Compatibility of Decentralization and Centralization: An in-depth interview with Blockstream Allen Piscitello ②

Blockstream’s Allen Piscitello explains Volatility and Liquidity in a classy yet simple language. There are a lot of restrictions about “who can have these assets?” and “how they are transferred” , as he says, so please have a look at the second part of the interview to know how and why.

Allen Piscitello  (Vice President of Product Management at Blockstream

Interview Date :17th January 2020    

Liquidity and Volatility

Liquidity can be defined as “the larger the purchase of something does not move the price” in the market. So if there is not many traders with funds available in your exchange, and someone wants to buy just a small amount, the price will rise very quickly. That is not very good for a buyer of an asset. Buyers are not going to come and buy Bitcoin at such an exchange. For example, if they buy Bitcoin worth of 1000$ and the price spikes up, they are gonna get a very bad deal. So It is really good for an exchange to be able to sell large quantities of an asset without moving the price heavily.

Volatility is “the movement of price over time”. So if something is very volatile, the price will go up and down quite a bit. Because there are so many different Bitcoin exchanges in the market as we are expanding in global technology. There are several fragmentation in the market, and a lot of small markets that need to be consolidated in some way. So if we assume that the price goes up in Japan, it might be lower in the USA. The more these exchanges can interact with each other quicker, the less the prices will fluctuate over time. Moreover, any of these big buys that happen will spread out across a lot of different venues and exchanges, making sure don’t experience much wild movements in the price.

One of the things that exchanges can benefit from with Liquid is being able to increase their liquidity and volumes by receiving funds faster. By using traditional assets like Bitcoin, as well as tokenizing other crypto assets or by tokenizing fiat assets, so the more exchanges that are involved and integrated in Liquid, the greater liquidity they get.

Let’s say you have a big buyer that comes and buys all the bitcoin on your network. You’re going to need to have someone else who can provide that liquidity for your other customers to come and bring back the supply. With Bitcoin, you have a network that could take 10 minutes or much longer, whereas with Liquid you can get that done almost instantly. That’s what a lot of exchanges see the benefit of. They can basically get their customer’s funds faster, and they don’t have to wait for confirmations. That is a very nice feature to have for your exchange and your customers.

Achievements at Blockstream

It’s been 6 years since we started, and Blockstream is busy working on a lot of projects. Liquid is obviously a big project and we started working on it very soon after the founding of Blockstream. Talking about other big projects that we might be known for is the Lightning network. This was also something we were heavily investing in. There are several different implementations of the Lightning network today and we work by different companies. We are heavily invested in Lightning as a scaling technology for Bitcoin.

Nevertheless, Lightning is also compatible with Liquid, and you can do lightning transactions on top of Liquid with Liquid Bitcoin. In the future, after there have been some enhancements to lightning, we would like to be able to do asset transactions with Lightning as well. We are also working on something called Blockstream Green. It is a non-custodial multi-signature wallet. This means that Blockstream has one of the keys to your wallet and you have the other key which allows for a two-factor authentication. This means that, even if Blockstream would not be anymore tomorrow, you would still be able to recover your funds even without us.

Compatibility of Decentralization and Centralization

I think they are more compatible that people think. An important thing to remember is that you can build a centralized system on a decentralized system. For example, you can have a Bitcoin bank that is centralized on Bitcoin that in itself is decentralized. The good thing is that the bank can prove they have the funds, and there are many benefits from it. However if you try to build a decentralized system on a centralized system, that will be next to impossible.

Looking at Liquid, it is semi-decentralized and has 15 parties and numerous jurisdictions around the world. People can comply with regulations for their part of it. This is what we are seeing with security tokens. There are a lot of restrictions about “who can have these assets?” and “how they are transferred” where you can build that on top of a fairly decentralized system, and it works. If you don’t want that, you don’t have to touch that asset. You can just stick with Bitcoin. It’s OK. So I think it’s all about choice; give the choice to the user, give the choice to the issuer etc. Sometimes people don’t have the choice of complying with these regulations, but we want the scalability to do that. 


Interviewer , Editor : Lina Kamada



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