Atomic swaps are a cool tech that lets you trade different cryptocurrencies directly with each other using smart contracts, without needing a middleman or centralized exchange. They’re also called atomic cross-chain trading, and they let you swap one crypto for another, even if they’re on different blockchains.
The idea of atomic swaps was introduced by Tier Nolan in 2013 as a cool way for people to trade cryptocurrencies directly from their wallets. While Nolan gets credit for this concept, discussions about cross-chain trades were happening even earlier. In 2012, Daniel Larimer proposed a trustless exchange system named P2PTradeX, which many see as the early version of atomic swap tech.
One of the biggest perks of atomic swaps is the security they offer since users don’t have to share or use their private keys at any time. Plus, this tech eliminates the need for centralized exchanges, which means way lower costs—no fees for deposits, withdrawals, or trading.
On top of that, atomic swaps are safe from scams since neither side can take advantage of the other. Basically, this tech uses Hash Timelock Contracts (HTLC) and hash functions. The HTLC smart contracts make sure that the swap either goes through completely or not at all.
Basically, the contracts have deadlines, and the people involved need to either finalize or cancel the atomic swap within a set timeframe. So, an atomic swap only goes through if both sides agree it’s legit, which they do using cryptographic hash functions.
Imagine Alice has 5 Bitcoins and wants to swap them for some BNBs. Bob, who has BNBs, is up for the trade. Thanks to atomic swap tech, they can do this directly with each other, no need for a middleman. This allows them to trade two different coins on separate blockchains without any hassle.