Digital assets attract with their idea of decentralization and ease of use. However, cryptocurrency exchanges are intermediaries in transactions. Moreover, many large exchanges oblige their customers to undergo an identity verification procedure. 

Users want to make secure transactions without the participation of intermediaries. Therefore, the technology that underlies atomic swaps has aroused great interest in the crypto world. Let’s take a closer look at what atomic swaps are?

What are atomic swaps

An atomic swap (literally “indivisible”) is a mechanism that allows users to exchange digital assets between blockchains without intermediaries. That is, atomic swaps enable sellers and buyers to make purchase and sale transactions directly. The participation of cryptocurrency exchanges and platforms is not required.

The security of the participants in the transaction is provided by a smart contract. It guarantees that the transaction will take place in its entirety or not at all. That is, either all participants in the transaction will receive their assets, or the transaction will not occur at all. This technology allows you to return funds to users if the transaction was only partially completed.

In 2017, the first successful swap of Decred and Litecoin cryptocurrencies was made. Later, there were other successful transactions with Bitcoin, Viacoin and Vertcoin.

The benefits of atomic swaps are obvious. Due to the absence of intermediaries, the security and decentralization of the transaction increases. In addition, users no longer need to pay commission to intermediaries.

The disadvantages of this technology include the following point. For a swap, you need to install the blockchains of the coins that are involved in the transaction. Technically, this is not very convenient. However, there are various cross-chain bridges that allow such swaps to be made without the need to set up blockchains.

Smart contract principle

For atomic swaps to work, two keys come into play:

Hashlock key – lock key. This key allows you to complete the transaction only when the participants in the transaction provide evidence that all the conditions of the contract are met.

Timelock key – the key responsible for the time. Both parties to the transaction determine the time for the transaction to take place. If the transaction does not take place within the specified period, then the assets are returned to the participants.

Conclusion

 

So, the idea of atomic swaps is very close to crypto enthusiasts. However, the technology is quite new and has its drawbacks. In addition, in some networks it is only being tested. But developers continue to develop and improve the technology