-chain, and therefore, is free from the issues of blockchain congestion and enormous on-chain costs.  

Liquidity Network offers two types of transaction settlement:

1. 2 Party Payment Channels 
2. N Party Payment Hubs  

1. Two Party Payment Channels 

As the name indicates, these are transactions that happen between two parties. This particular mode of settlement can be further classified as follows: 

A> Unidirectional 

This is a type of transaction between two parties where only one deposits assets. The payment flow, therefore, is in one direction only. Hence the name. This could be a mode of payment if it is a transaction where one user sells something to another user and expects payment in cryptocurrency. For example, User 1 sells books to User 2. The books are received by User 2 in the physical world, and he then logs on to the Liquidity Network to settle the payment to User 1 in Ether. Hence, the payment is unidirectional, since one part of the transaction happens outside the blockchain. 

B> Bi-directional 

Having understood unidirectional payment it is easy to guess that bi-directional channel is where both parties transact. The assets can travel in both transactions. The risk though is that, since this a trustless transaction between two unknown parties, there is a possibility of a bad actor canceling his or her transaction. As such, the other party does not get paid its due. 

C> Linked Payments 

This is a form of payment where the parties involved in a transaction are not directly connected. As such to enable the off-chain transaction, the network needs to find connections to connect one party with the other. Needless to say, such a transaction will involve the network to find the best route of connection, balancing network congestion, channel maintenance and ensuring transaction security. 

D> Two Party Payment Hubs 

This mode is an evolved one over the previous ones. Here instead of two individuals, two hubs are participating in a transaction. It could mean that there are more than two individuals involved in the transaction or transfer of assets (funds).  

2. N Party Payment Hubs 

Under two-party payments, we saw the working of linked payments. Well, N-Party payment is an evolution of that but on a larger scale between many users. This, therefore, brings in the scale of rebalancing, and therefore, makes it far less computational as compared to linked payments. The N Party Payments are faster as compared to linked payments. They are also cheaper and allows more participation among network users.  

So, these are the different modes of transactions and ways of rebalancing them through the Revive algorithm on the Liquidity Network. Disputes are the only aspects which are handled on-chain whereas every other transaction and rebalancing is off-chain making the solution cost effective and faster.

Liquidity Network Architecture 

Hubs form the basis of the Liquidity Network Architecture. The design of the network and exchange attempts to bring to life the concept of universal hubs. The hubs allow users to join them for interaction and transaction with any other user on the hub. This kind of architecture allows the opening of funds allocated by two users. In a normal interaction, the funds would be locked between the two users only. In Liquidity Network the allocated funds are available across all hub participants. The funds, however, cannot be stolen since the private keys are available only with the users and not with the network.

The transactions are not only allowed between any of the users of the same hub but also between interconnected hubs, therefore, making it possible for transactions between millions of users who could be on different hubs. The off-chain payments make it faster and cheaper too!

Much like any modern day solution, Liquidity is available, both, in the web version and mobile version. With more and more users likely to migrate to mobile applications, it is quite smart on Liquid Network’s part to be mobile ready. So, expect Liquidity tokens, LQD, to be stored in both mobile and web wallets.

Features and Benefits of Liquidity Network Ecosystem

We already saw few of the benefits of the Liquidity Network, let’s see few more. 

Since the Liquidity Network ensures most payments off-chain, there is a negligible cost associated with the transactions. This means that even small and micro-payments can happen on the network. In an on-chain payment scenario, the on-chain cost itself would have been prohibitive to allow small transactions. But because Liquidity does it off-chain, small payments are possible. Besides, the payments are instantaneous and do not suffer from the lag of the on-chain transactions. Being a blockchain solution, the benefits include transparency and security. The most important point is the fact that Liquidity Network is a non-custodian operation which augurs well for user confidence in the system.  

