Liquid Network started producing blocks again after the attack which allowed the creation of almost 4,000 LBTC not covered by bitcoins. The network is working again, but users still have to wait before they can transact or convert their BTC to L-BTC.
In brief
- Liquid has resumed block production after several days of shutdown.
- The Elements v23.3.4 patch targets a flaw related to the cache used to verify proofs of amounts.
- Transactions and peg operations between Bitcoin and Liquid remain suspended.
- Around 3,400 BTC was returned after the attack, while some of the funds are still missing.
Liquid starts producing blocks again
Recovery does not yet mean a return to normal. Liquid has restarted block production, but without allowing user transactions. This step should allow operators to check that the network is working correctly before gradually reopening other services.
The flaw exploited on September 6 concerned Elements, the open source software used by Liquid. According to the report published by the team, the vulnerability affected the way nodes cached the verification of range proofs. The mining created approximately 4,000 LBTC that was not covered by the bitcoins held in the reserve.
The network then suspended its operations to prevent the attack from causing further damage.
The fix directly targets the problem
To fix the flaw, Elements developers released version 23.3.4 on September 9. The most important change concerns precisely the range proofs cache: the keys used by this mechanism have been strengthened and an option now allows you to completely deactivate this cache.
Liquid then began updating its nodes. The objective is simple: secure the network before allowing the movement of funds again.
The attack resulted in the emptying of around 95% of bitcoins present in the federation’s portfolio. The authors, who present themselves as “white hat” hackers, claimed to want to return the funds after the flaw was corrected. Around 3,400 BTC were eventually returned, while an amount close to 600 BTC still remains missing.
L-BTC remains under surveillance
The main problem now concerns the bitcoin reserve. Liquid maintains the suspension of peg operations, which allow BTC to be converted into L-BTC and vice versa.
This break remains important. Each L-BTC must correspond to one bitcoin held in Liquid’s reserve. Until the team has rebuilt and verified this reserve, it will not be able to resume conversions under normal conditions.
Liquid is therefore moving forward step by step. The team has restarted block production and now needs to reestablish transactions before reopening peg operations.
Around 598 BTC, or nearly $46 million as of September 7, is still missing. Liquid has not yet explained who will cover this loss: the L-BTC holders, the federation or possible insurance.
The incident also reminds us of the weight of software risk in crypto networks. Liquid fixed the flaw and relaunched its channel within a few days. It must now reassure users about the real coverage of each L-BTC in circulation.
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