To understand what an atomic swap is, we have to first understand an inherent problem in trading. Suppose Alice wants to buy something from Bob, say a collectible Pez dispenser. Suppose further that Alice and Bob live far away so it’s difficult to do the trade in person and that they’re strangers to each other, so they don’t trust each other. How do Alice and Bob conduct this transaction?
If Alice sent Bob the money first, Bob may simply not send the collectible to Alice as he’d already have the money. On the other hand, if Bob sent the collectible to Alice first, Alice may simply not send the money as she’d already have the collectible.
We call the transfer of money from Alice to Bob, Bob’s side of the trade and the transfer of the collectible from Bob to Alice, Alice’s side of the trade. Ideally, we want both sides of the trade to go through simultaneously, but unfortunately this turns out to be hard.
- What an atomic swap is, how it affects the future of Bitcoin, and why it is useful
- How an atomic swap works, with a real-world example
- Why trusted third parties are security holes, and how atomic swaps remove the need for them
- Pros and cons of on-chain atomic swaps compared to off-chain swaps such as the Lightning Network
- What some of the cryptocurrencies that support atomic swaps are, including Decred (DCR) and Litecoin (LTC) which made headlines after recently completing an atomic swap
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