Following is the summary of the benefits of the Liquidity Network Ecosystem:

The Network comes with few features which are firsts in the blockchain space. It is a combination of ease of use and speed of use. The features are enumerated below: 

 

What are the benefits of maintaining control of your private keys while the computing is handled by an efficient centralized server? 

Liquidity Network and Liquidity Exchange smartly combine the benefits of both decentralized and centralized operation to draw up an effective Network. To understand this, as an example, let’s look at the pros and cons of a centralized and decentralized exchange. 

From the points mentioned above, it is easy to see that the Liquidity Network brings together the speed of the centralized operation and the robustness, security, and transparency of the decentralized operation.  

But Liquidity does not stop at that. They further enhance both security and speed. The security enhancement is improved by allowing the users to hold their funds and the private key to the funds. This move de-risks the users from the exchange holding funds. The users hold the funds and at their discretion can move or remove the funds. Also, the speed aspect when it comes to the blockchain is enhanced by ensuring most of the transactions happen off-chain. Only dispute resolution happens on-chain, else everything happens off-chain. In doing so, Liquidity Network improves on almost all similar solutions available in the market right now.

A small comparative would do justice in explaining the above-highlighted points. Following is the comparison:

 

How does Liquidity's ability to scale and support millions of users make it better than current solutions? 

Liquidity brings about the unique blend of decentralization of operations to ensure a trustless and permissionless network, yet centralized servers for enabling a faster transaction. Also, by using off-chain settlement, Liquidity makes the entire operation faster, free of blockchain congestion and cheaper for the user. All these points put together, in addition to the aspects of security and fund accessibility makes Liquidity a robust solution. 

Liquidity Network transcends the best in operation of both the centralized and the decentralized world, and in doing so, forms an effective solution beating both. 

Take a look at the comparison below:

 

How is Liquidity Network suited to allow true decentralization and efficient transfer of funds? 

Liquidity Network, primarily, being a blockchain solution, allows the spirit of decentralization to flow through their solution. Decentralization is not only achieved for operation but also in keeping the user accounts away from centralization. This is different from the solutions of the recent past, which claimed to use the blockchain platform but continued to hold user details, information or assets in some form. So, true decentralization not only for security but also for user trust is achieved.  

Transfer of funds through off-chain modes, though, not the first in the market, is one interesting feature. The use of hub architecture is definitely a first for payment settlement. This allows unlocking of allocated funds for all participants of a particular hub. This is not possible for a solution like Lightning which would have to open incredibly humongous amounts of payment channels. So, while taking some beneficial aspects from solutions currently in the market, Liquidity improves way behind the available solutions. 

To corroborate the points that we have discussed so far, let’s compare Liquidity with other off-chain solutions:

Now, all the attributes mentioned in the above table are essential parameters for an effective off-chain solution, yet, it is only Liquidity which scores high on each. Many of the parameters are not even available on few of the popular off-chain solutions. 

These points highlight why Liquidity is perfectly placed to bring about true decentralization yet effective transfer of funds.

Use Cases 

Case 1: Garment Manufacturer

Amberin is a garment manufacturer who supplies to a couple of elite brands in the U.S. Both the brands are the best in the world, and they do have some discerning customers. However, Amberin has faced some issues over the past few months. Both brands have multiple outlets across the United States, and both have varying demands per month. Amberin is finding it difficult to manage the production schedule to support these outlets. Past demand history outlet-wise is not a correct indicator of future demand. So, she is lost to find a good solution. Amberin had mulled IoT as a solution over the blockchain which one of her IT experts had suggested. But the lag and latency of the current blockchains, including Ethereum, makes the solution redundant. It would be faster for Amberin to get an excel sheet (Microsoft) filled orders than to be dependent on blockchain enabled IoT. Amberin is dejected. 

