The Concept Behind Atomic Swaps

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If you have followed cryptocurrency and blockchain technology for the past few years, you must have heard the term Atomic Swap at least once. While you may find it challenging to understand what the Atomic Swap concept is all about, Liquid is here to guide you through some of the necessary details associated with Atomic Swaps. A better idea about Atomic Swap will allow you to leverage a less mediated world of cryptocurrency tokens, trading, and transactions. 

As you may know, Liquid's Buy and Swap service allows you to instantly swap any cryptocurrency listed on Liquid for another one. For example, let’s assume you want to convert your existing Bitcoin investment into Litecoin. In that case, Liquid will accept Bitcoin from you and provide you the corresponding amount of Litecoin in return.

However, when read along with the hefty commissions that some exchanges charge, the entire narrative of swapping tokens is often perceived as inefficient for the end-users. It’s also an antithesis that some centralized exchanges overrun a decentralized concept like cryptocurrency. It is precisely where the concept of Atomic Swap comes into play.

What Are Atomic Swaps?

Atomic swaps refer to a technology that allows the peer-to-peer exchange between two cryptocurrency tokens on different blockchain networks. Most importantly, Atomic Swap needs no centralized exchange to process or validate the transaction. Instead, it uses smart blockchain contracts to ensure that the currency swap takes place as programmed.

In Atomic Swaps, the transaction follows an indestructible accuracy and the process does not alter from a course hard-coded into smart contracts. Because there is no intermediary involved, users don’t need to worry about the hefty fees charged by a third party. Given that the process does not include a centralized entity, Atomic Swaps handle an incredibly high volume of cryptocurrency tokens.

How Does It Work?

We don’t intend to bombard with too many technical details here. However, you should know about two elements of Atomic Swap that ensure transparency of the transactions.

First and foremost, no centralized authority oversees Atomic Swap. Therefore, the smart contract ensures the transaction takes place as planned.

  • Hashlock key ensures time-bound transactions. Meaning, recipients of a transaction must acknowledge payment, courtesy of cryptographic proof, within a specific timeframe. Otherwise, the transaction stands canceled.
  • On the other hand, the TimeLock key restricts cryptocurrency transfer until a specified future time or block height.

These two functions make sure the Atomic Swap is either successful or invalid. In a nutshell, Atomic Swap eliminates a situation where cryptocurrency gets debited from senders while receivers don’t receive the tokens.

Interestingly, both these elements function like clockwork.

Two Sides of the Coin

We have already mentioned the significant advantages of the Atomic Swap. To recap, Atomic Swap increases the credibility of cryptocurrency transactions to a great extent. They also provide users with enhanced privacy and security.

It doesn’t mean that Atomic Swap is perfect or free from complications. The technology behind Atomic Swap is still in the nascent stage and can’t be taken to a practical stage just yet.

It also requires exceptional growth in the cryptocurrency space before witnessing mass adoption. Even then, getting started with Atomic Swap would require intense technical knowledge and resources.

Food for Thought

The limitations we have mentioned above don’t make Atomic Swap any less revolutionary. If you think about it, blockchain technology and cryptocurrencies had the same challenges when it began their story.

Considering the crypto tech journey over the past decade, we believe Atomic Swap can do it way quickly. Once adopted by the mainstream, this peer-to-peer technology will possibly restructure the way we look at cryptocurrency transactions.

Long story short, Atomic Swap might be the next big step towards true decentralization.

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If you want to instantly swap your cryptocurrency with another one, you should try Liquid’s Buy and Swap. Additionally, you can buy cryptocurrency with your own VISA card (we accept VISA globally). Enjoy competitive pricing, transparent fees and instant execution with Liquid!

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All guest authors’ opinions are their own. Liquid does not endorse or adopt any such opinions, and we cannot guarantee any claims made in content written by guest authors.

This content is not financial advice and it is not a recommendation to buy or sell any cryptocurrency or engage in any trading or other activities. You must not rely on this content for any financial decisions. Acquiring, trading, and otherwise transacting with cryptocurrency involves significant risks. We strongly advise our readers to conduct their own independent research before engaging in any such activities.

Liquid does not guarantee or imply that any cryptocurrency or activity described in this content is available or legal in any specific reader’s location. It is the reader’s responsibility to know the applicable laws in his or her own country.

WRITTEN BY

Liquid

Providing liquidity for the crypto economy.