Meet Liquidity Network : A Non-Custodial, Financial Intermediary offering Payment and Exchange Services

in #contest5 years ago (edited)

Introduction

Since the introduction of the permissionless blockchain technology in 2009; built to solve the issue of double-spending associated with the traditional payment system, it has sprung up a new culture of decentralization such that users are guaranteed control and security of their funds and resources. So far so good, within this short period since being introduced, the Satoshi dream has lived up to the high expectations of a user-controlled, decentralized, trustless and highly secure network for its participants.

However, many businesses and institutional investors are still yet to join the revolution due to some few challenges which still persist in the present blockchain offerings ( such as exchanges), together with the inherent challenges that exist in all generic blockchain such as Bitcoin, Ethereum. So before I proceed, I will like to arm you with those challenges that needs to be addressed by new technologies (such as liquidity network) if blockchain is to gain mainstream adoption. Some of the major issues are enumerated below:

[1] Performance

An inherent feature of the blockchain due to multiple node verification protocol employed by the technology. Therefore one can conclude that the low transaction throughput(measured in TPS) is a trade-off between performance and security. Typically, a decentralized system is more secure but slow while a centralized system is less secure but faster. The figure above compares how the different available means of payment compares graduated in Transactiions Per Second(TPS). Due to these obvious loophole in the present system, it is impertinent that new technologies leverage the good features of both system to create an adaptable system for all users. Liquidity network has the potential to address some of the underlying issues as we shall review in the subsequent paragraphs.

[2] Scalability

In order to escape the low latency associated with transactions on the blockchain, a new concept of private channels was introduced; which as the name implies, serves as a secure private channel for users to conduct their transaction off-chain, mostly restricted to two users per channel which means that few networks such as Raiden, Lightning, which have adopted this concept are still likely to avoid its users from incurring extra cost since there is no alternative method (apart from going online) once channel funds is depleted. Therefore, new channels must be created every now and then which makes routing complex and slow at the same time. The idea is to create a redundant system capable of memorizing channel paths which can be use to complete transactions off-line (just as in a private channel) between different users via the help of intermediate nodes. This concepts helps to improves the overall scalability of the underlying blockchain including Bitcoin, Neo. Unlike lightning network which supports only bitcoin blockchain, the liquidity network can be implanted practically on any blockchain including Neo which makes it cross-platform compatible and highly scalable solution for businesses and markets hosted on the blockchain.

[3] Complex routing topology and associated high transaction fee

Taking a closer look at the existing 2nd-layer payment network such as Raiden, lightning e.t.c. It is clear that users are likely to incure more transaction cost from the complex network protocol which requires transactions to be taken online every time the channel funds locked via smart contract via an escrow mechanism is depleted. This approach consequently attracts extra cost for users using such network. However, the liquidity network protocol is built differently to ensure transactions are less likely to be taking online presenting an easy routing channel for transactions to be completed offline. More explanation in the subsequent paragraphs as we look into the Liquidity Network in general.

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Introducing Liquidity Network

Liquidity Network is a new crytocurrency payment and exchange protocol built on the ethereum blockchain which combines the security-rich feature of the blockchain and the real-time transaction ability of a 2nd-layer communication protocol(via private channels) to create a secure yet highly scalable network for transactions between users of the underlying blockchain.

Therefore,Liquidity Network via the help of smart contract is able to simulate an escrow-built mechanism to establish communication between users within a secure channels. This helps each user to still regain the ability to manage their funds independently instead of entrusting such funds to a trusted third party(such as transacting on a conventional centralised exchange) while also enjoying the benefits of real-time transaction that can compete with these centralized exchanges.

Liquidity Network Ecosystem Overview

The bulk of the features accruable from using the Liquidity Network for cryptocurrency payment, preffered; will not be possible without the introduction of new concepts and theories which all come together to form what is referred to as the Liquidity Ecosystem. Therefore, this chapter introduce us to those concepts and how they are implemented within the Liquidity network to solve issues associated with the present cryptocurrency payment system and the blockchain.

· No-Cust Protocol

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No-Cust stands for “Non-custodial” and it is so called because liquidity exchange doesn’t hold the users fund at any point of the transaction. since all transactions are conducted off-chain via the help of private channels and smart contracts, the number of transactions per second (tps) will subsequently depend on the internet latency and bandwidth.

This is unlike present 2nd-layer payment channel such as lighting network which requires such transactions to be taken on-chain intermittently once payment channels is depleted. This means that new channels need to be opened whenever a new user is joining a hub; leaving the whole network incapable of building an independent hub. However, the introduction of the Nocust hub has helped to extend the channel interaction beyond two users and enables new users to join the the network, thereby forming a hub in the process.

The Nocust architecture ensures funds are not locked between only two users but accessible to thousands of users on the same hub which is secured by the blockchain. This arrangement helps to solve the problem of blockchain network congestion associated with the present system and also represent a low costs as opposed to hosting transaction on-chain.

