Blockstream Refuses Ransom Payment for Stolen Liquid Network Bitcoin

Blockstream has refused to pay for the return of the $47 million in Bitcoin still missing from the Liquid Network, abandoning days of negotiation with the people who took it.

"Taking assets without authorization and withholding their return is a crime, not responsible disclosure," the company said on Friday. "It is not white-hat activity. It is theft."

Around 4,000 BTC was drained from the sidechain on Sunday, worth about $320 million. The attackers returned 3,400 BTC on Monday, leaving 598.5 BTC at the address they withdrew to, where it remains unmoved.

A flaw in how Liquid nodes cache range proof verifications let the attackers mint unbacked L-BTC and swap it for reserve Bitcoin through SideSwap, a federation member holding a peg-out authorization key. The reserve fell to 197 BTC. Blockstream patched the bridge nodes within ten hours and shipped Elements v23.3.4 on Wednesday. Liquid resumed producing blocks and processing transactions Thursday, though peg-outs stay disabled as a precaution while "the final stage of recovery" continues. It warned separately of scammers targeting node operators with fake update sites.

Tuesday's incident report from Liquid struck a different tone, saying it was coordinating "with the white hat hacker" to restart the network.

Its participation in those talks "should not be mistaken for acceptance of the actions taken nor of the terms being demanded," Blockstream said. Those terms were public. In a Bitcoin transaction on Wednesday, the exploiters wrote that Blockstream had allocated "only $1.5M (maybe even 0) to secure $5B assets," calling it "a flagrant neglect of security." They wanted 10% "using your own money as bug bounty," or "you will cause all your holders a 15% loss for your irresponsibility and stinginess."

Blockstream will not be "a party to the precedent that open-source software developed for the good of the Bitcoin community should subject its developers to paying a ransom that far exceeds their economic participation," it said.

Nor will it cover the shortfall from users. "Bitcoin is hard money and can't be minted without costs," it said. "Bitcoin doesn't haircut users to pay a ransom."

Instead it will pursue "every lawful avenue" with law enforcement, exchanges and forensic specialists, should the funds not be returned. "Transactions do not disappear, and neither does the evidence they leave behind," it warned, closing: "Return the bitcoin."