Atomic Swap: a new era for Cryptocurrencies exchanges
Imagine what it would be like if the trading cryptocurrencies had no trading fees.
No trading fees are soon to happen in the real crypto world!
How?
Thanks to a new technology called atomic swaps.
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What is Atomic Swap?
Basically, Atomic Swap, or atomic cross-chain trading, is the exchange of one cryptocurrency to another cryptocurrency, without the need to trust a third-party like Bittrex, Binance, BitHumb etc.
Indeed, an Atomic Swap is a smart contract technology that enables two parties to exchange different cryptocurrencies/tokens without the risk of one party defaulting on the trade.
Furthermore, it is impossible to run off with the other party's money before the trade is complete since the trade is assured by the smart contract.
For a trade between Alice and Bob to take place, both must submit their transaction to their respective blockchain, Alice on the Bitcoin blockchain and Bob on the Litecoin blockchain. In order for Alice to claim the 100 Litecoins sent from Bob, she must produce a number that only she knows, used to generate a cryptographic hash, therefore providing proof of payment. Similarly, in order for Bob to claim the 5 Bitcoins that was sent from Alice, he must also provide the same number, that was used to generate the cryptographic hash.
At the moment, this technology is still in development, but its future is really bright.
Note that this kind of trade is not user-friendly, you should be able to use a terminal to input the command-line to process the transaction.
Because of this, some businesses could charge you a very small fee but maybe in the next future, Atomic Swaps will come with a GUI, without any fees at all.
Limits
There are few limits concerning this new kind of trading:
- Both currencies that are being exchanged must have the same hash algorithm.
- Both currencies should support time lock contracts.
- You need certain programming skills to use atomic swaps as of now.
We all know that those are huge limitations for the non-nerd adoption, but it is important to remember that Atomic Swaps are still in development.