Atomic Swaps

Guides: What is an Atomic Swap?


Atomic Swap is a term that has been used several times, but sometimes it generates a little bit of confusion among readers. This term is important for cryptocurrency enthusiasts as it will change the way they exchange cryptocurrencies. Let’s have a look at what Atomic Swaps are.

 

Atomic Swaps – No More Cryptocurrency Exchanges

 

Atomic Swaps are, basically, the possibility to exchange on cryptocurrency for another without depending on a third party. If I own Bitcoin and I want to buy Litecoin I need to have my Bitcoins in an exchange and buy Litecoin with them. Everything is performed in a third party platform (the cryptocurrency exchange).

 

Atomic Swaps use a hash time-locked contract. That means that they have a specific time frame in which both parties need to deliver the cryptocurrency that they are swapping. If the cryptocurrencies are not transacted in the period of time arranged, then the transaction will be cancelled.

 

Atomic Swaps are one of the most important developments being carried out at the moment after the Lightning Network. With several hacks occurring (Coincheck, BitGrail), having cryptocurrencies stored in an exchange seems very risky. With atomic swaps, this risk is reduced. It would not be necessary to have cryptocurrencies in an exchange in order to exchange them for other virtual currencies.

Bitcoin Exchange CEX.IO

 

Another weak point of cryptocurrency exchanges that Atomic Swaps may solve is the fact that some crypto exchanges can’t handle more users. Due to the incredible growth that virtual currencies experienced during the last part of 2017, crypto exchanges were working at their max capacity.

 

But Atomic Swaps will not be performed between currencies that are not compatible. Both networks need to share the same cryptographic hash function, for example, Bitcoin and Litecoin share the SHA-256.

 

The technology is yet being developed and tested. Different decentralized cryptocurrency exchanges are using this technology in order to provide users with a better service. Some projects that are working with this technology are Blocknet, Komodo or Lykke.

 

Litecoin and Bitcoin Team

 

Charlie Lee, Litecoin’s creator, is one of the most important supporters of this technology. He has performed Atomic Swaps with different cryptocurrencies including Litecoin in exchange for Bitcoin, Vertcoin and Decred. Indeed, the first Atomic Swap was performed between Decred and Litecoin in September 2017.

 

But Bitcoin and Litecoin may work very well together when Atomic Swaps and Lightning Network will be fully developed. If Bob wants to buy a coffee paying with Bitcoin, it may be a little bit uncomfortable due to the fees and the transaction times (even with Lightning Network Litecoin will work faster and cheaper than Bitcoin). So he will perform and Atomic Swap in order to get Litecoin and pay with this currency.

 

These bridges created between these two currencies will allow both of the networks to scale much faster and smoothly than others. Bitcoin and Litecoin supporters and developers work together in order to make these developments a reality.

 

Additionally, as vendors will have much more possibilities to transact cryptocurrencies, this will be reflected in an increased use of virtual currencies. The market may be able to keep growing being a more competitive product than other means of payments.

 

Image: Bitcoinmagazine

Buy Cryptocurrency

Carlos Terenzi

I have a Bachelor’s Degree in International Relations and I write about Cryptocurrencies and European Politics. I live between Buenos Aires and Wroclaw.