Atomic swap basics: Your definitive guide from Gamdom

Atomic swap is a neat feature that allows traders to swap their assets from one crypto to another across blockchains. Such a capability is quintessential to anyone paying attention to multiple trends in their diverse portfolio. Thus, you will have to learn about it if you wish to maximise your profit in the crypto landscape.

KEY TAKEAWAYS:

• Atomic swaps are exchanges between two parties or accounts where the trade is executed by a smart contract on a decentralised exchange (DEX). 
• One of the highlights of atomic swap is true decentralisation. Through this, traders have an alternative option where they don’t have to rely on a third party.
• Conducting crypto atomic swaps is a straightforward process. After setting up the order and the buyer, both parties have to access the other person’s HTLC on their respective network before they can claim and verify the transaction.

Getting started with atomic swapping is easy once you learn your options. It’s advisable to start with the basics such as defining the term and understanding its mechanics, before eventually exploring its application and significance within decentralised finance (DeFi). Here’s everything you need to know about the atomic swap in a simple Gamdom guide:

Reach for the highest multiplier in Gamdom Crash

Defining ‘atomic swap’ as a term 

Atomic swaps are exchanges between two parties or accounts where the trade is executed by a smart contract on a decentralised exchange (DEX). That means there is no need to have a third party oversee the trade, thereby removing the need for exchange services. Doing so lets you trade as normally but no longer need to pay for an exorbitant fee for the platform used.

It shares the word ‘swap’ which is a common term used in Ethereum (ETH) ecosystem where decentralised apps (dApps) are used to replace your ERC20 assets for another. However, these swaps can only swap your crypto with other assets running in the Ethereum network. Atomic swap crypto can exchange value from one blockchain to another like Bitcoin (BTC) to Tether (USDT) or vice versa. 

Step-by-step on how to conduct an atomic swap

Conducting crypto atomic swaps features a straightforward set of steps starting from the setup where you find someone to trade with until the completion where the transaction is complete. Here are those steps from start to finish written in simple terms:

• Step 1 – Setup between the offer and the taker

Just like with regular trading on exchanges, people have to place their order of what crypto they’re offering in exchange for which asset. This is how connections between two parties are formed to make a transaction. However, you have to do this at a DEX. 

You can either place an order or take someone else’s so one party can contact the other. Once a connection is established, you can negotiate how much you’re asking for and offering for the trade. Once you have both agreed on an exchange of value, it is time to move to step 2.

• Step 2 – Creation of hashed time-locked contracts (HTLC)

An HTLC is a smart contract feature where you lock assets on the network. This is a combination of two elements namely hashlock and time lock. A hashlock protects the smart contract so it can only be unlocked when both parties have the same secret key. Time lock is also a protective measure but it’s keeping the contract encrypted until a specified time. 

You have to make the HTLC on your blockchain where you store the crypto you agreed to trade. The other party does the same on their end. Tell each other if it’s complete and share the secret key to your HTLC then proceed to step 3. 

• Step 3 – Exchange of HTLC between the two parties

Both parties have to access the other person’s HTLC on their respective network on the day and time that it is specified to open based on the Time Lock. Then, use the secret key the other party gave you to satisfy the hashlock. Verify if the crypto stored on the HTLC is equal to what was agreed. Once both parties are satisfied, proceed to step 4 of the atomic exchange.

• Step 4 – Claiming of assets locked in the HTLC

Claim the assets locked in the HTLC using the secret key that was given to you for the hashlock. The assets are going to be transferred to your wallet so you become the full-fledged owner of those assets. This marks the completion of the atomic wallet swap and you may now proceed to step 5.

• Step 5 – Verify each other if the transaction is complete

Inform the other party if you have received your assets to confirm the transaction’s completion. Likewise, they should also give you the same status report. This only takes one message from both parties and a simple ‘farewell’. It’s inconsequential but it’s a nice gesture to show professionalism and consideration for the other person.

Why atomic swap is important in DeFi

Atomic swap is one of many features that realise true decentralisation. It gives traders an alternative independent of relying on a third party. Therefore, an atomic swap offers the following vital traits in decentralised finance (DeFi):

• Trustless: Traders have to trust a third party to be neutral or indifferent in the exchange. The reality is that this central authority in traditional exchanges acts on prerogative. They can be biassed to give one side of the transaction leverage or become the point of error that compromises the trade. Atomic swapping on a DEX is between two parties only so there’s one less group to trust.
• Anonymity: Users are never anonymous when using centralised services. These require know-your-customer (KYC) compliance so you have to trust that a centralised exchange (CEX) won’t disclose your information. DEX usually doesn't need it so you can be anonymous when trading with strangers. 
• Peer-to-peer trade: The main point of atomic swap is to forgo the need to convert crypto into fiat. There were no other alternatives without atomic swaps for both DEX and CEX. Forgoing the need to turn crypto to fiat is not only cost-effective but also lessens the point of error in your attempt to diversify your portfolio.

Utilise atomic swap using Gamdom crypto winnings

Now that you understand the significance of atomic swap in decentralised finance, you can now capitalise on this feature to turn your Bitcoin winnings into other assets Gamdom supports like Tether (USDT), Ethereum (ETH), or Litecoin (LTC) if you wish to diversify your bankroll. Likewise, this is also helpful in turning rewards into the asset you prefer withdrawing. 

Remember that the atomic swap is only one of many options you can use in the ever-growing crypto landscape. Gamdom also offers alternatives to exchange your funds from one crypto to another using plugin services from partnered centralised exchanges. Weight your options and opt for whichever is the most convenient and this reflects on how the crypto industry grows. 

Play the best Bitcoin casino games at Gamdom