What Is The Meaning Of Atomic Swap In Cryptocurrency

Without the use of an exchange or other intermediary can the transfer of cryptocurrency be possible? On this webpage, We will be discussing What Is The Meaning of Atomic Swap In Cryptocurrency. How To Comprehend Atomic Swaps. Procedures For Atomic Swap. Function Of Atomic Swap.

Definition Of Atomic Swap

Customarily, the use of a centralized exchange to buy or order a cryptocurrency is required by a user. This system has a disadvantage which includes: exchanges repeatedly hurt spare time through the span of desirability. Both parties have to find an exchange they trust, and exchanges are dependent on state miscalculations.
Compared to an atomic swap validating direct wallet-to-wallet trading between two individuals, decentralizing exchanges is done by using a customized smart contract.

What Is The Meaning Of Atomic Swap In Cryptocurrency

For Automated Market Maker (AMM) DEXs like Uniswap Atomic Swaps provide a more decentralized substitute for trading, that the centralized liquidity pools engage. For crypto trading, AtomicDEX, which is one of the prominent atomic swap-powered DEXs produces a true peer-to-peer order book system.
Hash timelock contracts (HTLC) are the basis of Atomic swaps. Which can be used to lock and unlock the deposited currency can be locked and unlocked with key accessibility only to the depositor, and if the transaction is not completed within a set timeframe a timelock, immediately returns funds to the depositor is set and every HTLC includes a hash lock.
Minus a very small transaction fee for the “order-taker”, Atomic swaps are created in a way that when a swap occurs, either both parties receive the funds they want or nothing happens at all and both parties keep the funds they started with. Digital assets trading is so secure as a result of Atomic swaps.

What Is The Meaning Of Atomic Swap In Cryptocurrency

Different blockchains with different native coins can be used to trade on-chain on Atomic swaps. Its technology is protocol agnostic, meaning security trust of centralized exchange or wrapped token is not key to swapping assets like Bitcoin for Ethereum. Transaction speeds are upgraded remarkably by the Off-chain atomic swaps, Yet they are underdeveloped.

Facts About Atomic Swap

The exchange of cryptocurrencies from distinct blockchains is an Atomic swap that is regulated by linking two bodies without a third party’s participation. The intention is to give token owners a position of power and eliminate centralized mediators like regulated exchanges.
Atomic obtain from the “atomic state” which is a state that either happens or it doesn’t and there is no substitute. In a state of cryptocurrency transaction; it happens or it doesn’t.
Wallets and blockchains are allowed to use smart contracts cause of most atomic swaps. when certain conditions are met to be executed within the blockchains, smart contracts programs make it possible. Each party’s consent to the transaction before a timer runs out is the condition for this case. Stealing cryptocurrency is blocked by using a smart contract. Cross-chain atomic swaps is another name for Atomic swaps.

How To Comprehend Atomic Swaps

Accepting transactions in distinct tokens is the creation of the blockchain of each cryptocurrency. For instance, Bitcoin (BTC) and ETH (ether) have different blockchains. Converting to fiat currency is one of the ways to exchange BTC and ETH; another approach is the conversion between cryptocurrencies and exchange various times to get the one you desire. The exchange of tokens from different blockchains in one trade is allowed by Atomic swaps which could be managed by decentralized exchange.

A decentralized exchange (DEX) is a platform you can trade on without third parties, it has no central authority regulating it. Cross-chain swap providers are where you transfer your digital assets into another wallet, manage the swap, and transfer them back out is also an option.
The contentment of both parties through the encrypted key is what Atomic swaps utilize.

Chronology Of Atomic Swaps

The idea was originated after altcoins and cryptocurrencies other than Bitcoin materialized. Moving capital between coins by some cryptocurrency owners brings about the design of altcoins. This type of token swap first appeared in September 2017, An atomic swap between Decred and Litecoin emerge in September 2017.

What Is The Meaning Of Atomic Swap In Cryptocurrency

Subsequently, accomplishing swaps linking startups and decentralized exchanges allow users the same benefit. For instance, a startup, Lightning Lab uses Bitcoin’s lightning network for transactions and has managed off-chain swaps by making use of the technology.

Cross-chain atomic swaps have been made possible by the development of unique cryptocurrency wallets—a wallet that will swap Bitcoin, ETH, and more has been developed by Liquidity.

