What Is an Atomic Swap?

Last Modified:
May 1, 2024

An atomic swap is a way for two individuals to trade different cryptocurrencies across different blockchain networks without the need for a third party, such as a centralized exchange, to oversee the transaction. It uses a smart contract with a special mechanism to ensure that the trade happens within a specified timeframe or gets canceled if either individual fails to pay in time.

Atomic swaps use a hash timelock contract (HTLC), a special smart contract that allows both individuals to deposit crypto into the equivalent of a digital vault. It keeps the tokens safe until a secret key or passcode is used to unlock them.

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Here’s how it works:

  1. Both individuals deposit the specified amount of tokens into the smart contract. The smart contract locks up these tokens with a secret key to keep them safe.
  2. Person A sends Person B the key to unlock the tokens they deposited.
  3. Person B reciprocates.
  4. The swap is successfully completed once both individuals use the secret keys they were given to unlock the deposits.

If either individual fails to deposit enough tokens before the time limit expires, the smart contract automatically returns any deposited tokens back to the original owner.

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As blockchain technology continues to evolve, we can expect atomic swaps to become even more user-friendly and accessible to all.