Atomic Swaps
Candlefocus EditorAtomic swaps can provide a number of benefits to users – most notably, freedom from the need to trust a third-party custodian or exchange with custody of the tokens being traded, as well as a secure, instantaneous, and cost-efficient way of swapping tokens.
Unlike centralized exchanges, atomic swaps do not require extensive verification or registration processes. In decentralized exchanges, you have your own wallet where you store the token you are trading.
The main process of an atomic swap is an exchange of two crypto-assets between two parties (or nodes). This procedure results in a temporal ‘lock’ on one, or both, of the assets, which allows the pre-programmed smart-contract to securely confirm the swap.
Atomic swaps are characterized by the use of hash-time-locked contracts (HTLCs). Hash-time-locked contracts allow the exchanged tokens to be locked, and therefore secured, until both parties have agreed to transfer their tokens and met the pre-agreed terms.
Atomic swaps have the potential to allow instantaneous and secure P2P exchanges, with no third-party involvement required. This method has been tested with a variety of blockchains and is still in its early stages of development. For example, atomic swaps have been used to exchange leading digital tokens like Bitcoin, Ethereum, Litecoin, and other tokens directly between users, without the need for an intermediary.
Overall, atomic swaps facilitate fast, secure, and cost-efficient token swaps between two parties. This process has the potential to revolutionize the way we exchange digital tokens and create more trustless and user-friendly exchanges. As this technology improves, it could become the go-to method of token swapping.