What is an Atomic Swap – An Intro to Its Concept and Benefits
What is an atomic swap and why would anyone want to use it? Essentially, what is an atomic swap is a way to swap one currency with another without having to pay any or all of the associated fees associated with that particular swap. With that being said, just how exactly do atomic swaps operate? Basically, atomic swaps utilize a special form of smart contract known as a hash lock contract (HKC). The reason why this type of contract is so special is because it offers a number of benefits, one of which is the ability to completely eliminate fees that are paid on margin accounts.
The “hashing” process that is used to complete an atomic Swap is actually much like that used when entering a direct margin trade. In the simple case, a KC will be created between two digital currencies by placing a sell order for one of them and a buy order for the other. The two orders will be matched in the hopes of matching each other’s orders and an order is then issued by the trader that is in the market to pay for the sale. At this point, the KC will take place and a lock will lock in at the exact time where the two orders are at their lowest prices thus completing the atomic swap process. Once both traders have entered their sold and bought positions, they are now in good standing and their positions are closed.
What is the benefit to traders using these types of transactions? First of all, the opportunity for profit is greatly increased due to the fact that these exchanges offer absolute privacy. In order for these exchanges to stay in business and remain financially viable, they need to be able to interact with each other and are only open to those who are either active users of the platforms themselves or have the ability to interact with them via the trading software. Due to their nature, these commodities are difficult to sell and buy on their own since they are impossible to hide from any exchange using the highest security measures. The atomic swap eliminates this problem completely since there is no third party involved which means there is no chance of fraud or manipulation by forces outside of the exchanges. For example, someone can set up a profile on one of these platforms and attempt to manipulate the price of one of the currencies by offering an illusion of demand for that currency and creating artificial demand by keeping the price low.
Another advantage to what is an atomic swap is the speed of execution. Unlike the traditional transaction routes such as forward and back trades, the blockchains do not require an exchange to execute the transaction. Instead, the blockchains let the users send orders to the network which is then immediately executed. The orders are processed within a matter of seconds. In contrast, traders who use the traditional methods to move money across multiple blockchains run the risk of their transactions getting temporarily lost, delayed, or even reversed.
The atomic swap also provides more efficient confirmation capabilities. When compared to the traditional financial systems, the atomic swap does not require a third party to confirm each transaction. With the traditional transaction routes, confirmation is based on the availability of a particular asset on the market. With what is an atomic swap, the exchange allows for confirmation to be instant if a user sends a request while the asset has yet to be bought and available for transfer. On the other hand, when a trader executes the transaction, a smart contract is immediately executed on a remote server and the process is replicated across the network.
What is an Atomic Swap also allows users to have a lower cost setup. Because there is no third party involved in the transaction, the exchange takes away from the fees traders would otherwise pay to use such third party networks. Because of this, users gain access to what is an atomic swap at a lower cost per trade. Time lock services are also removed, which gives users greater control over their campaigns. Traders benefit by having instant confirmation when executing orders, reduced costs due to atomization, and faster execution times.
What is an Atomic Swap also enforces better scalability and makes for a more efficient system. Because of the hash lock used to guarantee the security of the swap, changing Alice’s deposit to Alice’s stake allows for greater control. In addition to this, the lock guarantees that once the lock is locked, no third party can change the value of the lock, or send the value to another party. This ensures that the value of the asset will not be influenced or taken by another party during the course of the campaign. The lock is also useful for other uses, such as ensuring that only certain people can access certain data or funds on the network.
What is an Atomic Swap is a beneficial way for novice and experienced traders using decentralized exchanges to exchange their asset class and make profits. Using this type of swap reduces risks while maintaining liquidity. There is a greater level of control available through using this service. Because there are no commissions involved, traders are able to enjoy greater liquidity and efficiency. With all these benefits, it is easy to see why many investors and institutions are moving to convert to using atomic swaps as a means of performing their financial business.
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