Atomic Swap: Payment & Decentralized Exchanges

boucaron(57)

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Hi ! Just a little post about the Atomic Swap and why it is interesting.

Atomic Swap enables to exchange a crypto for another crypto without the need of a trusted third party: like a centralized exchange or an escrow. It is a cross-chain transaction.

For the time being, the atomic swap works in between Decred, Vertcoin, LTC and BTC.

How does it work ?

It uses a Hash-Time Lock Contracts (HTLC) on a multisignature wallet, two 2-2 multisignature addresses are required.
HTLC: Each party generates a hash based on some private value that is used has a verification to receive the amount of money on the appropriate blockchain.
First each party sends its coins to the multisignature address which is locked for a given amount of time, if the timer is expired, then the money is sent back to their respective owners. When both parties transferred the coins and they are ok the atomic swap is performed after verification of the hashes.

Fees issues with BTC

This is the only problem that I see with this technique due to the fees to store the transaction. Actually, no Lightning Network is required if both cryptos have the same hash algorithm and they support time lock contracts.

Remark

I think it will be quiet useful for any payment and it is even more interesting as a business perspective. It will not replace escrow based transactions because there is always a dispute or a problem, but it is a key building block for decentralized exchanges. Probably more and more crypto will support this feature.
Check out the following useful link to see what crypto is supported : http://swapready.net/

The following link contains much more details how it is implemented and a tool to perform such Atomic Swaps: https://github.com/decred/atomicswap