Atomic Swap. What It Is and Its Importance for the World of Cryptocurrencies

atomic swap

Is the ability to transfer coins that are based on different blockchains without third parties real? In general, yes, it is, but as elsewhere, there are pitfalls and nuances in this issue. Today we will talk about such a development as an atomic swap, we will learn how it works and what prospects it has.

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  1. What is an atomic swap?
  2. How does it work?
  3. Prospects for the future
  4. Conclusion

1. What is an atomic swap?

Recently, the cryptocurrency community has been discussing a new and truly revolutionary idea that can transform the industry beyond recognition. Atomic swaps make it possible to conduct trading operations between different cryptocurrencies without using the help of third parties.

In order for the parties to not deceive each other, both transactions are synchronized. If one of the participants suddenly decides to refuse to conduct an exchange operation, the funds will return to their holders.

Test atomic swaps are already functioning; if they prove their reliability, then this will have colossal consequences for the entire cryptocurrency industry. This technology can arrange a total restructuring of orders in the market, up to the complete replacement of the familiar cryptocurrency exchanges. With the help of atomic swaps investors can get full access and control over their own assets.

2. How does it work?

To understand this rather difficult process it is necessary to simplify and have a visual picture in the head. So, let’s take two users A and B. User A is the initiator of this imaginary transaction. To begin with, he creates a place where funds will be stored at the time of the swap, we’ll call it the deposit box or the address of the contract. To open it you need several components:

  • secret phrase (generated by user A);
  • electronic signature of user B.

In order for user B not to be able to collect money ahead of time, user A should never transfer a secret phrase-number to him, but hash it in advance. Hash is the encryption of any data; blockchain, in principle, works on its basis.

After that, the user B has the opportunity to view the cell and make sure that there is the required number of coins; then B creates its contract address based on the hash of the A user’s cell. Both of these cells can be opened using the same key. Then there is the final stage of the transaction, when A signs cell of B and redeems the funds bound to the wallet. Secret phrase-number is transferred to B and that one can open the cell in which reserved funds of user A are kept. This completes the transaction.

3. Prospects for the future

As we already mentioned above, based on the technology of atomic swaps, it is possible to create absolutely decentralized exchanges, which will be impossible to crack or compromise. If Charlie Lee and the team are able to solve a number of problems and bottlenecks in this technology, then this will be a real revolution in the cryptocurrency industry. At this point in time, the technology works only with such coins:

  • Litecoin;
  • Decred;
  • Bitcoin;
  • Viacoin;
  • Vertcoin.

It should be noted that the source code of this technology is in the public domain, for this reason, any developer, if desires, can introduce it into his offspring.

4. Conclusion

Atomic swap is a truly revolutionary idea, which excites the minds of many participants in the cryptocurrency market. A successful scenario of this direction will change the industry forever: new services will appear, coins will become more flexible type of assets, and users will have full control over their own funds.

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