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Tables Can Be Turned with the Help of Atomic Swaps

Last updated on March 25, 2019 by Claire D.

Reading Time: 5 minutes

Centralized interactions might soon be an obsession of the past if interactions technologies like Atomic Swaps are anything to go by.

Atomic swaps technology intends to allow clients to make peer-to-peer transactions without requiring centralized exchanges.

The need to get rid of centralized exchanges is significant because of their susceptibility to seizures, hacks and unforeseen shutdowns.

Not failing to remember the cost of services made by centralized exchanges. When we go on a trail to understand Atomic Swaps the first question is…

What is Atomic Swap?

If it can be put into simple language, Atomic Swaps, which is also known as the Atomic cross-chain dealing, is the undeviating trade of one cryptocurrency (like bitcoins) for another cryptocurrency without the requirement of a third party.

What is Atomic Swaps

How Do Atomic Swaps Work?

Atomic Swaps make use of Hash Time-locked Contracts (HTLCs) to smooth the progress of dealing.

Hashed Time-lock Contract is smart contracts that perform like a riddle.

It has an undisclosed key that has to be provided, by a solver, before a certain time has gone.

If the key is not supplied then the reward goes back to the originator of the contract.

Therefore Hash Time-Lock Contracts require the beneficiary of payment to produce a cryptographic proof of payment as a way of recognizing receiving the payment before a set time limit.

Therefore, if the beneficiary fails to concede in time, the funds go back to the dispatcher. The whole procedure is done automatically.

For example, there is Dwayne who owns 100 Bitcoins and wants to deal for 300 Litecoins. And there is Jessica who has 300 Litecoins and wants to trade for 100 Bitcoins.

Dwayne will have to put forward his transaction on the Bitcoin blockchain and Jessica will present her transaction on the Litecoin blockchain.  Now if Dwayne wants to take the 300 Litecoins Jessica sent, he will have to give proof of payment, which is a number only known to him.

The number works like a key, which was used to create a cryptographic hash.

Jessica will also have to provide the same key, so as to claim the 100 Bitcoins provided by Dwayne.

Atomic Swaps Requirement

Now for cryptocurrency to productively support Atomic Swaps, there are some fundamental necessities needed, which comprises the lightning network.

The lightning network permits payment channels to bond together.

Using the above example of Dwayne and Jessica, for their transaction to take place they had to be linked through payment gateway platforms.

And the Lightning network consent to for such linkage.

Also, a transaction connecting two different Blockchains will have need of both Blockchains to share an alike cryptographic hash function, like SHA-256. Both cryptocurrencies being traded will have to be well-matched with time lock contracts. And certain programming language knowledge is required for now, when using Atomic Swaps.

One thing to note is that the Atomic Swaps necessities are also the limitations of using Atomic Swaps. The requirements bound.

  • The number of cryptos to profit from the swaps

  • The number of folks and businesses who can research on the swaps

But not to worry because these confines are known in the cryptocurrencies system, and certain enough, they are already solutions being worked on.

Take for an example, already there are the offchain Atomic Swaps running by Lightning network, which with a bit of luck might resolve the limitations mentioned above.

How Atomic Swaps Work

Why use Atomic Swaps?

As we have seen above, because Atomic Swaps are the finest substitute to traditionally centralized exchanges. They are;

1. Secure

Atomic Swaps eliminate the dependence of third-party interactions, which are susceptible to failures and are costly too.

Such failures include impairing, for example, the theraDelta hack which was an expensive loss.

There is also the unexpected disappearance of exchanges with people’s finances, which might be due to impairing or technical issues or just premeditated. Either way, as long as clients have no control over their funds, then it becomes a dangerous and costly venture.

And Atomic Swaps aspire to give whole control of user finances back to the customers.

2. Cost-Effective

As said earlier, Atomic Swaps eradicate third-party exchange dependence when it comes to transactions, the cost is reduced.

Without any other party exchanges dependence, there is no cost to be accrued for services made.

And users are capable to save on hard cash, (Read more about: How to convert Cryptocurrencies to cash) About that would have been exhausted on paying for centralized exchanges services.

3. Require No Regulations

Since the Atomic Swaps has decentralized nature it eliminates the need for regulations that always go along with centralized exchanges.

Because no single person or authority is in charge of the transactions, there are no set of laws.

That is the spirit of cryptocurrency, decentralization, which directs to immutability, therefore no government interference is included by any means of regulations.

4. Fast

And last but not least; Atomic swaps bring in an efficient and fast way of trading through wallet-to-wallet.

Customers get to manage directly with each other without relying on third parties. Therefore a consumer is able to send coins directly to a vendor and get the swaps over coins in time.

The Future of Atomic Swaps

The future of Atomic Swaps looks dazzling.

Considering the enormous steps the team of Komodo is taking to make sure that decentralized exchanges are easy to get to and easy to use even for the regular user.

There is a recent team named as Blocknet and they are trying to achieve the use of atomic swaps to create the internet of blockchains.

And Lykke, whose expenses on deals is 0%.

The competition of who has the best services is limited and it leads to interesting user understanding and user interface in the near future, which will allow simple use of the decentralized exchange.

There are also limitations to be decentralized exchanges that make use of the use of off-chain atomic swaps and on chain atomic swaps.

Uses of such decentralized exchanges will augment the usability of the platforms. And as of to conclude the above blog about Atomic Swaps is that it would just be the technology that will disrupt the crypto world.

With the introduction of Atomic Swaps, customers do not have to be dependent on the third party to carry out exchanges anymore. Clients are able to carry out directly, wallet-to-wallet, without the terror of the vulnerabilities of centralized exchanges.

Atomic swaps are accompanied in a completely self-governing cryptocurrency ecosystem.

Therefore folks can namelessly deal without the fear of their seclusion being interfered with. Now anyone can trade any cryptocurrency for another that you want and all thanks to Atomic Swap.

And for what’s worth, this is just the establishment of how much more the Blockchain technology can present.

Get acquainted with the best Atomic Swap development teams within 24-hours matching your requirements now. Use code “Atomic 10” and avail 10% discount on your first invoice.

Claire D.

In a global market awash with world-class developers (and some not-so-great developers), finding the RIGHT ones for your enterprise/startup may seem impossible if you decide to search on your own.

Filed Under: Tech

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