· Revive

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Implementing a rebalancing scheme naively on-chain as is the current practice can contribute to low latency of the blockchain and consequently scalability of the overall network, Revive represent the algorithm that helps users to rebalance their payment channels off-chain by using any of his active payment channels; which means that transaction costs is reduced considerably or almost free if all participants are responsive (honest) and only in the case of a dispute, will such transactions be taken on-chain in order to resolve the issue; a process which incurs additional cost on the users; although fees are still lesser than an on-chain transaction costs .

Revive is payment channel agnostic and can be used alongside numerous payment channels including Raiden. The Revive protocol makes the network redundant highly-scalable and cost-effective.

Why use Liquidity Network for your transactions?

The drawback of the present payment system is that users cannot refund their payment channel once depleted without carrying out on-chain transaction and this has many implications for an average user who is time and security conscious because the on-chain rebalancing scheme contribute to network delay which is unavoidable in all payment channels while the use of conventional centralized exchanges (crypto and fiat related), traditional financial institutions (fiat-related) are less secure for holding assets for a long time. The solution lies in creating a network that leverages these features i.e. the speed and security of these two independent options to create a rich resource sharing network for cryptocurrency users, businesses and traders e.t.c.

This is made possible via the off-chain transaction settlements which allows users to send funds trustlessly without registering such transaction on the blockchain at first, a key feature of using private channels. A similar approach is therefore employed in the Liquidity network arrangement but with further characteristics such as is feasible in a N-party payment hubs which is an extension of a 2-party payment hubs, as outlined below

The Seven (7 )eatures of the 2-party/ N-party Payment hub network

In this type of arrangement,

  1.   There is less computational work required for rebalancing
    
  2.   Transfers are cheap, fast and open for more users to join the network and drive more liquidity
    
  3.   Hubs offer free offchain channel registration
    
  4.   Offers easy routing topology as compared to other payment options
    
  5.   Funds are only transferred between users and never held on a server, server in this case is utilized in order to ensure transactions are done in real-time and cheap relatively.
    
  6.   Users funds are less likely to be compromised since funds are always kept in users custody
    
  7.   Decentralized account balances
    
  • Off-Chain Transaction Settlements Explained

          Off-chain transactions can be separated into two main categories:
     
        * 2 party payment channels; between two users
        * N-party payment hubs; more than 2 users
    
     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.
    
        2.  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

Liquidity Network Exchange - How does it work?

First of all, the liquidity exchange is a non-custodial exchange built on top of the liquidity network which employs a 2nd-layer communication protocol via private channels for account interaction.

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Interestingly enough, liquidity exchange is built around the ability to host an independent off-chain server alongside the smart contract which means that anyone can run their own hub server but funds on all account within the server are still held in non-custodial fashion (Nocust), meaning funds in such accounts are held in users control. However participants must contribute to the network via smart contract functionalities (escrow) inorder to function as a member of the Nocust hub which are connected in similar fashion to those on the Lightning network and Raiden.

Consequently this arrangement allows transactions to run concurrently and independently of the blockchain albeit in real-time at no or low cost. However, users are free to remove their funds from a network if they choose to cease from becoming a member of a particular hub or join a new hub instead as the case maybe. Funds can be conveniently sent back and forth across different hub networks via the revive protocol easing the need for on-chain hosting of transactions.

Issues can be avoided or resolved amicably since the 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 inorder to resolve a dispute between the parties; however, extra cost is incurred in this process.

Highlighting the key features of the Liquidity Exchange

· Low setup cost

· Low maintenance cost

· Operation does not depend on blockchain functionality

· Ability to handle multiple users per hub

Full features and benefits of the Liquidity Network

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Summary

The Liquidity Network is built with the sole aim of driving an internet of value exchange at zero or minimal cost. Therefore, any economy that is centered around provision of services, exchange of goods will find it worthy of hosting their businesses on the blockchain as exemplified by the smooth operation of the Liquidity Exchange. Some of the target markets are summarised in the picture below

image.png

Use Case

  • Fast and Private Communication channel

Once the Internet of Things (IoT) industry gets into full-fledge, there would be more priority to ensure they communicate in a fast, decentralised and consequently private manner inorder to avoid those that wants to identify patterns which can lead to a security breach in an underlying smart device. Liquidity Network protocol with its rich features can serve this purpose conveniently for the IoT industry.

  • Micropayments Channel

Some task requires the subject to disburse funds in small bits from a large pool to many end users - An example is airdrops. However, this trivial activity can attract a huge waste of time and resources. Liquidity Network payment feature allows such transfers to be made easily at minimal costs.

Synopsis


  • Vs Other Exchanges

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  • Vs Other Payment solutions

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  • Liquidity Network Application Prototype

  • Mobile
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  • Desktop

  • Vs Other Off-chain solutions

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Roadmap

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Meet the team

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