Liberty Reserve WAS AN ILLEGAL private currency exchange system issued by Liberty Reserve S.A. of San José, Costa Rica. As of May 27th, 2013 it is offline following the arrest of its founder.
The two Liberty Reserve currencies are Liberty Reserve USD (LRUSD) and Liberty Reserve EURO (LREUR). Liberty Reserve S.A.'s terms of service reads:
- 1.7. Liberty Reserve (LR): means the digital currency in which the electronic transfer services are provided; backed by United States of America Dollars and Euros; hereinafter for all legal purposes referred to as LR. [emphasis added]
Liberty Reserve is a digital currency used frequently for adding funds to and withdrawing funds from Bitcoin exchange markets.
Transfers charged by Liberty Reserve are a flat 1% to the recipient of the funds. The fee is rounded up to the nearest penny, so the minimum fee is $0.01. The maximum fee is $2.99 so essentially fees are only charged on the first $300 of any transfer.
If you are transferring LR from your account with a merchant, that merchant may charge a fee for that withdrawal, however that fee is withdrawn before the merchant sends the funds to your Liberty Reserve account.
In some circumstances, if you will be transferring LR funds from one merchant to another, you might be able to skip treating your LR as a hub and just transfer funds directly from one merchant to the other. This will save on the fee that would have been charged on the second transaction.
Liberty Reserve allows no refunds and has no mechanism for performing a chargeback. The site has security protections to help lessen the likelihood of an unauthorized transaction occurring.
Some are concerned that Liberty Reserve's alleged moves towards becoming a bank are likely to cause potential losses to some of its existing currency holders.
A security issue involving the loss of customer's privacy (browser info exposed to Amazon and Google) was identified on April 26, 2011 
In August 2012, many accounts were locked by administration, official reason was mistake of automatic script.  Most of account holders were requested to send scans of IDs and other documents, to verify their identify. Many users reported that after sending documents they were unlocked, although after that incindent LR administration continued to block "suspicious" accounts.
- Additional risks may be incurred when bypassing your own account for this type of transaction. For instance, if the destination claims to not have received funds you won't have any way to inquire on the transaction -- your LR account was not involved in the transaction.
- Liberty Reserve Integrity?
- Liberty Reserve Blog
- Talkgold forum