What is atomic settlement?
By Fluyd Ltd on The Capital
Emerging technology is providing the next step for transactions in the digital space.
Currently, most online trading platforms rely on third-party payment systems to complete transactions. Tokenisation and distributed ledger technology offer the chance to remove this extra step completely, allowing individuals to trade directly with each other.
How does atomic settlement work?
Tier Nolan is credited with creating atomic swaps in 2013. This method was developed so people could trade cryptocurrencies directly with each other, without the need for centralised digital exchanges.
Atomic settlement takes the same principles and applies them to the trade of tokenised real-world assets: anything from property to syndicated loans to cash.
Both use a specific type of smart contract called a hash timelock contract (HTLC). This ensures the delivery and payment either happens or doesn’t happen at exactly the same moment. In the event the trade doesn’t happen, the HTLC ensures assets are safely returned to each trader.
What are the benefits of atomic settlement?
Security
Removing third parties from the chain means transactions are less exposed to hacking or any mismanagement from the third party itself.
Scalability
Platforms using atomic settlement have the potential to manage a high volume of transactions at any one time.
Synchronicity
One of the greatest strengths of atomic settlement technology is the ability to have multiple actions occurring simultaneously. For instance, marking an invoice as paid whilst payment is both sent and received.
Speed
Eliminating third parties means transactions have the potential to be instant.
Savings
Working peer-to-peer removes the need for third party transaction fees.
There is still work to be done to realise the full potential of atomic settlement and tokenisation.
However, as interest gathers momentum, the technology becomes more refined, and ecosystems spring up to harness these capabilities, they could well become default options for online trading.
