How to exchange funds between blockchains without third-party risks?
Atomic Swaps is a new technology that makes it possible to exchange cryptocurrencies directly and without third parties. For example — you can exchange BTC to LTC with the fixed and small fee for any amount without centralization exchanges. The commission does not depend on the amount.
What is Atomic Swap?
In Greek language “atomos” means “indivisible”. “Swap” means trade and finance exchange operation in the form of exchange of different assets. Atomic Swap is the operation, which either implemented entirely or cannot be implemented at all.
It has essential meaning for the future of crypto: unlimited cross-blockchain exchange will open up a brand-new world of possibilities for the market.
Atomic Swap has two sides — Initiator and Participant. For example look at BTC-LTC Atomic Swap:
Initiator creates something like “deposit box” which contain funds in the process of Atomic wallet Swap.
This is like “transparent” box: recipient can check what’s inside, but cannot take the funds out without the initiator’s key.
When recipient checked that everything is fine, he makes the same box with the same lock, but with his own assets. Initiator checks this box, open it and leaves the key in the lock. Then the recipient takes the key and opens the initiator’s box.
The key is called the “Secret” and box it is the Contract. In other words, initiator sends to recipient hash of his Secret and now recipient can make a similar box, which will be opened by the same secret.
And although initiator owns the lock and the key, he can’t open his box and take his coins back, because the assets blocked for 24 hours by Hashed Timelock Contracts (HTLC) protection. It’s designed to prevent each side from frauds and cheating (when initiator already received participant’s coins, but didn’t sent his own).
In picture above you can see a full Atomic Swap process, it looks complicated isn’t it? But not for Atomic Wallet user:
All of this proceeds automatically and there is no need for any actions by users in the process. You just have to make few clicks and waiting for your funds.