Atomic swap is a technique that enables the rapid conversion of two different cryptocurrencies running on different blockchain networks. Such a process is based on smart contracts, also known as "atomic trading between chains", which allow us to buy and sell users ' coins directly from our own personal crypto wallets.
Although the idea of interchain trade is an innovative technique, it has been discussed for many years. Tier Nolan is probably the first to describe a complete atomic swap protocol in 2013. However, P2PTradeX, a non-trust-based cycle protocol, was put forward by Daniel Larimer in 2012, and some people consider it the prototype of atomic swaps.
In the years that followed, many developers experimented with atomic swap protocols. Evidence suggests that the Bitcoin, Litecoin, Komodo, and Decred communities all played an important role in the process.
Atomic swap protocols are designed to prevent participating parties from cheating. To understand how the protocols work, suppose Alice wants to trade her Litecoins (LTC) for Bob's Bitcoins (BTC).
First, Alice deposits her LTCs at a contract address that serves as a safe. When this vault is created, Alice also creates a key to access it. Alice then shares a cryptographic hash of this key with Bob.
While Hash time locked contracts (HTLC) are important parts of the Bitcoin Lightning Network, they are also key elements that make atomic swaps possible. As the name suggests, they are based on two basic functions: a hash lock and a time lock. The hash lock prevents funds from being spent unless a piece of data (Alice's key in the previous example) is shared.
Although atomic swaps are quite new and have limitations, this technology leads to significant changes in blockchain interoperability and cross-chain trading capabilities. The technique has a huge potential for the growth of the cryptocurrency industry, creating new possibilities in terms of decentralization and peer-to-peer money transfer. Atomic swaps are likely to be used more and more in the near future, especially in decentralized exchanges.
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