Bitcoin Layer 2 solution Liquid Network has recovered 3,400 BTC from the roughly 4,000 BTC withdrawn during Sunday’s security incident, according to Samson Mow’s latest update.

The supposed white-hat hackers had previously told the Adam Back-led company that the funds would be returned after the network issue was fixed. In their message, they warned that the chain remained at risk and urged Blockstream to patch every node before they would safely transfer the Bitcoin back.

Network Still Paused

The funds were returned after Blockstream confirmed that the affected bridge nodes had been patched. Around 598 BTC remains outstanding, and Blockstream is still engaging with the parties who claimed to be white-hat hackers.

The development follows Liquid’s disclosure that around $320 million worth of BTC had been withdrawn from its Federation wallet. The funds were moved using the SideSwap PAK, while the Peg-out Authorization Key itself had not been compromised. Exchanges subsequently paused or prepared to pause LBTC deposits and withdrawals, while Liquid disabled its bridge nodes and effectively halted the sidechain.

The network remains paused as Blockstream and Federation members carry out further fixes and security improvements, work to resolve a chain split, and prepare for a safe restart. Liquid wallets and services remain affected. Mow also said users should not send Bitcoin to Liquid peg-in addresses until the network confirms it has restarted.

“Following the recent incident affecting the Liquid Network and the movement of funds, Blockstream, as Liquid’s technical provider, and the Liquid Federation have been working diligently to resolve the ongoing situation and ensure the return of assets. Updated software has been deployed as the Federation members prepare the network for a coordinated restart. Our teams remain focused on further hardening the network.”

Community Reactions

Ledger CTO Charles Guillemet questioned whether the remaining BTC could be part of a negotiated reward agreed through an encrypted contract signed on-chain. If that is the case, the exec argued that the situation would look more like extortion than conventional white-hat hacking.

Meanwhile, Isabel Foxen Duke, host of the Bitcoin Rails podcast, also criticized the actions of the white-hat hackers. In a post, she described the situation as “insanely illegal/unethical” and added that they could still face serious consequences if they were identified and caught.

Another market commentator described the Liquid incident as “the most embarrassing moment in Bitcoin’s modern history.”

Source: CryptoPotato