Bitcoin or Cryptocurrency or Digital currency initiated the digital financial revolution when it struck the financial market with its unique feature of “decentralization” in 2009. Crypto enthusiasts claimed that currency is entirely decentralized and is not backed or managed by any authority or institution. But, as the currency gained traction, crypto trading markets started being dominated by the centralized exchange platforms in crypto space.
Don’t worry crypto enthusiasts!! Decentralized Exchanges (DEX) are here to maintain the decentralized status of a currency. DEX introduced the alluring exchange method of “atomic swap”. Calm down and start this Guide to atomic swap to clear all your doubts related to the more private mode of crypto trading that too without any intervention of exchange.
What Is An Atomic Swap? (Let’s Start Guide To Atomic Swap)
Before answering the question->What are atomic swaps, let us first understand the meaning of swapping.
In simple words, swapping refers to non-custodial crypto-to-crypto exchange. It is like a traditional barter system, where you can easily exchange your crypto asset for another, without any fiat currency and without leaving your wallet where your private keys are stored.
So now let me initiate to explain, what is an atomic swap?
Let’s assume Sid and Smriti wanted to swap their tokens. Sid has 67LTC, but he wants to have 1 BTC (just to know it feels). On the other hand, Smriti has 1 BTC, and she wanted to own 67 LTC, they both decided to trade. But the problem remains, who will transfer the tokens first? No one wants to initiate, nor do they want to have some intermediary (like an escrow account) to complete the trading. Then, they came across this Guide to atomic swap and used the method of atomic swapping to trade their tokens. Without any third party like a crypto exchange or any intermediary like an escrow account, they were able to get what they both wanted!
Technically, Atomic swap is a peer-to-peer method swapping different currencies without any intermediary but via smart contracts. Whereas “atomic” is a fancy computer science term which means “either they happen completely or not at all”. It means if by any chance, one of the parties failed to complete their side of the transaction, then funds will return to the crypto wallets of the original owner.
Atomic swapping is another stage of evolution in decentralized currency, making the trade safer, efficient and “trustless”! What did I mean, you cannot trust in the method of swapping? No, I just said opposite of that. Ironically, trustless exchange means a more trusted one. Confused.?
How Do Atomic Swaps Work?
Atomic swapping seems to be a new method to start crypto trading. But hold on, do you know, how do swaps work? Or how do atomic swaps work?
The atomic swap was firstly introduced by Tier Nolan in 2013 but became famous in 2017 when Litecoin founder Charlie Lee announced a successful swap between litecoin and bitcoin.
While initiating the swap, a smart contract address is given to both the parties ( Let us assume Sid & Smriti) where they need to deposit their coins. Also, the unique key is given to both the parties to access their funds( One to Sid and one to Smriti). The party (Sid) cannot access the crypto tokens deposited by another party(Smriti) until he (Sid) deposits his funds to their contract address, thereby creating the atomic swapping as the trustless method!
Atomic swaps are designed on “smart contracts” which use Hashed Timelock Contract or “Virtual vault” to eliminate the probability of deceiving. This feature states that the submission of cryptographic proof within a time frame (Otherwise tokens will return) is needed to complete the transaction. (Phew! Too much of technical stuff but this is for your good as per the Guide to atomic swap).
You must have some faint idea of on-chain (cross-chain atomic swap) and off-chain atomic swaps. Let’s not dig into the details but give you an idea about the two methods of swap:
- On-chain or cross-chain atomic swap: It simply means swapping of tokens via two distinct blockchains and their native coins. The transaction takes place on the blockchain itself and considered to be secured for the parties involved.
- Off-chain atomic swap: This method of transaction is deployed less as the transaction takes place outside the blockchain network that is on the secondary layer of the blockchain (Sounds complicated!!).
Atomic Swap Exchange (Decentralized Exchanges)
Incidents related to Mt. Gox hacks, and the hackers like that of Lazarus group still terrify us and somehow stopped us from using the services from the centralized exchange. We all are sceptical about losing our crypto tokens through centralized exchanges.
