Atomic Swaps

Atomic swaps are peer-to-peer exchanges of cryptocurrencies across different blockchains executed through cryptographic smart contracts that ensure settlement occurs simultaneously on both chains or not at all. Using hashlocked time contracts (HTLC), atomic swaps eliminate counterparty risk by making the transaction atomic—either both parties successfully exchange their assets or the transaction reverts completely. This mechanism allows direct cryptocurrency trading between chains without requiring a centralized exchange, intermediary custodian, or wrapped token. However, atomic swaps face practical limitations including liquidity fragmentation, slow settlement times when using on-chain finality, and user experience complexity compared to traditional exchange interfaces. Example: The Lightning Network facilitates atomic swaps between Bitcoin and Litecoin, enabling users to exchange these cryptocurrencies directly with payment channels rather than on-chain transactions. Why it matters for cross-chain interoperability: Atomic swaps represent the ideal of trustless cross-chain settlement—no intermediary, no wrapping, pure cryptographic certainty. They establish the theoretical foundation for decentralized exchange across networks and validate that blockchain-native settlement is possible without trusted custodians.

Category: cross chain, exchanges trading

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