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What is Crypto Atomic Swapping and How Does it Underpin the Emerging Blockchain Economy?

Atomic swapping off the blockchain is one of the most crucial components of the future blockchain economy

Two hands shaling in front of an atomic reaction.
Image courtesy of Canva

Can too many cooks spoil the broth?

I visited a friend years ago at their new house. Another friend was there also. Both my friends were cooks and making a dish of their design for me to try. However, there was much debate about what ingredients to use and when to use them. And although the dish turned out good, I always wondered if it could have been better had only one friend worked on the meal.

Atomic swapping is a feeless or low-fee, trustless, decentralized, democratic answer to the problem of central finance control and corruption. It underpins the essence of the blockchain economy because it brings the most basic commerce function as close to the individual as possible. However, it’s more robust than a physical trade due to the rules governing the atomic swap with smart contracts.

I’ll argue the most fundamental piece to the dream of a currency system for the people is atomic swaps. As of now, we still require a centralized exchange in many cases to conduct our business in this early stage of cryptocurrency. But the dream, like Cardano’s final phase, is complete decentralization. And so, you get the emergence of DEXs as a result. But more particular, we want to focus on atomic swaps. Atomic swaps are the core of the cryptocurrency dream.

Therefore, it’s always worth a conversation lest we forget the heart and soul, the thesis of cryptocurrency.

Let’s get it.

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What is an Atomic Swap?

An atomic swap is an act of swapping one cryptocurrency for another peer-to-peer. All that’s needed is a validator to check the transaction and record it to the blockchain. Also, a validator might charge a small fee for their service.

For example, let’s say my wallet contains one BTC, and your wallet has one ETH. I’ve been meaning to buy some ETH. Also, by good fortune, you’ve been meaning to acquire more BTC and wouldn’t mind selling ETH for it. So, I initiate the exchange through the DEX, which gives us the values of each coin or token so the wallets can calculate the proper exchange amounts for fair trade. We both agree and choose a validator to verify our transaction and record it to the blockchain. The validator receives a small fee, and our business is concluded.

The reason they are called atomic swaps is that the exchange is all or nothing. There are only two possible outcomes. Two parties make a successful exchange, or the deal cancels, and both parties keep their crypto. Neither party can swindle the other.

For a better understanding, let’s see how an atomic swap works under the hood.

How does an Atomic Swap work?

An atomic swap works by using two separate storage areas for each participant’s crypto and providing the key to access those cryptos at the proper moment, creating a smooth, safe and secure exchange.

There was a movie starring Chris Tucker and Charlie Sheen called Money Talks (1997). In one scene, Chris is handing something off to Charlie and Charlie to him. In the moment of exchange, Chris says, “I don’t know you man. Same time, same time.” Chris didn’t trust Charlie, so he demanded they exchange their items at the same time so Charlie wouldn’t run off with both items.

They needed atomic swapping to solve the trust issue, and here’s how it would have worked.

Chris holds a transparent box with his item and a key to that box hidden in his pocket. Chris tosses the box to Charlie so he can see that the box has the item inside. However, Charlie cannot access the item because Chris still has the key. Now, Charlie produces his transparent box with his item in it. However, Charlie’s box has the same lock on it Chris’ has. Next, Charlie tosses his box over to Chris. Both Chris and Charlie have verified the contents of each other’s boxes, but Chris still has the key in his pocket. Once Chris takes the key out of his pocket, Chris and Charlie see the key to open the boxes, and the exchange is complete.

If Chris or Charlie were to run off at any time, neither one of them would be able to open their boxes. And after a certain amount of time, the items would return to their original owners. Also, no matter where Chris is, when he takes the key out of his pocket both he and Charlie will see it and be able to open their boxes.

Now, let’s see why atomic swapping is so much better than centralized exchanges.

Comparison of Two Methods of Crypto-Transferring Between Two Wallets

The comparison between centralized exchange trading and atomic swaps is centralized exchanges require many more steps for the user plus compliance with KYC.

