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Following
BTC Blockstream Liquid Network resumes block production after encountering a major security breach
The Bitcoin sidechain Liquid Network, which was designed for fast and confidential transactions, resumed block production on Thursday. This follows a major security incident on the network earlier this week that resulted in the withdrawal of nearly 4,000 BTC from its alliance wallet. The incident triggered a temporary freeze of funds and raised concerns among users holding Liquid Bitcoin (L-BTC) and stablecoins.
Security Incident Timeline
The outage began on Sunday, September 6, when individuals claiming to be "white-hat hackers" withdrew approximately 4,000 BTC from Liquid's main wallet, valued at approximately $320 million at the time. This withdrawal accounted for nearly 95% of the wallet balance at the time (approximately 4,200 BTC).
Hackers used SideSwap's peg-out authorization key to access funds. According to reports, the key was not stolen, but was maliciously exploited for its legitimate use. Currently, approximately 600 BTC (equivalent to US$46 million to US$47 million at current prices) is still in the hands of attackers and has not been recovered. This gap has affected the reserves to support L-BTC and related stablecoins on the Liquid network.
Noun explanation: SideSwap is an unmanaged Bitcoin wallet and exchange that facilitates atomic exchanges and off-bridge transactions on the Liquid network, allowing users to transfer funds between Bitcoin and Liquid BTC in a more flexible and secure manner.
Blockstream's response and network recovery
Bitcoin infrastructure company Blockstream, led by CEO Adam Back, released an emergency update to Elements v23.3.4 in response to the incident. The update fixes a vulnerability that allows an attacker to generate invalid L-BTC and redeem it to fully mortgaged status. The latest security measures include enhanced cache key control to prevent further abuse.
After deploying the patch, Blockstream confirmed through a blockchain announcement that the bridge node was protected and notified the attacker that the funds could be safely returned. Subsequently, approximately 3,400 BTC (valued at US$269.2 million based on the September 7 exchange rate) was returned. Despite this, 598.5 BTC has not yet been recovered.
The anonymous hacker criticized Blockstream's security spending, Alleges it spent just $1.5 million to protect assets worth $5 billion. The hackers demanded a 10% reward for the vulnerability and threatened that the withheld funds would not be returned if they were not paid.
The attacker said in a chain message: "You must pay 10% of your own money as a vulnerability bounty, otherwise your irresponsibility and stingy will cause all holders to suffer a 15% loss."
The future of Liquid BTC bridge exit and its impact on users
Adam Back responded to the community's concerns and assured users that the anchor ratio of L-BTC will remain at 1:1, and once normal operations resume, users can exchange each L-BTC for one BTC. However, no timetable has been provided for reactivating the on-bridge or off-bridge services, and doubts remain about the unrecovered funds.
Back advises: "Don't panic selling in over-the-counter transactions" and calls on users to remain calm during periods of network stability.
As the Liquid network continues to resume work, off-bridge operations remain frozen. Liquid has now resumed block production and transaction processing, but is operating cautiously while monitoring network stability.
