A peg-in locks BTC under federation control and, after 102 Bitcoin confirmations, lets the user claim the same amount of LBTC; a peg-out burns LBTC and watchmen release BTC under federation rules.
Liquid has its own genesis, blocks, UTXO set, mempool and rules. Pegging in does not move the same Bitcoin UTXO across chains; it creates LBTC governed by Liquid consensus, while redemption depends on the peg.
A Strong Federation replaces proof of work with functionaries. Blocksigners propose and threshold-sign blocks, while watchmen protect the Bitcoin peg keys and authorize releases. Chain consensus and reserve custody are therefore separate security layers.
Blocksigners rotate block proposals about once per minute and require signatures from at least two thirds of the set. Hardware refuses deeper conflicting histories, so two confirmations are commonly treated as final; enough offline signers can still halt liveness.
Anyone with a validating Liquid node can create a peg-in address, send BTC and, after 102 confirmations, submit the Bitcoin transaction and Merkle proof. A Liquid node can verify this against Bitcoin Core; disabling peg-in validation adds trust.
Peg-out is not symmetrically open to everyone. A federation member initiates it, LBTC is burned, and watchmen sign a Bitcoin payment to an authorized address. Ordinary users therefore rely on a member, exchange or swap and inherit liquidity and censorship risk.
A node can compare issued LBTC with BTC held by the peg and detect inflation or mismatch. One-to-one backing does not equal control by your own Bitcoin key: watchman threshold, HSMs, membership rotation, exit availability and emergency procedures remain critical.
Confidential Transactions blind amounts and asset types while nodes still prove balance cryptographically. A blinding-key holder can disclose data to an auditor. The transaction graph and timing remain visible, so amount confidentiality alone does not provide anonymity.
Elements lets anyone issue a native asset with a deterministic asset ID and an optional reissuance token that authorizes more supply. Registry metadata can bind a name, ticker and domain, but does not prove issuer solvency, legal rights or backing quality.
Elements is an open-source Bitcoin Core code fork extended for multiple assets, confidential outputs and federated blocks. Users can run elementsd, validate the chain and peg-ins, and sign PSETs; fees are paid in LBTC and proofs make transactions larger.
Before moving value, verify network and address, wallet support, seed and blinding-key backups, confirmations, fees, counterparty and a concrete path back to BTC. Separate signer outage, watchman compromise, peg freeze, asset failure and signing error; test a small round trip first. Liquid: A Bitcoin Sidechain · Liquid Network — Technical Overview · Liquid Network — Bitcoin vs Liquid · Blockstream — What is a Liquid peg-in? · Blockstream — What is a Liquid peg-out? · Liquid Network — Confidential Transactions · Liquid Network — Asset Issuance · Elements Project — blockchain platform
For the clearest picture, read this entry together with Sidechain, Bitcoin, Multisig, Proof of Work, Testnet, Bitcoin Core. The reverse links also lead from Sidechain, Boltz.