The transfer of cryptocurrency from one party to another, without the use of an exchange or other intermediary.
What Is an Atomic Swap?
Atomic swaps are designed in such a manner that when a swap takes place, either both parties receive the funds they desire or nothing happens at all and both parties retain the funds they started with (minus a very small transaction fee for the “order-taker”). Atomic swaps make digital asset trading as secure as it can possibly be..
In an example scenario, Party A creates an HTLC address and deposits their cryptocurrency. This creates a passcode, along with a hash of that code. Party A sends the hash to Party B, who uses it to generate an address. Party B deposits their cryptocurrency with that address. Because Party A has the passcode used to generate the hash, they can access the coins deposited by Party B.
At this point, the contract sends the passcode to Party B, who uses it to access the coins deposited by Party A. If the contracts are not signed within the specified timeframe, both deposits are automatically returned to the relevant depositor.
Kadan Stadelmann is a blockchain developer, operations security expert, and Chief Technology Officer of Komodo, an open-source technology provider that offers all-in-one blockchain solutions for developers and businesses. Komodo works closely with organizations that want to launch their own custom decentralized exchanges, DeFi platforms, and independent blockchains. Its flagship technology and end-user application is AtomicDEX – a mobile and web-compatible non-custodial multi-coin wallet and atomic swap-powered DEX rolled into one dApp. Kadan strongly identifies with Komodo’s open-source vision and ideology. His dedication to the Komodo project is founded on an unwavering desire to make the world a better place. In addition to cryptography, blockchain technology, and development, Kadan is interested in literature, mathematics, astrophysics, and traveling.