A centralized exchange is currently the most popular way to trade cryptocurrencies , but the increasing fees that accustom it, is not just worrisome, but it also scares away potential investors and prospects. Though it is important to note that every innovation is put for incentives, some exchange cuts in the cryptocurrency ecosystem are far exploitative than others.
This is no doubt amongst several others, the major reason for this technology called Atomic Swaps which is sometimes referred to as cross-chain swaps. Atomic Swaps aim to provide the ecosystem a more user-friendly environment, one that is cost-friendly, trustless, instant and effective. A good example of this development is Komodo KMD who has made about 65,000 atomic swaps so far.
What Is Atomic Swap?
Atomic swap is a cryptocurrency term used to explain cryptocurrencies exchange without the services of an escrow manager, a third party, or the fear of a breach of trust from either parties. As a technological innovation, atomic swaps do not need payment of exchange and/or trading fees involved, this reduces the hacks exchanges bring about.
This decentralized system of exchange aimed at by this technological innovation called atomic swap, uses hash time-locked contracts [HTLCs], which is part of the script language most of the major cryptocurrencies operate on. The hash time-locked contracts generate random numbers called hash. These hashes generated, can neither be forged, hacked nor reversed.
These numbers are secret to both parties until they reveal it to one another for atomic swaps to occur. With this, it is either the exchange happens, or there's no transaction at all. These hash time-locked contracts will replace the services of a third party. It does this through a set of certain requirements of trade in order to ensure the atomic swap process is smooth and efficient.
Despite the ease in transactions the atomic swap seeks to achieve, it is very important to note that not all cryptocurrencies support atomic swaps. For a currency to support atomic swap, it must meet certain requirements. One of these requirements is, the implementation of the lightning network which links payment channels of different cryptocurreny together, this allowing two parties transact with one another. The presence of this lightning network eases the whole process of atomic swap, as parties can open payment accounts, and exchange different currencies without physical contacts with one another, or knowledge of each other. Another requirement is sharing of same cryptographic hash function. This cryptographic hash function aids the efficiency of the hash time-locked contracts in linking two block chains together.
Why Does Atomic Swap Matters?
There is no doubt a growing desire for a much easier means of cryptocurrency exchange and conversion in the ecosystem, one that is more decentralized, more trusting, and more user-friendly. This is the basis upon which the technological innovation of atomic swap is founded. With this, it is important we see why atomic swaps matters now as well as in times to come.
The introduction of atomic swaps is important has it would not only ease, but take decentralization to a whole new dimension especially when exchanging cryptos or tokens. It will be of a convenient benefit to an average cryptocurrency user as it would ease decentralized exchanges, improve peer to peer [P2P] trading drastically allow parties the opportunity of cross-trading, and make both on-chain atomic swap as well as off-chain atomic swap much more practical. A good example is Alticoin.io, a new decentralized cryptocurrency exchange which is powered by atomic swap.
Atomic swaps bring about a new understanding and appreciation of crypto-trading. So if you have to exchange 10,000 LTC, for 200 BTC, with the advent of atomic swap, you do not need to require the services of a third party, a centralized infrastructure, or an escrow manager. You will also be sure that in a case where your exchange is not successful, through the use of a hash time-locked contracts and a lightning network, you will no longer have to fear about losing your crypto. How amazing!
Atomic swaps, both to the traders of cryptos as well as investors in cryptocurrencies, will be an improvement to the cryptocurrency ecosystem in diverse ways. First, atomic swaps will aid the acceptance as well as transactions of and in more cryptocurrencies than what is obtainable now. More investors will want to and begin to invest in cryptocurreny. Also it will begin to attract more vendors who might like to make cryptocurreny their payment methods.
Atomic swap no doubt seeks to be a trust less and a fee less decentralized trading system. This means that, as against the centralized system, where once you have clicked 'enter', a mistake on your part, or a default on the part of the other party, is not going to amount to a reversal, atomic swap being a trustless exchange seeks to check mate that. The fast, less costly, and trustless nature of atomic swap, will bring about a high sense of friendliness, and reduce the fear of hacks and loss drastically on the crypto's ecosystem.
Conclusion
Despite certain limitations like both users having the same hash algorithm; both users supporting the same time-locked contracts; and the complexity that comes with knowing and understanding the process of atomic swaps, it is important to note that atomic swaps have not gained mainstream adoption. Atomic swap is still going through a refining process, which if properly refined, has a bright future in the crypto's ecosystem. While in this process, atomic swaps focus on being user friendly, so as to make it easy for techies and non-techies as well to appreciate and implement it.
Source:
What Is Atomic Swap? A Beginner’s Guide and Introduction