Atomic Swap – what is it?
What is an Atomic Swap?
An atomic swap is a method that allows for the quick exchange of cryptocurrencies operating on different blockchains. It uses smart contracts, and the trading occurs directly from the owner's wallet. This method does not require the involvement of an exchange or intermediary and avoids high fees.
Basic Principles of Atomic Swaps
The tokens of each participant are locked for a specified period using smart contracts. A pair of contracts is created that guarantees if one party's coins change ownership, the same will happen to the tokens of the other participant. If one party fails to take action within the specified timeframe or does not confirm the transaction, the coins will revert to their original owners. "Atomicity" in this case means that the exchange will either occur in full or not occur at all.
Transactions can occur on the blockchain of either coin or off-chain. Off-chain swaps occur on a secondary layer and are based on the principles of the Lightning Network.
Advantages of Atomic Swaps
This method has significant advantages:
- Decentralized nature and absence of intermediaries.
- Involves two or more parties.
- High level of security, no need to provide personal data to anyone.
- The transaction occurs directly from users' wallets, with no or minimal fees.
Limitations of the Method
Atomic swaps have certain limitations:
- Swaps can only occur between coins based on the same algorithm, such as SHA-256 (Bitcoin) or ERC-20 (Ethereum).
- Transactions can be easily traced on a blockchain explorer.
- The technology is not fully developed, and the percentage of transactions using atomic swaps is currently very low.