Procedures For Atomic Swap

An agreement to exchange tokens for any amount between two token owners is the process of atomic swap. The trade is accomplished for them and the smart contract sees that it is agreed upon. A new block is extended for another transaction when the network nodes validate the transaction and it’s recorded by the blockchain.
Both individuals must consent to another transaction to exchange the tokens again cause the transaction is irreversible.

More Info

Atomic swaps use Hash Timelock Contracts (HTLC) which is a time-bound smart contract to motorize the exchange of tokens by linking parties involve in developing one cryptographic hash on each end.
A person’s wallet address and transaction information is an examples of the function of a cryptographic hash. That transforms data of varying lengths to a hexadecimal number with a static length. However, the hash is the number that is developed.
The concession of receipt of funds within a specified timeframe is one of the prerequisites of HTLC. Elimination of a counterattack or the risk that one party will take the proposed coins. And rejecting the transfer of their coins can be prevented. By making a transaction void.If one party fails to ensure the transaction is within the timeframe, and funds are repaid.

Atomic Swap Cost?

Atomic swap is not expensive and the capabilities are new. But can only generate fees when a blockchains fee is involved.

How Do You Obtain Atomic Swap?

Atomic swap executes the exchange when both parties agree by using cryptocurrency wallets and Hash Timelock Contracts (HTLC). Even though atomic swap wallet providers and decentralized exchanges are limited for use in a swap.

Without the use of an exchange or other intermediary can the transfer of cryptocurrency be possible? We will be discussing What Is The Meaning of Atomic Swap In Cryptocurrency. How To Comprehend Atomic Swaps. Procedures For Atomic Swap. Function Of Atomic Swap.

Definition Of Cross-chain Atomic Swaps?

it is a cryptocurrency that trades by linking cryptocurrencies that uses distinct blockchains. To invest in cryptocurrencies or other Initial Coin Offerings ICOs is not advisable. High risk and postulation, this article doesn’t support writers or Investopedia to invents. Individuals should consult qualified professionals before making any financial decisions. Investopedia is also not safe as there are no assurances to the exactness or promptness of the information contained.
Atomic swaps Occasionally introduced as atomic cross-chain are computerized exchange contracts. That authorizes two parties to trade tokens from two distinct blockchains.
Due to the trustless, peer-to-peer nature of atomic swaps. It is assumed one of the few truly decentralized trading strategies maintaining the independence of crypto users. And totally eliminating the need for centralized third-party entities when executing trades.

Function Of Atomic Swap

“Atomic” is a phrase used to describe procedures that would either complete or would not start at all. That is, the effectiveness of a successful transaction is met when two sides of the trade fulfill all predefined requirements. Which are made possible by integrating smart contracts made to secure the transaction.
A sophisticated mathematical-based encryption mechanism called a hash function is utilized. Hashed Timelock Contract (HTLC) is used by an atomic swap. And also presents a time constraint that functions as a two-way virtual safe. Transactions are rebounded when either party involved does not fulfill their sides of the deal within a predefined time frame.

One of the significant attributes of the HTLC is that it demands two cryptography or encrypted keys. Which include:

  • Hashlock key: This key confirms that both sides have fulfilled their sides of the transaction with cryptographic proofs, only then is a trade finalized.
  • Timelock key: This is created to assure that deposited coins are repaid to traders when the swap is not met at the set deadline for atomic swaps as a safety mechanism.

How Is Atomic Swap Conducted?

The best way to explain the approach for initiating atomic swaps, involves bitcoin (BTC, – 0.29%) and Ethereum (ETH, +0.45%). Bob and Alice agreed to execute a trade of 1 BTC in exchange for Alice’s 15 ETH. A contract address is first generated by Bob to send his 1 BTC. A special key is automatically generated by the contract after Bob’s deposition of funds that only he can access. That could be his password to unlock the funds sent to the smart contract. An encrypted form or hash representation form of key that bob sends to Alice.

What Is The Meaning Of Atomic Swap In Cryptocurrency

The passcode used to lock Bob’s 1 BTC, which is the hash Alice has access to. Basically, she cannot access or withdraw the funds yet but can verify the fund is locked in the contract.
She deposits her 15 ETH after generating a hash key from the contract address. Bob now has a claim to the 15 ETH, hence both parties have locked their funds on the smart contract. The trade is been finalize when both parties have access to the funds. Firstly Bob has access to the passcode. That unlocks the key used by Alice to lock her coins on the smart contract. And then reveals to Alice to claim her own.
Eventually, the capability of both parties to submit cryptographic proofs. This is process comes down to encrypting and decrypting keys.

