A peer-to-peer exchange, also known as an atomic swap, is a kind of transaction that enables two users to trade digital assets directly with one another without going through any kind of centralized or decentralized exchange.

How does atomic swap work?

The fundamental ideas of an atomic swap may be understood with little effort, but the specifics of how it works can be more challenging to understand. In order for you to comprehend the reasoning behind this process, it will break it down for you.

A smart contract is necessary for the operation of an atomic exchange. In spite of what you would believe, it makes it possible for a transaction to not be associated with a certain blockchain (like the ERC-20 tokens of Ethereum, or NEP-5 of Neo, for example).

What are the positive effects that it has?

To ensure the safety of a transaction involving many participants, a smart contract should be programmed. When doing transactions in person, the person who is given the tokens may be tempted to keep for themselves any of the items that they had previously stipulated they would give back to the other person.

However, because of something called a smart contract, it will be difficult to carry out this famed fraud. Tokens are transferred from the first person to the second, but in order for the second person to get them, they must first transfer their coins to the first individual.

The amount that was agreed upon is reflected in the smart contract, and the atomic exchange is only considered legitimate if all of the conditions have been satisfied. If any of the two persons attempt to deceive the other, the transaction will not go through, and the tokens will go back to the people who had them before.

The threshold that differentiates atomic swaps from conventional exchanges

Atomic swaps are extremely comparable to decentralized exchange websites. However, cryptocurrency atomic swap have the added benefit of enabling cross-chain trading, which refers to the act of exchanging digital assets across several blockchains.

Decentralized exchanges only permit the trading of ERC-20 tokens at the moment, which restricts the types of assets that may be bought and sold. A centralized platform that utilizes a conventional order book is your best option if you wish to engage in trading across different blockchains.

By using the atomic swap, you will be able to circumvent these limitations, steer clear of having to store your cryptocurrency on a conventional exchange platform, and protect yourself from being the victim of fraud during typical transactions conducted between individuals.

Sum up

People who want very high levels of security for their financial dealings might benefit from participating in an atomic swap, since it guarantees a secure exchange. However, since learning how to make an atomic exchange involves some level of expertise in the cryptocurrency business, it is not always simple for newcomers to learn how to do so.

Today, centralized exchanges have a dominant position in the market, and it is only recently that decentralized platforms, which permit trading solely inside the same blockchain, have begun to pose a threat to their market share. However, technological advancement is occurring at a rapid rate, and it is virtually certain that decentralized exchanges will soon be able to authorize atomic swaps. This will enable an increasing number of users to benefit from the new method of trading that is being introduced.