What is an Atomic Swap?

In the world of cryptocurrency, there is a strong focus on how different ecosystems seemingly compete with one another. It always appears to be Bitcoin against the rest of the markets. When atomic swaps will be introduced, that situation could change rather quickly. The objective of atomic swaps is to create interoperability between altcoins and Bitcoin. It is expected this feature will be introduced by the Lightning Network.

Atomic Swaps Will Change Cryptocurrency Forever

It is safe to say there is a growing need for ways to convert Bitcoin into altcoins and vice versa. Right now this process can only be done through centralized services, such as exchanges. Luckily, it appears a technological solution is just waiting around the corner. That is, assuming we will ever see the Lightning Network activate on the Bitcoin network. The upcoming UASF activation will pave the way for this to happen come August 1st.

This technological feature in question is known as an atomic swap. In some circles, it is also known as atomic cross-chain trading, but it means exactly the same. The concept of atomic swaps is not all that new as it was first introduced back in 2013. It has taken some time until cryptocurrency developers found a way to make this concept become a reality, but it appears the Lightning Network will grant us this power.

An atomic swap works in the same way users would send funds to one another, but there are some major differences. More specifically, it allows users to cross-trade different cryptocurrencies without relying on centralized parties. If user A has bitcoin, and user B wants Ethereum Classic, for example, they can agree to a fixed trading price and complete the transaction immediately.

One might argue using an atomic swap would require a certain degree of trust, but that is not the case. Every atomic swap uses a hashed time-locked contract, which is a part of the scripting language used for most major cryptocurrencies in existence right now. Both parties submit their individual transaction to the appropriate blockchain. User A sends bitcoin on the Bitcoin blockchain, and user B sends ETC on the Ethereum Classic chain. The recipient can only claim this transaction by revealing a secret number.

This results in both transactions being linked to one another, despite them taking place across two different blockchains. The process sounds a lot more complicated than it really is. To be more precise, it will be a lot easier on the Lightning Network if successfully activated on the Bitcoin network. Any altcoin forked from Bitcoin’s codebase is more than capable of implementing the Lightning Network as well. Litecoin may be one of the first to do so. Other currencies require extensive scripting capabilities to make atomic swaps possible.

Once different lightning networks can execute atomic swaps on their own, this whole process will become a lot less complicated. Users can open payment channels on both blockchains and effectively create a transaction processor. This also means users can swap different currencies they do not even own themselves, as long as they have a payment channel to someone who does own said coin. It will, potentially, replace cryptocurrency exchanges altogether. It will take some until atomic swaps become a reality, but it is certainly something to look forward to.

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