Can atomic exchanges achieve critical mass? Read on to find out.
Atomic swaps are one of the most promising developments in decentralized technology: they are a way for peer-to-peer trade that does not need a third party.
These swaps depend on HTLCs, or Hash Time-Locked Contracts, which automatically execute or cancel a deal after a certain time period. This guarantees that neither party will renege on the agreement.
Despite the fact that the specifics are more sophisticated, atomic swaps simplify crypto trading in many crucial aspects.
Unlike typically centralized exchanges, these swaps do not need a third-party custodian, nor do they depend on relayers like other decentralized exchanges. Instead, the whole transaction is powered by cryptographic proofs.
This trading strategy is likewise light and unconstrained. Atomic exchanges do not need costly fees and are not susceptible to theft. Additionally, they are resistant to regulatory pressure and seldom need KYC, but some DEXs are taking no risks.
Despite these benefits, however, atomic swaps have failed to achieve critical mass for both technological and practical reasons.
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Several Technical Concerns
Theoretically, atomic swaps should be less costly than centralized exchanges due to the absence of intermediaries. However, minimal costs are not truly guaranteed.
On-chain transaction costs must still be paid during an atomic exchange, and they may be rather costly. Off-chain swaps might fix this issue, but doing so involves overcoming other issues.
Moreover, atomic substitutions are not always quick. Standard swaps are excessively sluggish for many trading situations: Bitcoin swaps may take over an hour to complete. This is a serious issue: crypto values may move rapidly, causing one side of a deal to back out and terminate the transaction.
Lastly, compatibility is a concern. Atomic swap-traded cryptocurrencies must have the same hashing algorithm and be programmable.
Although an atomic swap exchange such as Atomex is able to exchange 95% of currencies, this is mostly due to the ubiquity of Ethereum's ERC-20 standard and the fact that certain coins do not enable atomic swaps.
A Question Of Time?
It is possible that atomic swaps are moving slowly since they are a relatively new technology. Despite being presented for the first time in 2013, the early swaps were manually coordinated on discussion boards.
For a very long period, atomic swaps suffered from a lack of visibility and accessibility. In 2017, Charlie Lee engaged in a Litecoin-to-Decredd trade, marking the beginning of more substantial exchanges. In the same year, HLTC-based payment channels on the Lightning Network gained popularity.
Increasing numbers of automated systems have made atomic swaps generally accessible, yet coordination between users remains a problem.
If you want to conduct a swap, you must still locate a partner, which is not always doable. Moreover, atomic swaps are a secondary function on several exchanges. Consequently, they are not often very noticeable.
Which Atomic Exchange Projects Are Progressing?
A number of ongoing initiatives are putting an emphasis on atomic trade. Atomex utilizes an on-chain solution that is built on hashed timelock smart contracts in order to conduct transactions. It offers users the benefits of both centralized and decentralized exchanges in one convenient package.
As a consequence of this, you may make use of a multicurrency HD wallet that has an integrated hybrid atomic swap exchange.