As you know, what we most want to do with blockchain assets is to trade them. And, in absolute terms, what we want is to make transfers without a trusted third party, without an intermediary.
Atomic swap ( Atomic Exchange in French) allow us to exchange cryptocurrencies peer-to-peer (peer-to-peer) from different blockchains. Why the word atomic? We refer to the atom here to emphasize the idea that the asset must be sent entirely, without being split otherwise the operation is canceled.
What must be understood here is that in theory, it is therefore impossible for a user to receive funds from the other without giving the necessary consideration.
There is a smart contact behind who will manage this transaction to cancel it in case it does not take place according to the agreed rules.
The principles of atomic swap
You should know that Atomic Swap is the expression short for "Atomic cross-chain trading". You can exchange cryptos without going through an exchange platform.
There is a given time for a transaction to be completed as required by smart contacts such as Hashed Timelock Contracts (HTLC). An HTLC contains a built-in timer that cancels the transaction if it is not completed within the allotted time.
There are actually two main types of atomic swaps:
- “On-chain” swaps which take place between two cryptocurrencies on two different blockchains;
- “Off-chain” swaps which take place in the second layer ( layer 2) of a main blockchain, like those of the Lightning Network for example.
Why are atomic swaps important?
Fundamentally, atomic swaps are necessary if we want to trade in a decentralized way, in other words, not on a centralized platform like Binance or Kraken.
Even though these platforms are very interesting and useful, some people want to trade cryptos without having to enter an identification procedure. Many people are also afraid that unscrupulous managers will leave with the funds, as has happened (unfortunately) quite a few times.
Thus, to escape the problems inherent in centralized platforms, atomic swaps make it possible to exchange assets from different blockchains (it is this last point which is even more important).
Final word on Atomic Swaps
You should know that in practice, an atomic swap is not easy to set up. This requires precise communication between two parties. Likewise, the atomic swap with the smart contract requires the completion of several steps to follow. So today, even if it is rare, know that it nevertheless exists.
Today, we have prototype versions and this does not yet seem suitable for general public adoption. Indeed, atomic swaps as they are currently presented do not have the speed necessary for them to be voluntarily used by many people.
Project Pantos worked for a long time to offer us a technology adapted to Atomic Swap.
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