Buying My First Liquid Bitcoin

in LeoFinancelast month

Hey Jessatoshis

As the price of Bitcoin continues to rise, so does the number of transactions on the network. The competition for block space as people want to put their Bitcoin in cold storage or move it between wallets and exchanges means the price of transaction fees skyrockets.

We've already seen transaction fees as high as $55, and that's when people turn their noses up at Bitcoin and head off to the hand of cheap altcoins. If transaction cost is the make or break value proposition for you, I get it, but I guess value storage is not what you're in it for, which Bitcoin is about.

Each chain and coin make certain trade-offs, and this is Bitcoins trade-off. As someone who still thinks Bitcoin is the go-to asset. I've tried to use the proposed solutions we have now instead of running off to altcoin land, where I am taking on even more risk than I am personally comfortable with keeping any real value around.

Lightning still needs time

Previously I've been messing with the lightning network. It does show some promise, but managing your inbound and outbound liquidity can be a problem for normies, so I don't think it's ready for mass consumption yet. I store a few sats in lightning, and I use it to play around with the various wallets, games and Lapps (lightning apps) that are making their ways around the internet.

The tech is only 3 years old, and I don't expect it to shoot the lights out yet, but from what I can see on the roadmap, solutions are coming for the problems we face on lightning right now.

liquid-BTC.jpg

Getting liquid

As I hit some roadblocks with lightning, I decided to get involved with the liquid network. The liquid network is a Bitcoin-based side chain that is run by a centralised federation but allows you to lock up Bitcoin and get L-BTC that has 1-second block times and fee management, which is really cheap.

You remain in the custody of your L-BTC using apps like Green wallet or your Ledger Nano which I am using. I can then ping Bitcoin between exchanges that support liquid and swap it between stable coins available on liquid.

Some exchanges support liquid BTC for De-FI, such as Liquid.net and HODLHODL, which I am still experimenting with and earning a return on my Liquid Bitcoin.

If we take a look at the overall trend for Bitcoin fees, as a small trader like myself, you are going to have to factor this in if you want to use Bitcoin in the future. Proper UTXO management is important, and that's why I am using liquid and lightning to consolidate on-side chains before removing them to the main chain for long term storage.

It not only saves me on fees, but future fees if I move my Bitcoin as my UTXOs touching the chain are smaller and would cost less to process.

Bitcoin-fees-chart.png

Source: - ycharts.com

Downside of L-BTC

Liquid Bitcoin is not perfect by a long shot,

  • It adds additional key management to handle
  • It adds a new layer of complexity using a side chain
  • It is not as widely accepted as Bitcoin, so you need to use exchanges that support it
  • It is centralised as the federation running the nodes are exchanges. I do still feel okay with using it, as I would using crypto on an exchange. Even with the key management, I still don't have the real Bitcoin.

I think that liquid will be the more DE-FI ready side of Bitcoin, and lightning will be the eCommerce side. Eventually, they will merge into one interoperable layer, and you can swap between them without touching the main chain until necessary.

Bitcoin and being your own bank requires brains

Bitcoin is still a very complex financial tool if you opt for the non-custodial version of the asset class. It takes time and a lot of reading to understand how to use the various products plugging into the mainnet, but I am willing to do the work.

I've chosen to focus on Bitcoin, and I think it has more than enough complexity for me to learn still before I can even think of looking at altcoins.

I have dived into Ethereum, but honestly, not the other chains, and I don't think I will as long as there is so much to learn and do on Bitcoin.

I've taken my first steps into liquid and now on 3 different Bitcoin, mainchain, lightning, and liquid types. As I research, I realise how little is known about these solutions and why people dismiss Bitcoin and head off to altcoins that are advertising like crazy.

There's no sense in advertising these solutions yet since they are not fully ready for adoption, and I get that, but neither are many of these other chains, and they'll soon realise this as onboarding becomes a burden to their chains it has with Bitcoin.

It's always easy to claim you have scalability without the numbers, but when you do, it shows what you're made of and if you can compete with Bitcoin.

Have your say

What do you good people of HIVE think?

So have at it, my Jessies! If you don't have something to comment, "I am a Jessie."

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Choices, choices, and more choices. By the time I figure it out there's more. At least it gives me another option to my meager holding of Bitcoin.

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I need to get my BTC into my cold wallet and just leave it there for the time being. I think right now it is still on my mobile wallet and I am not really too comfortable with that. I think the fees are much easier to swallow when you have a large stake. I guess by large staking I am saying 1 full BTC or more. When you are sitting on $55k what is the big deal about having to spend $50 to move it once or twice. For people who are maybe only holding a couple hundred dollars in BTC it can be a huge deterrent. I also might move a small portion of my BTC over to the Kingdoms when they open on Cub. I am still on the fence about that.

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That's why I always recommend consolidation first, be it on an exchange hopefully you get a kickback for storing your liquidity with them as you keep buying until you have a larger amount. If not, then I'd say rather purchase lightning or liquid Bitcoin and consolidate on a side chain before moving to the mainchain that's what I am doing.

I don't want to risk my BTC on chains I don't fully trust nor know who wrote the smart contract

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That makes a lot of sense and sounds like a very smart move on your part!

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Oh dear. I had no idea about that bitcoin fees could be that high. I haven't taken that into account in my passive income plan.

I don't understand the concepts here. I thought Bitcoin was going to be a straight forward investment but it seems not.

I feel I'm at a bit of a crossroads with crypto. Working out ROIs was never my strong point and I'm feeling increasingly out of my depth. I thought I was slowly moving forward but now I'm not so sure. It seems like this space moves way faster than I can.

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It's going to get a lot higher, I can easily see fees sitting in the $100 range in the future, which is nothing if you're settling transactions in the millions, which is what I think is going to happen. We will all do our business on liquid and lightning and only when we want final settlement well go to the base-chain.

I mean my little Nano S already gives me Liquid and Main-chain access, hopefully soon lightning and I can work my Bitcoin through the best chain for what I need to be done.

Yeah I feel you, it gets too complex for me, so I all I do is focus on getting more sats, all these alts I earn, I just look at it as potential sats, not too phased about the dollar value.

Like I mentioned on liquid you can easily swap into a stable coin for little fees so I think ill be playing around there more often

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There are just too many different versions of wrapped BTC but it was to be expected from the current network fees. How many more do you think will be created? There is already wBTC, BTCB, swap.BTC and many more.

I got confused a bit when I saw someone post a chart of ETC because I thought it was ETH and I don't know if I want to keep track of all the names.

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Lol well many of these chains cannot maintain liquidity so using an asset like BTC on it, yes you expose the security risk of that chain and smart contract by wrapping but the chains get an asset with ample liquidity and its growing, so less downward pressure as their native token so dex's and things have an asset to trade against that is more robust.

I am personally not a fan of wrapped BTC I don't own any but perhaps in the future, I just don't know enough about these chains to want to go off main or side chain yet

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The liquid network is a Bitcoin-based side chain that is run by a centralised federation but allows you to lock up Bitcoin and get L-BTC that has 1-second block times and fee management, which is really cheap.

Innovations in this crypto space is so hard to keep up with.

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Lol preach brother, I feel we should all be awarded doctorates for learning all these blockchain stuff, the amount of new info is crazy

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I have not tried Lightning network yet, i must gain more knowledge and try it to see what this has to offer.