Bittime - As the name suggests, atomic swap, namely atomic exchange. The atomic swap in question refers to the elimination of centralized control intermediaries, thus making crypto asset exchange increasingly decentralized.
The existence of atomic swap practically offers security for crypto asset transactions , because it goes through quite complicated processes.
So, what is atomic swap, and how does it work? See more details in the following article.
Understanding What is Atomic Swap?
Atomic swaps facilitate direct trading between individuals using various crypto assets on different blockchains, without the need for intermediaries such as centralized exchanges. It allows users to exchange digital assets according to smart contracts that run automatically.
Centralized exchanges (CEX) provide a trading experience similar to traditional stock and fiat currency trading , offering asset liquidity, organizing trading pairs and order books, guaranteeing fair market prices, and providing a platform for buyers and sellers.
However, CEX also acts as a custodian and has centralized control because it has access to users' private keys.
Although centralized exchanges (CEX) are popular due to high trading volumes, they are not aligned with the principles of decentralization in the world of crypto assets and blockchain.
Therefore, decentralized exchanges (DEX) seek to overcome this shortcoming by creating custodial-free infrastructure.
Atomic swaps enable broad interoperability between different blockchains, paving the way for decentralized multichain crypto exchanges that are true to the spirit of decentralized finance (DeFi).
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History of Atomic Swaps
Atomic swaps, also known as cross-chain atomic swaps, are thought to have been proposed in 2013 but only began to be widely implemented after 2017.
In July 2012, Sergio Demián Lerner, a developer, produced an initial version of the trustless exchange protocol.
However, the complete document was presented in 2013 by Tier Nolan, who is considered a pioneer in the development of atomic swapping due to his detailed description of the procedure.
In 2017, this concept was realized when Charlie Lee, the founder of Litecoin, posted the historic moment of completing the first successful atomic swap on Twitter.
He successfully performed a cross-chain atomic swap involving LTC/BTC, where he exchanged Litecoin (LTC) for BTC.
Since this achievement, many decentralized exchange (DEX) and swap platforms have leveraged this technology to create new crypto asset trading solutions.
Popular DEXs and networks that support atomic swap trading include AtomicDEX, Lightning Network, Liquality, and others.
Also Read: What is AtomicDEX and its Advantages
Concise Atomic Swap Practice Guide
Atomic swaps enable DeFi to overcome the inefficiencies associated with exchanging crypto assets in centralized financial systems (CeFi).
To exchange Ether (ETH) on the Ethereum network and Bitcoin (BTC) on the Bitcoin network , one can follow these steps when using a CEX like Coinbase:
- Register an account on a centralized exchange platform that supports ETH/BTC trading pairs. This process may require registration and KYC verification as per CEX policy.
- Transfer ETH to a centralized exchange.
- ETH to BTC conversion, which may involve transaction fees and long settlement times.
- Withdraw earned BTC to a Bitcoin wallet, which may incur additional fees.
- Waiting for processing by the exchange and the eventual arrival of funds.
The CEX redemption process involves a series of steps, high fees, and possible problems.
Additionally, CEXs may pose security risks related to the storage of assets. User funds are held in a custodial wallet by the CEX, which has control over the private keys.
Potential threats include security breaches, hacking, or regulatory withdrawal freezes.
To address this issue, DeFi and DEX introduced atomic swaps, which eliminate intermediaries in trading, simplify the process, and significantly reduce various potential security risks for crypto asset users.
Also Read: What is Altcoin Season? Recognize the Signs and Their Influence on the Crypto Market
How Atomic Swap Works
Source: https://medium.com/@pierre.noizat
Atomic swaps operate by using smart contracts and hashlock cryptographic techniques to secure digital asset transactions.
The term "atomic" is used to describe the success or failure of a process without any alternative.
In the context of crypto exchanges, atomic swaps only result in two possibilities: a successful transaction or no action taking place at all.
In simple terms, atomic swaps form a mechanism where both parties must meet predetermined conditions before a transaction can be completed.
This is achieved through smart contracts, self-executing programs to enforce transaction conditions.
Atomic swaps use hash time key contracts (HTLC), a type of smart contract , to facilitate the safe and trustworthy exchange of crypto assets.
HTLC “locks” the transaction and requires verification from both parties before the transaction can proceed.
Atomic swap smart contracts have two main components:
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1. Hashlock
The hashlock mechanism locks the contract with a unique cryptographic key that can only be generated by the owner of the crypto asset.
This key, being a piece of unique data, ensures that a transaction is only completed if both parties agree to it.
2. Timelock
The timelock mechanism acts as a time limit for transactions. This ensures the transaction is completed within a certain time frame, and if not, the funds are returned to the owner.
Timelock helps secure transactions by limiting the time for approval, otherwise the transaction is canceled and the asset is returned to its owner.
How to Buy Crypto on Bittime
You can buy and sell crypto assets in an easy and safe way via Bittime . Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappebti.
To be able to buy crypto assets on Bittime , make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet. For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application.
Learn Complete Guide How to Buy Crypto on Bittime .
Monitor price chart movements of Bitcoin (BTC) , Ethereum (ETH) , Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.
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DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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