What are Atomic Swaps?
Hey guys. Today's post is going to discuss Atomic Swaps and how the Lightning Network extends to Altcoins. Lets get to it...
There have been talks about Bitcoin utilizing the Lightning Network in the near future. The Lightning Network promises instant confirmations and low fees, along with a scaling layer to prevent congestion with transactions. In addition to these benefits, there is also the possibility to extend this peer-to-peer protocol to many altcoins in addition to Bitcoin. This potential could allow for trustless altcoin payment processors, decentralized altcoin exchanges, and cheaper BTC-to-BTC payments. Interoperability between BTC and Altcoins is known as Atomic Swaps.
Here is how Atomic Swaps work: Alice has 60 Litecoins, but prefers to have 1 BTC. Bob has 1 Bitcoin, but prefers to have 60 LTC. So Alice and Bob agree to trade, but neither trust each other, so neither wants to send their coins first. Enter the Atomic Swap. Atomic Swaps utilize a Hash Time-locked Contract, which in turn leverages the potential of multisignature addresses and time-locks. The Atomic Swap would Allow Alice and Bob to submit transactions to both blockchains: one on BTC and one on LTC. The Bitcoin transaction sends 1 BTC from Bob to Alice, but Alice can only claim this BTC if she reveals a secret number only she knows. The LTC transaction sends 60 LTC from Alice to Bob, but requires the same secret number on both chains. When Alice claims her Bitcoin, she reveals her secret number on the BTC Blockchain. And with that same secret number, Bob can then claim his 60 LTC.
Atomic Swaps allows the transactions of two completely different blockchains to effectively be linked. Bob just needs to monitor the Bitcoin blockchain to see if Alice claimed her Bitcoin so that he can claim his Litecoins. This method works today, but with a bit of a hassle...Alice and Bob need to find each other to set up the Atomic Swap, which then requires several transactions on multiple blockchains. The Lightning Network can be used to improve on this. Like Atomic Swaps, the Lightning Network utilizes hash time-locked contracts. Where Atomic Swaps effectively link blockchains, the Lightning Network links payment channels. If both Alice and Bob have a payment channel open with Carol, they can transact via Carol, without needing to trust Carol. Carol acts as a peer that opens channels on both blockchains to serve as a trustless payment processor and she can be used for altcoin exchange.
Having alternative Lightning Networks may even improve Bitcoin's Lightning network. For example, BTC-to-BTC payments could be routed through LTC peers, if that happens to be the cheapest route. Or, users operating on multiple coins could rebalance their channels. If Alice has 400 LTC but no BTC in her channel with Bob, she can exchange part of her LTC to fund her BTC channel. However, in order for any of this to take place, the Lightning Network must first be rolled out. Once activated, it should have a big impact price on BTC, LTC, and any other coin/token that can utilize the Lightning Network.
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Well that's all for now. What do you think? Will the Lightning Network come to pass in the near future? Will it be utilized with Atomic Swaps? If it does pass, will the price go up or down on the affected cryptos? Please leave a comment on all thoughts. Thanks for reading.
Take care and stay safe out there,