Blockstream rejects Liquid ransom as about 598.5 bitcoin remain outstanding

Blockstream has rejected a ransom demand from the people holding the remaining bitcoin taken through the Liquid Network exploit. Its 11 September statement promises to work with law enforcement, exchanges and forensic specialists to recover the assets.

Liquid’s recovery report records 3,400 BTC returned on 7 September, with approximately 598.5 BTC outstanding. The original withdrawal involved roughly 4,000 BTC.

What was the ransom demand?

A Bitcoin transaction carrying the demand asks Blockstream to pay 10% from its own funds as a bounty. It threatens a 15% loss for holders if the company refuses. Those percentages are the sender’s demand and threat.

The sender of the 6 September contact message described themselves as white hats. That is their stated position. Blockstream’s response characterises withholding customer assets as theft and rejects payment. The company says its efforts to negotiate a return were intended to protect users.

How did the bitcoin leave Liquid?

Liquid says a flaw in the caching of range-proof verifications in Elements, its underlying software, allowed the creation of unbacked LBTC. Range proofs help validate confidential transaction amounts.

According to Liquid, the actor used SideSwap’s service to convert that LBTC through the normal withdrawal process. The invalid balance had already passed validation, so the authorised withdrawal released real bitcoin from the federation reserve. Liquid attributes the failure to transaction validation and says the federation’s private keys remained secure.

Liquid announced the resumption of transactions on 10 September, while keeping bitcoin withdrawals, known as peg-outs, disabled during recovery.

A common signing key links the withdrawals

The 6 September message transaction spends 3,995.99999857 BTC from the large payout and 2.49749857 BTC from this earlier transaction. That earlier transaction also spends output 0 of the 0.55487682 BTC withdrawal. This is a transaction-path link through combined funds.

Both message inputs spend from this address:

bc1ql4mfu6aundtkksxklfajs2h3t9nzcd6gyqjlte

Open Details beside Inputs & Outputs. The final item in each input’s Witness is the same public key:

022121d8b43ebc1aa574eca7a57aa9013053cf0cf19a9fe18574b280395b6f1b33

Both outputs were locked to the same public-key hash and spent with the matching public key. This establishes common signing-key control for those two inputs at that transaction. Earlier ownership, identity and motive require additional evidence. A service can handle funds for several customers, so the transaction path through combined funds has to be interpreted separately from personal attribution.

The smaller output offers another tracing lead

There is also a smaller output worth tracing. The forwarding transaction sends 3,996 BTC minus 143 satoshis to the later message wallet, and 0.01834922 BTC to a separate destination. The smaller destination is:

bc1qje74edww9q3fct2442cwmhd7pyntyqryrpsmkt

It has already been spent. The next transaction consumes that output and creates 0.01626012 BTC and 0.00208767 BTC outputs, paying a 143-satoshi fee. The records show movement; the purpose and owner’s identity remain unassigned.

Download the checked transaction records, including the full input witnesses, addresses and source API links.

Blockstream’s proposed cooperation with exchanges and service providers is the route by which public transaction evidence could be matched to records identifying who controlled the funds.