Liquid Network Slowly Recovers After Major Bitcoin Sidechain Hack

The Liquid Network, a Bitcoin sidechain launched by Blockstream in 2018, is in the process of resuming normal operations following one of the largest crypto hacking incidents of 2026. A hacker gained control of the federation wallet and withdrew nearly 4,000 BTC, prompting Blockstream to halt all transactions and freeze user access to assets, including stablecoins held on the network.

Blockstream has been communicating with the attacker through onchain messages. The hacker has since returned 3,400 BTC but retained roughly 600 BTC, and negotiations are ongoing as Blockstream tries to recover the remainder. Block production has resumed, but peg-in and peg-out operations, which let users move Bitcoin on and off the sidechain, remain suspended while the team works to restore reserves and confirm the network's stability.

Blockstream CEO Adam Back has assured users that the L-BTC to BTC peg will eventually be honoured, though he has not detailed how the missing 600 BTC will be accounted for. The hacker, in earlier onchain messages, criticised Blockstream for allocating only $1.5 million to secure around $5 billion in assets and threatened to keep the unreturned funds unless a bug bounty was paid.

Key Takeaway: This incident is a reminder for any business relying on third-party financial or blockchain infrastructure to review how much that provider invests in security relative to the assets it holds, and to have a contingency plan for extended service outages.