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An atomic swap allows for the exchange of one cryptocurrency for another cryptocurrency without the need for a trusted third party.
In traditional cryptocurrencies a trusted third party such as an cryptocurrency exchange or decentralized exchange (DEX) is necessary to perform a swap of cryptocurrencies in order to prevent one party from sending a currency without receiving a currency in return. An atomic swap is an all-or-nothing way to trade cryptocurrencies without those risks. An atomic swap system can use a hash time-locked smart contract so that a party must deliver the currency to be swapped within a specified time, or else the transaction will be cancelled. This preserves atomicity in that either the swap will take place, or no currency will be swapped.
Atomic swap process
Atomic swap or atomic cross-chain trading (ACCT) is a mechanism, where two (or more) parties own coins in separate cryptocurrencies, and want to exchange them without having to trust a third party. The term “atomic” here means indivisible, and refers to the fact that sending cryptocurrency on one chain and sending other cryptocurrency on the other chain cannot be performed independent of each other. If these transactions could be performed independent of each other, then while one party could fulfill their side of the bargain and send some cryptocurrency on one chain, the other party would have the option of going back on their end of the bargain and simply not following through with the protocol, ending up with both cryptocurrencies.
The idea of atomic swaps was first described in 2013 by Bitcointalk user Tier Nolan.
The atomic cross-chain transfer wallet plugin between Burst and Qora was made publicly available on October 1, 2016.
ZCash releases their tool atomic swap tool, ZBXCAT, in experimental stage Oct 2017.
Using multi-hop locks, atomic swaps can be realized without hashing.
A Lightning Network is a second, optional layer that removes the mining fee and creates an instantaneous transaction.