Atomic Swap
What Is an Atomic Swap
An Atomic Swap is a technology that lets two parties exchange cryptocurrencies directly, without using a centralized exchange or third-party service. The term "atomic" means the transaction is either completed fully or canceled entirely, ensuring no one loses their funds if the conditions aren’t met. This process uses Hash Time-Locked Contracts (HTLCs), smart contracts that secure the transaction with cryptographic hashes and set a time limit to cancel it if unfinished.
In an atomic swap, one party creates a secret code, called a preimage, which the other party needs to complete the exchange. These swaps can happen across different blockchains (cross-chain swaps), allowing users to trade assets like Bitcoin and Ethereum without intermediaries. On-chain swaps occur directly on the blockchain, while off-chain swaps, often done through networks like the Lightning Network, offer lower fees and faster speeds.
Atomic swaps are essential for decentralized exchanges (DEXs), enabling peer-to-peer trading without requiring trust between parties. This trustless system removes counterparty risk and ensures secure, efficient, and decentralized cryptocurrency trading. By supporting the principles of security, interoperability, and user control, atomic swaps play a key role in decentralized finance (DeFi).