Network users have become accustomed to the fact that any exchange of fiat or cryptocurrency involves a commission from an intermediary, known as an exchange. Atomic swaps eliminate intermediaries and allow exchanges between two different blockchains. Let's examine this phenomenon in more detail.

The concept of atomic swap

Basic principles of operation

Tokens of each owner are locked for a certain period using smart contracts. A pair of contracts is created, which guarantees that if the coins of the first party change ownership, the same will happen with the tokens of the other participant. If one of the parties does not take action within the specified time or does not confirm the transaction, the coins will return to their original owners. "Atomic" in this case means that the exchange will occur in full or not at all.

Transactions take place on the blockchain of either coin's network or off-chain. An off-chain swap occurs in the secondary layer, with the technology based on Lightning Network principles.

Advantages of atomic swap

This method has significant advantages:

• decentralized nature and absence of intermediaries;
• involves two or more parties;
• high level of security, no need to share personal data with anyone;
• the transaction occurs directly from users' wallets, with no or minimal fees.

Disadvantages of the method

This type of transaction has some limitations:

• swaps can only occur between coins based on the same algorithm, for example, SHA-256 (Bitcoin) or ERC-20 (Ethereum);
• transactions are easily traceable in blockchain explorers;
• the technology is not fully developed, and the percentage of transactions using atomic swaps is still extremely low.