Demand For Atomic Swaps?

Intermediaries such as crypto exchanges are removed in the necessary procedure of blockchain in the Atomic swap. Configuration of centralized trading platforms is not relied upon for executing cross-chain trades. Atomic swap provides fast transactions, more economical, and security incidents are void with custodial-based exchanges because intermediaries are eliminated. This means all trades are performed straight from their personal wallets giving users more control over their assets.
However, a more fitting crypto ecosystem is facilitated by the cross-chain trading mechanisms of atomic swap. Eliminating counterparty risk and easier conduction of transactions on the blockchain. Is the benefit of Atomic swap since trades are either completed or never happen.

Origin Of Atomic Swaps

In 2012, Sergio Demian describes a technique. Although certain processes had not been developed the idea was appealing at the time. A more strong procedure for initiating atomic swaps was developed a year later by Tier Nolan. But an atomic swap between Decred and Litecoin was first successfully executed by the decred team four years later. A few days later, Charlie Lee, the founder of Litecoin. Tweeted the process had been successfully replicated for a successful litecoin-to-bitcoin trade was replicated. And announced on Twitter a few days later by the founder of Litecoin Charlie Lee.


Note that the original design of the atomic swap is required. Both parties involved in a transaction to download the entire blockchains of the coins they planned to trade. This is what we call an on-chain atomic swap. A month after Decred and Charlie Lee executed the first sets of atomic swaps. Komodo introduced a “light mode” version that only requires special payment channels, which are offshoots of blockchains. With this, traders do not have to download the entirety of blockchains of their preferred coins. Or wait on blockchain validators to finalize transactions.

Binance Founded Atomic Swap

Atomic swap is a technology based on smart contracts that enables the exchange of different cryptocurrencies. Without the need for a centralized market or other intermediaries. Also known as atomic cross-chain trading, atomic swaps involve the trade of one cryptocurrency to another. Even if they are running in different blockchain networks.

The concept of an atomic swap was first described in 2013 by Tier Nolan. It was presented as an innovative technology that would allow independent parties to swap cryptocurrency. Units directly from their addresses (or cryptocurrency wallets). Although Tier Nolan is often acknowledged as the creator of atomic swaps. The idea of performing cross-chain peer-to-peer trades was already being discussed before that. In 2012, Daniel Larimer came up with a trustless exchange protocol called P2PTradeX. Which is considered by many as the prototype of atomic swap technology.

What Is The Meaning Of Atomic Swap In Cryptocurrency

One of the main advantages of using atomic swaps is security. As users are not required to provide or use their private keys at any point. Another benefit of such technology is related to the fact that there is no need for centralized exchanges. Which results in much lower costs (no deposit, withdrawal, or trading fees).

Moreover, atomic swaps are resistant to fraud because there is no way for one party to extort the other. Technically speaking, the technology relies on the Hash Timelock Contracts (HTLC) and hash functions. The HTLC smart contracts ensure that the swap either happens in totality or not at all.

What Is The Meaning Of Atomic Swap In Cryptocurrency

In other words, contracts are bound to deadlines. And require participants to either settle or cancel atomic swaps within a predefined period of time. Therefore, an atomic swap is only completed if both parties confirm its validity. Confirmation is done through the use of cryptographic hash functions.
For example, say Alice has 5 Bitcoins but wants to trade those for BNBs. Bob, who has BNBs is willing to make the trade. By using atomic swap technology, they are able to perform peer-to-peer trade without relying on a trusted third party. This essentially means that two different coins, which are running on separate blockchains, can be traded without any interference.

Without the use of an exchange or other intermediary can the transfer of cryptocurrency be possible? We will be discussing What Is The Meaning of Atomic Swap In Cryptocurrency. How To Comprehend Atomic Swaps. Procedures For Atomic Swap. Function Of Atomic Swap.

 see the list of things to also learn:

  1. Blockchain Technology
  2. Defi
  3. NFTs
  4. DAOs
  5. Crypto
  6. Web 3.0
  7. Altcoin Tokenomics
  8. Metaverse
  9. Smart Contracts

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