Ever since the emergence of the first cryptocurrency Bitcoin in the year 2009, cryptocurrencies have been evolving widely and have changed the face of the finance sector. The transformation is driven by the assurance of a completely decentralized platform for users to store and exchange their cryptos. Most exchanges however are based on a centralized system. But the centralized exchanges have been facing the constant threat of cyber hacks, government seizures, and unexpected shutdowns. What is a better solution for these hurdles with centralized exchanges? Or a better solution to shift from centralized exchanges? This is where automatic swap comes into play.
What is an atomic swap? How does it work?
An automatic swap is a smart contract-based technology that allows users to exchange one cryptocurrency for another, without involving a third-party service, such as an exchange. Users have complete control over their assets throughout the entire transaction process without any intermediary involved. Automic swap includes two types such as,
On-Chain Atomic Swap- This is processed on the blockchain of each digital currency or coin. Both cryptos which are being exchanged should support HTLC and their crypto hash algorithms should match.
Off-Chain Atomic Swap- This blockchain does not take place directly on the blockchain, but via their off-chain payment channels that are away from the main blockchain. For this process, the two involved cryptos need a lightning network, to complete the swap.
Why are atomic swaps important?
Complete decentralized nature- Atomic swaps are completely decentralized allowing users to directly exchange between themselves, removing the need for a third party, and also reducing the chances for counterparty risks.
Ownership control- The users get to take over complete control of their digital assets throughout the process, eliminating the hack risks that are involved with centralized exchanges.
Reduced costs- Automatic swaps options do not involve any extra cost other than the standard blockchain fees. This fees-free trading process highly benefits the customers in terms of saving costs.
Summing up
Atomic swap with its characteristics and benefits involved has the potential to change the way crypto exchanges work, and disrupt the cryptosphere on the whole. It is expected that the number of decentralized exchanges that use on-chain and off-chain atomic swaps will rapidly evolve in the near future. If you want to make use of this advantageous opportunity quicker and gain a competitive advantage in the market, hire an experienced cryptocurrency exchange development company that is offering a decentralized exchange platform which includes atomic swap, such as Blockchain App Factory, and gain a profitable, risk-free, hassle-free, secure, seamless business experience.