What are atomic swaps and why it matters?

I assume majority of you guys read an article written by steemit.inc in which they propose implementing atomic swaps between steem and tron, thus enabling two different economies to coexist and extract mutual benefits without interfering with another projects sovereignty or autonomy.

Despite the fact i personally don't find anything interesting around tron i still consider it valuable in a some sense.

I won't jump to a conclusion before official discussion takes place, but will brake down what it means and what to expect in case we actually agree on common goals.

Will not look into details in regards to recent acquisition as the trending page is already full of it and there is no need to discuss it further.

Lets dive into it.

Atomic Swap

Atomic swaps are relatively new discovery with a potential to disrupt the way we transfer value accross the internet, thus revolutionize transacting per se.

Given the fact that trading can and is sometimes annoying and time consuming, especially if one decides to trade tokens which aren't supported by big exchanges. atomic swap might be a good solution.

For instance, you have RC20 token and you want to swap it for lets say bitcoin. The common practice would be swaping for its native currency, that is ETH and afterwards utilizing exchange to buy bitcoin. So you actually have to trade twice, which makes security questionable and frustrating.

In simple terms, atomic swaps enables people to trade directly through their wallets, thus avoiding third party exchanges during the entire process. It may sound not so important but i assure you it kinda helps in everyday acivities.

To give a very simplistic explanation. Two parties who are going to engage in atomic swaps decide on a shared secret. The two parties will share their cryptos if and only if their secrets match. So, this way, if somebody else barges into this exchange, they won’t be able to get their hands on any of the coins because they will not know this secret.

In order for such transaction to take place there is a Hashed Timelock Contracts( known as HTLCs) which are responsible for securing the transactions and keeping the secret safe.

Atomic swaps require both parties to acknowledge receipt of funds within a specified timeframe using a cryptographic hash function. If one of the involved parties fails to confirm the transaction within the timeframe, then the entire transaction is voided, and funds are not exchanged. The latter action helps remove counterparty risk.

So there are multiple advantages of atomic swaps and i will highlight only the most important ones.

First of all it removes third party interferance which is quite important due to a hight risk a exchange getting hacked. It may sound to radical but once you start exchanging a lot of money, security becomes your primary concerne.

Direct wallet-to-wallet trading epitomizes decentralization in its purest form. Exchanges are constantly targeted for regulation purposes which makes the whole trading process increasingly centralized.

LIMITATIONS

As always, there are pros and cons to every new technology, especially those who are considered to be in its early stage.

Both blockchains are expected to have a hash algorithm which is inherenet and common to both of them, otherwise it they won't be able to communicate properly. Moreover, both blockchains has to posses an ability of executing HTL.

To be honest i don't know if steem has those abilities and what happens in case it doesn't. I assume it requiers hard fork, but i might be wrong about it.

The solution seems pretty straight forward and is the best way to increase interest between seemingly different communities. After all we share common goals, that is to increase the activity and liquidity of our digital asset, that will eventually have an impact on price itself.

Stay connected.