Atomic swap - what is it?

Atomic swaps are unique systems for converting different types of cryptocurrencies. That is, this is the process of exchanging one digital coin for another when a centralized intermediary, for example, a cryptocurrency exchange, does not take part in the transaction. An alternative name for the technology is cross-chain swap or cross-chain trading. Thanks to this principle, guarantees are provided for each of the parties to the transaction to fulfill the agreed and accepted obligations.

How did atomic swaps come about?

This concept was first proposed back in 2013. Tier Nolan presented the basic principles to the community at the forum, focusing on ideas for leveraging cryptographic protocols. The main goal of this concept is to provide the possibility of mutual settlements between crypto users directly, without intermediaries. The introduction of atomic swap technology can significantly reduce and neutralize risks such as hacking, downtime, and increased associated costs.

What varieties are there?

Today, there are only 2 types of atomic swaps. The main principle of classification is integration into the blockchain or lack thereof. Accordingly, various technologies are used to ensure the reliability and security of transactions.

The main difference is that when using atomic swaps on blockchains, technical support of the same programming algorithm by each participant in the transaction is fundamentally essential. With cross-chain swaps without integration into blockchains, it is possible to interface with different algorithms. This technology provides higher transaction speeds as well as lower costs.

Main advantages of the technology

The atomic swap system has several significant advantages, due to which it quickly gained popularity after the presentation of the basic algorithms and ideas. They are as follows:

  • Trustless and decentralized exchange. Eliminating centralized intermediaries is an important aspect. Mainly when an intermediary such as a cryptocurrency exchange is eliminated. Users have the opportunity to control their assets better during a transaction. By using HTLC, a guarantee is provided that either the swap will take place or not. Therefore, the risks of fraud are reduced to zero.
  • Increased security. Using the swap system eliminates the potential risks of hacker attacks and loss of access to keys and access codes to crypto wallets.
  • Reducing associated commission costs. The transaction is carried out much cheaper or without any commission by eliminating intermediaries.
  • Increasing the level of personal data protection. Cryptocurrency exchanges usually require user verification by KYC and AML standards. Using atomic swaps ensures maximum anonymity of each participant in the transaction.

Another significant argument favoring such technology is a substantial reduction in the time for conducting transactions since system overload or delays due to server downtime or manual processing are eliminated. All this is leveled out through smart contracts and cryptographic protocols. Due to this, atomic swaps are considered the most secure, reliable, and effective when working with cryptocurrencies.