Daily news related to hacking compels us to seek for safer and secured crypto exchanges for continuing our trading. The purpose of “decentralization” also gets ruined while using these exchanges for trade. Nonetheless, some of the decentralized exchanges or atomic swap exchanges are getting popular nowadays amongst the crypto enthusiasts to process the atomic swapping in the crypto space.
They can have a better method for crypto trading through atomic swap exchange. You can have a further look to guide to atomic swap:
- AtomicDEX: AtomicDEX was developed by the Komodo platform. It is a third-generation decentralized exchange and known to be an early adopter of the atomic swap. As stated by its website, AtomicDEX is a mobile-native asset agnostic atomic swap DEX. It is a multi-coin wallet with a peer-to-peer trading facility of a decentralized exchange.
- Bitsquare: Bitsquare is a decentralized peer-to-peer exchange which supports 126 cryptocurrencies. It is entirely decentralized as it uses Tor and does not hold any of the currencies on their network. It also requires no name, email ID or verification to complete the transaction.
- ChangeHero: Changehero is one of the popular DEX which provides an instant exchange of cryptocurrency with no KYC at all. That means you do not have to disclose about yourself before initiating your atomic swapping with others.
- Waves DEX: WavesDEX by the Waves blockchain protocol provides you with information about both of the world, i.e. the currency you want to sell and the currency you wish to buy. It has the distinctive feature of “centralized matching service” which lets you get the information of both centralized and decentralized crypto space.
- OpenLedger Dex: OpenLedger, a blockchain company based in Denmark, deploys decentralized solutions for crypto space by leveraging one of the tested technologies of BitShare, graphene technology.
- BarterDEX: BarterDEX, the product of the Komodo platform, is one of the best DEX for the atomic swapping of currencies. It recently crossed the 60,000 atomic exchanges on its platform, making it one of the popular decentralized exchanges.
Decentralized Exchanges like Bancor Liquidity Exchange, district 0x, Air Swaps etc. are under development. Nonetheless, the future of decentralized exchanges seems to be promising, and we can observe some moreDEX in future crypto space.
Atomic Enterprise Platforms (Crypto Swapping Platforms)
Atomic swapping may appear new to some of the traders, and they may find it a bit cumbersome and confusing. Also, signing your crypto account and every time placing the order for swapping can be the irritating process. The fact cannot be denied that no exchange lists all the coins, which makes it mandatory for creating multiple accounts and risking your security every time you hop to use your account.
Don’t worry!! Guide to atomic swap is still not over!! Crypto swapping platforms are here to make the efforts for you. Swapping platforms plug into exchange APIs and exchange tokens on behalf of the user. Platforms act like aggregators of exchanges which ease out the process of atomic swapping. Let us find the list of few the platforms which are commonly used by the crypto traders:
- ChangeNow: The striking feature of ChangeNow, which made it famous in just one year is that it allows purchases to be made with a credit card. Also, the platform does not limit the maximum amount that can be swapped. It gives them plenty of options to users, i.e. more than 170 coins can be converted in a completely decentralized way (KYC needed when found suspicious).
- Changelly: Changelly is one of the best-known platforms for atomic swapping. It has the unique feature of delivering a fixed rate mechanism. This mechanism safeguards the users against the risk of fluctuations during the swapping of tokens. The services of the platform are available through iOS application and Android app, thereby increasing the convenience of users. After the partnership with Simplex, Changelly allows the credit card to purchase cryptos.
- Flyp.me: Flyp.me claims to be a simple, private and fast atomic enterprise platform. One of the unique features of the platform that may attract you is that it allows you to retain at least a measure of control over the exchange rate. The hitting on the “Flyp now” button allows the user to lock the rate for a few minutes when he/she initiates the process of crypto swapping.