When we use a centralized exchange to trade crypto, we must first possess the crypto. So, we purchase or mine it. Then, we must use an exchange that trades in the crypto pairs we want to change. Next, we must sign up for the exchange and go through the KYC process. Afterward, we initiate the trade, which costs a transaction fee. Now, we are waiting for the transaction validation. Once done, we can withdraw the crypto for fiat unless we can spend it directly. Finally, if we do withdraw for fiat, the withdraw costs another fee. And then we’re done.

However, if we use atomic swapping, we initiate a trade with another user, choose a validator, pay a tiny fee to the validator for their services, and complete the transaction. And we’re done.

The comparison is clear. Atomic swaps are a superior choice for the user. And, I believe, the natural progression of what crypto’s currency system should be. With atomic swaps, the control belongs to the users, which is what Satoshi wanted.

We should all be advocates for atomic swapping. But why is it such an important conversation?

Why Are We Talking About Atomic Swapping?

We are talking about atomic swapping because the longer we keep the idea and the conversation alive, the stronger the reality of atomic swapping becomes.

“They say you die twice. You die once when your body dies, then you die when someone speaks your name for the last time.” — Unknown (conflicting sources).

Atomic swapping is alive and well. And we need to keep it that way. It’s another point of contention for centralized power brokers who do not want to give up the reins of finance. So, like with almost every aspect of crypto, we’re going to see a great deal of pushback. We have groups of people who sincerely believe they can make better decisions for us than we can for ourselves.

And please understand I’m not advocating for a lawless society. But I would like a little more freedom in my life than less.

Atomic swapping is as close to physically trading with each other as we can get in a digital world — but more robust. And that’s why it underpins the essential structure of the emerging blockchain economy.

Blockchain cannot be stopped and will transform the future of finance.

The Future of the Blockchain Economy

The future of the blockchain economy is a reversal of the economic systems of the past.

Instead of an inside-out approach where a central point (the few) disperses and regulates trade between many other points (the rest of us), we will each have control and a voice in what happens to the central point — an outside-in approach.

However, it won’t be an easy transition. Imagine you are in a position of power where you’re living a great life. You’re happy and safe. Also, you have the resources and leverage to make a fundamental change in the world. Perhaps you see clearly how the world could be a better place, and if everyone believed in your cause, they would be happy. But they don’t believe in your cause. In fact, they flatly reject it. How would you feel? What if they came to you with an idea and said, we want this instead of your idea? And the idea was one you’ve worked on all your life. Would you walk away silently into the night? Probably not. And so, neither will those who have held the reins of power for so long.

There are so many ways to use blockchain to make our lives better. Blockchain applications in politics, medicine, finance, and governance could be the next step in our social evolution. But, of course, that’s a scary sentence for both the old guard and us too. After all, it’s unknown territory for everyone. And we may find that it isn’t as great as we thought in the beginning. But we must be free to make that mistake. Experience has always been the best teacher, and we cannot allow it to be taken away.

Blockchain is a programmatic representation of freedom and choice for everyone. And I assert it will be a boon to our society. But a technology is only as good as its users.

Conclusion

Atomic swap’s implementation is growing, and we must support its evolution because it means freedom and prosperity for us and our financial future.

Even though Satoshi Nakamoto’s dream started 12 years ago, we still have centralized aspects in the crypto-verse. For example, most exchanges are centralized. However, the emergence of DEXs is promising, and they facilitate atomic swapping, which is where the crypto ecosystem should have been going all along.

Yet, humans tend to form hierarchical structures, and centralization occurs in every aspect of our lives even though we espouse personal freedom. It’s a struggle to be sure. But one worth the suffering. Besides, on the road of that struggle lies our freedom to make our own choices and mistakes. So, for good or ill, we must steer the car.

Atomic swapping and new blockchain applications will help us better understand the possibilities of our freedom, our mistakes, and our triumphs. We must be free to explore those possibilities. And that means telling those who have held the reigns of financial power for so long we don’t need you anymore. Of course, they won’t react well, and there will be conflict. But it’s a struggle worthwhile.

Stay strong.

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AltStable is your one-stop for digital asset education, including cryptocurrency, NFTs, and Defi.

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