📝 Definition:
An atomic swap is a technology that allows two people to exchange different cryptocurrencies between them without needing an exchange.
It uses smart contracts to make sure the transaction is secure and both people complete their part of the deal.
🔑 Key Features:
- Direct Exchange: Enables peer-to-peer trading without a middleman.
- Cross-Chain Transactions: Allows for the exchange of different cryptocurrencies on different blockchains.
- Smart Contracts: Uses automated agreements (smart contracts) to handle the swap.
- No Trust Needed: The transaction is either fully completed or not at all, so you don’t need to trust the other person.
⚙️ How It Works:
- Initiate Swap: Two people agree to swap cryptocurrencies and create a smart contract.
- Generate Secret Code: A special code (cryptographic hash) is created and shared.
- Deposit Funds: Both people deposit their own cryptocurrencies into the smart contract.
- Exchange Codes: Each person gives a secret code to unlock the funds in the contract.
- Complete Swap: The smart contract automatically completes the swap when both secret codes are reveled.
💡 Applications:
- Direct Trading: Allows users to trade cryptocurrencies directly from their wallets.
- Privacy: It offers privacy by removing the need for exchanges, which often need personal information.
- Lower Fees: Reduces transaction fees by cutting out middlemen.
- Improved Security: Smart contracts make sure both people fulfill their obligations.
🔍 Example:
Imagine you want to trade your Bitcoin for Ethereum with a friend. Instead of using an exchange, you both use an atomic swap.
You deposit your Bitcoin into a smart contract, and your friend deposits their Ethereum.
When both deposits are made and the codes are exchanged, the smart contract releases the cryptocurrencies to the right people.