Blockstream has firmly refused to pay a ransom to hackers who stole approximately 4,000 bitcoins from its Liquid network sidechain. The company announced its position on X Friday, stating it would escalate the matter to law enforcement rather than negotiate further.
The theft occurred when hackers exploited an inflation bug on the Liquid sidechain to create over 4,000 LBTC tokens that did not exist before, then converted them into on-chain bitcoins. After initial negotiations with Blockstream, the hackers returned most of the stolen funds but retained 598.5 bitcoins, valued at over $46 million, which they are demanding as ransom.
"Blockstream will not pay a ransom for the return of stolen funds," the company stated. "Taking assets without authorization and withholding their return is a crime, not responsible disclosure. It is not white-hat activity. It is theft."
The hackers and Blockstream exchanged messages written into Bitcoin blocks during negotiations. In their latest communication, the hackers demanded that Blockstream pay 10 percent of the stolen bitcoins as a bug bounty, threatening to reveal encrypted messages from the exchange if refused.
Blockstream indicated it would work with law enforcement, exchanges, service providers, and forensic specialists to trace the assets and identify those responsible. "We will not pay for the return of stolen property. We will not abandon our users," the company stated.
Liquid is a layer-2 sidechain created by Blockstream that allows users to quickly move assets backed one-to-one with bitcoin. LBTC is a token backed by bitcoin that enables fast settlement similar to the Lightning Network.
The incident adds to a series of security breaches affecting the cryptocurrency sector. In July, hackers stole over 1,800 bitcoins from Coldcard hardware wallet holders by exploiting the device's failure to use a true random number generator, allowing attackers to guess investor seed phrases.