- Swapy: Swapy atomic enterprise platform combines round ten crypto exchanges and boasts of offering the best exchange rate possible. It provides a low cap and low liquidity tokens to users at spot price. It charges a fee only on the amount users save relative to competitive services, i.e. cut off the amount you have saved on a swap.
Among the number of service providers available in crypto space, mentioned platforms are highly popular among the crypto traders as they possess one or the other features which make them attractive among the customers.
Atomic Swaps Coin List
Swapping of cryptos via smart contracts or simply atomic swapping permits the users of the crypto community to sell and purchase their tokens across several blockchains securely and efficiently. As the atomic swaps coin list keeps on updating every day, but till now mainly following coins can be swapped:
- Bitcoin Cash (BTC ABC, BTC Unlimited, BTC XT)
What Is The Need Of Atomic Swaps?
Before starting your search for a guide to atomic swap, you must have analyzed some of the advantages of atomic swapping or decentralized exchanges over the wallet usage or centralized exchanges.
You must have found atomic swapping as one of the practical ways to exchange different crypto coins listed on distinct platforms. Or you have considered that it is a cheaper and faster way with a high degree of interoperability to swap cryptos.
Besides all of the advantages, one of the significant upper hand cannot be ignored the “decentralization” associated with crypto coins. Let’s try to explore some of the significant advantages associated with atomic swapping:
- Decentralization (No middle party): Unlike the centralized crypto exchanges which compel the traders to transfer crypto coins through their wallets (being hosted by exchanges themselves), atomic swapping allows the crypto traders to do the transaction without any third party or intermediary.
- Diminish Risks (Highly secured): HashLockKey (unique for every user) and TimeLock Key (assures completion of the transaction), both of the keys eliminates the risks of hacking and gives complete control to the users of their crypto tokens.
- Decrease Trading Fees (Less than Trading): Atomic swaps are considered as fee-free trading methods as only fees paid by the users is the transaction fees associated with blockchain transaction.
Atomic Swap: Flawless Or Flawed?
As every coin has the flip side, similarly the atomic swapping is also associated with some of the disadvantages. So, the aim of the Guide to atomic swap is just not to introduce with positive effects of swapping but to make you aware of the drawbacks also.
- Limited Liquidity: As the concept of peer to peer exchange through atomic swapping is relatively new, only a few of the cryptocurrencies are available for swapping and most of them are paired either with Bitcoin or Litecoin. This limited swapping results in limited liquidity via atomic swapping.
- High Level Of Programming Knowledge: For the completion of the swapping process, certain conditions need to be fulfilled priorly. High level of knowledge of programming and blockchain protocols is required at the backend. For increasing the adaptability, the development of a proper GUI interface needs to take place.
- Issues Related To Privacy: Some privacy issues are still associated with the decentralized peer to peer method of exchanging the coins based on smart contracts. The primary concern is that one can even track transactions on blockchain (one of the features of blockchain). Several cases came in the headlines when the addresses of sender and receiver were compromised. But don’t worry!! Rigorous testing is taking place to make the network more secure.
Are You Ready To Swap Your Crypto Coins?
Atomic swaps have the potential to diversify the crypto space and increase global adoption—the new method of swapping streamlines the trading process to the point of the convenience of the users. Theoretically, atomic swaps were developed to facilitate trading amongst every cryptocurrency pair, which is slowly progressing day by day. Also, the atomic swaps can integrate wallets, allowing the decentralized trading of currencies directly from the software, mobile or web wallet.
There are few projects which are currently in the designing stage, which can evolve the crypto space. For instance, Altcoin.io which is developing decentralized exchange and wallet along with built-in atomic swap features. Komodo, which is one of the early adopters of atomic swapping, is engaged in building its very own DEX which might facilitate on-chain atomic swaps.
Thus, atomic swaps are still a relatively new concept which needs to travel the long road of crypto markets and become popular among the crypto traders. In its growth phase, due to its capability of facilitating cross trading facility, it holds the promising future for crypto markets.
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