What Is an Atomic Swap – Brief and Informative Guide

Are you familiar with the atomic swap? What is an atomic swap? Let’s find out!

To cut a long story short, it is an exchange of cryptocurrencies from separate blockchains.

It is worth mentioning that the idea is to give token owners total control. Yes, it is possible to remove a crypto exchange from the equation. As a result, what we get is a truly “decentralized” peer-to-peer transaction.

An atomic swap can be utilized when trading cryptocurrencies, removing the need to trade using a fiat currency, U.S. dollars, euros, and other currencies, as a baseline value. 

One of the main questions is, “How do they work (atomic swaps)?”

The first atomic swap took place several years ago, in 2017. However, it was described even earlier, in 2012. 

In 2017, Decred and Litecoin were exchanged without using a fiat currency as part of the conversion. Several days later, Litecoin and Bitcoin, the world’s largest cryptocurrency in terms of market capitalization, were exchanged. 

So, how does an atomic swap work? To cut a long story short, thanks to cryptography and smart contracts.

Technical aspects 

In the case of an atomic swap, smart contacts are utilized in order to create a virtual vault that can be utilized to perform an agreed-upon swap of cryptocurrencies. 

In order to utilize it, the first person sends their money to a specific contract address, where it is locked. Interestingly, the second person is alerted and has the opportunity to verify the first deposit, and both lock their money into a second vault address. 

After the contract verifies that both parties have locked their money as pledged, then they can each retrieve their swapped funds. However, if one person or the other fails to perform, the swap times out, and both parties get the money back. 

Don’t worry! The situation isn’t as complicated as it may appear at first glance. You don’t have to be a blockchain software developer in order to carry out an atomic swap. 

Hopefully, decentralized crypto exchanges such as PancakeSwap can facilitate atomic swaps. All you need to do is connect a cryptocurrency wallet in order to get started. 

Advantages and disadvantages of atomic swaps 

Atomic swaps have the potential to revolutionize the cryptocurrency space. They have their share of advantages and disadvantages. 

Without a doubt, technology-powered peer-to-peer transactions offer certain advantages. Let’s start with the advantages. 

As stated earlier, a centralized crypto exchange is removed from the equation. As a result, it is possible to lower fees. 

Furthermore, by eliminating intermediaries, it is possible to reduce transaction time. The list of advantages isn’t confined to the above-mentioned advantages.

However, we can’t forget about the disadvantages as well. 

Unfortunately, you can’t trade all cryptocurrencies. As a reminder, two cryptocurrencies have to be based on blockchain networks that use identical cryptographic hashing algorithm. 

Besides, the process isn’t as straightforward as in the case of centralized crypto exchanges. For example, there are several more steps involved with atomic swaps compared to a centralized crypto exchange. However, the situation will improve over time. 

As in the case of the vast majority of things in digital currency, privacy, as well as security risks, are potential factors. So, you need to be careful. 

Cryptocurrency industry and investors 

Cryptocurrency is one of the most exciting industries in the world. Ten years ago, it was hard to imagine that cryptocurrencies would become an integral part of the modern world. 

Without exaggeration, cryptocurrencies are everywhere. It is worth mentioning that atomic swaps have the potential to make the cryptocurrency industry even more attractive to investors.

However, the above-mentioned technology isn’t for everyone. Still, it makes sense to gather more information about the technology. What’s important, atomic swaps will be implemented by more blockchains.

So, even if your favorite blockchain doesn’t support the above-mentioned technology yet, there is a good chance that your favorite blockchain will support it in the future. 

Journalists, analysts, and investors discuss the situation regarding cryptocurrencies on a regular basis. However, the industry is still relatively young. We also need to note that the cryptocurrency industry is developing quickly. In spite of all challenges, many companies are interested in the industry. 

Largest cryptocurrencies 

Now, let’s discuss several world-famous cryptocurrencies. 

Bitcoin is the world’s first decentralized cryptocurrency. Moreover, it is the largest cryptocurrency when it comes to market capitalization. Some people call it “digital gold.”

So, it is all but impossible, not to mention Bitcoin. The first decentralized cryptocurrency was created more than a decade ago, in 2009. 

Unsurprisingly, people from around the world are willing to invest in Bitcoin. Interestingly, Bitcoin is considered a good investment with a long history of steady growth. However, you need to remember that cryptocurrencies are famous for being volatile. 

Many shops accept the world’s first decentralized cryptocurrency. So, it is possible to use Bitcoin in order to pay for various goods and services.  

As stated earlier, Bitcoin was created more than a decade ago. What about Ethereum? It was created in 2015. 

Did you know that it is the second-largest cryptocurrency in terms of market capitalization? 

Yes, it is the second-largest cryptocurrency when it comes to market capitalization after Bitcoin. However, it is quite different from the world’s largest cryptocurrency.

Ethereum was designed to serve a different purpose. Interestingly, it is now utilized for a variety of decentralized applications. It is noteworthy that Ethereum is a decentralized platform that runs smart contracts. We shouldn’t forget that Ethereum was the blockchain birthplace of non-fungible tokens (NFTs).

And the third largest cryptocurrency is?

Tether (USDT)

It is a stablecoin that is pegged to the world’s one of the most important currencies, if not the most important. Yes, it is pegged to the U.S. dollar or greenback, as many people call it. At the moment, it is the third-largest cryptocurrency. Moreover, it is one of the most popular stablecoins.

The main use for the above-mentioned cryptocurrency is to stabilize other cryptocurrencies. When the market fluctuates a lot, investors often move their money into USDT in order to minimize losses. 

To sum up, it is important to take into account all factors when it comes to cryptocurrencies. It is up to decide whether you want to add cryptocurrencies to your investment portfolio or not. In spite of all challenges, it is a great idea to give cryptocurrencies a chance.