As luck may have it, Amberin’s in-house IT expert comes to hear about Liquidity Network. Having understood the solution and how off-chain transactions speed up the operation, he is confident that Liquidity Network would be able to support IoT enabled order management over the blockchain. Amberin goes ahead and has it implemented across the two brands’ outlets across the US. Now, Amberin gets to know from the Point of Sales (PoS) system how many dresses have been sold at each outlet, and therefore, how much she should manufacture. The information is available day-to-day on a real-time basis. There couldn’t have been a better solution and the fact that the IoT off-chain transactions are of zero cost, the overall cost of the solution also comes down. Amberin is elated, and so are her two customers. They ask her to support a few more costume lines, and that more than doubles her business in just one-year. 

The best part is her IT expert gets promoted with a hefty hike for suggesting Liquidity Network!!

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Case 2: Micro Financing 

Bank XYZ was set up by the government to support low-income families in the interior parts of the country. While the bank was set up with partial funding from the government, it never really could make profits. The operational cost of the bank per customer was high. A think tank was set up to figure out ways to make the bank operationally viable and reach the low-income group. Blockchain came as one of the solutions. However, the blockchain transaction fees were high, and in many cases, were many times more than the micro-payment that the bank intended to do. If the bank cannot work out a solution, the government would be forced to shut operations. 

The Bank hears about Liquidity Network and immediately tries it out. They are fascinated by the speed at which the network operates. The real icing on the cake is the realization that the transaction costs are near to zero. This means that the bank can transact micro-payments and yet be profitable in doing so. The solution is implemented. While the lesser transaction cost was always welcome, some unexpected benefits like faster transactions, secure account opening for users was also available. The bank turned profitable within two quarters since implementation.  

The government took note of the effort and funded them further to open more branches across the country. All thanks to Liquidity Network! 

Liquidity Network Token – LQD 

The Liquidity Network tokens are not required for the basic functions of the network. That is, a user need not interact with LQD tokens for exchanging of assets. This allows users to access the system easily and complete their exchange and move on. Of course, the benefit of the transaction speed is available to all users. Users need the LQD tokens only in case of services over and above the base exchanges. For example, services like channel monitoring or service level agreement with the Hub owner for certain speed of transactions, etc. would require the LQD tokens.  

In other words, the network allows the user to choose whether they want the basic functionalities or advanced ones, and basis that decision, they can choose to interact with LQD tokens.

Liquidity Network Roadmap 

The Liquidity team has gone well beyond the laid out plan, and that should instill confidence in the users to try them out. Their plans till 2018 is shown. 

 

Liquidity Network solution is Open to other Blockchains

 

VC Participation in Liquidity Networks’ Initiative 

Liquidity Network forms a robust proposition which has attracted interest from few of the well-known venture capitalists.  

Liquidity Network speaks about them in brief.

 

Now, the team behind Liquidity Network

 

Summary 

Liquidity Network arrives as an effective solution at a time when the blockchain world was stagnating. The solution looks robust enough to instill confidence in institutional users and individuals alike. Liquidity brings to life terms which are not easily associated with blockchain; terms like cheaper transaction costs, faster operation, and secure decentralized operation are enough to lure the real-world CIOs to take note. 

Liquidity stands at the cusp of encouraging real-world operators to look at a robust yet fast solution from the blockchain world!

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Here’s my Twitter Link: 

https://twitter.com/DawsonSavio/status/1083135078480465920

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It is also recommended that readers understand more about Liquidity Network through any of the following informative resources. 

• Liquidity Network Website
• Liquidity Network Wallet
• Liquidity Network WhitePaper
• Liquidity Network NOCUST Paper
• Liquidity Network REVIVE Paper
• Liquidity Network Apple App Store (IOS)
• Liquidity Network Google Play Store (Android)
• Liquidity Network Telegram Group
• Liquidity Network Telegram Announcement
• Liquidity Network Twitter
• Liquidity Network Github
• Liquidity Network Blog

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This article is written in response to originalworks’ call on authors’ thoughts on Liquidity Network. It can be read here. 

Image Courtesy: Liquidity Network Resources   

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