Cryptocurrency Atomic Swap Spree Brings Industry Closer to Decentralized Dream

Atomic swaps are a buzz amongst cryptocurrency developers. After Decred's successful swap between Litecoin and Decred, more cryptocurrencies are lining up for their turn. Cryptocurrency cross chain trading is now a reality bringing the industry closer to fully-fledged interoperable blockchains and decentralized exchanges.

Atomic swaps is a technology enabling two parties, on different blockchains, to instantly transfer 2 cryptocurrencies on mutual terms without a third party. The concept was first discussed in 2013, by Tier Nolan but up until 2013, it has been an elusive dream. 

"Just completed the first $DCR <> $LTC cross-chain atomic swap with @SatoshiLite. Huge shout-out for debugging with us! More info soon™.”

Decred's announcement of an LTC/Decred atomic swap was met with much funfare. Blockchain Engineers are excited because it represents a great milestone for the industry overall. Because cryptocurrency blockchains are open source, ideas can be ported across projects if they prove viable.

Decred's atomic swap feature is possible for Litecoin, Bitcoin, and forks of Bitcoin. This feature is strictly limited to command line scripts. But a planned future release will integrate it with the company's Decrediton GUI wallet.

A blog post on the project's official website outlined prerequisites for compatibility. Chains must have the following features.

  • Branched transaction scripts
  • Similar hash algorithm in both chains' transaction scripts
  • Transaction scripts contain signature checks
  • Transaction scripts have CheckLockTimeVerify (CLTV) or CheckSequenceVerify (CSV)

What is this useful for?

In light of the recent ICO prohibitions in China and crackdowns on exchanges, atomic swaps are a big part of the decentralized dream. Government interference has only made a stronger case for decentralized exchanges. Centralized exchanges are an achilles heel in the cryptocurrency ecosystem.

With cross chain trades, decentralized exchanges can be built for all types of trades. Large OTC trades and order book exchange trades can be powered by interoperable trading features on multiple blockchains. Centralized exchanges will be relegated to one-off on-ramp from fiat to cryptocurrency. Everything else after would occur on blockchains.

Other Successful Atomic swap projects

Decred is not the only cryptocurrency project to explore atomic swaps.

Soon after Decred's swap, Charlie Lee, founder of Litecoin followed up with 2 more cross chain trades. One with Vertcoin dev @jamesl22 swapping 1 LTC for 55 VTC and the next using Segregated witness trading 10 LTC for 0.1137 BTC with JStefanop1

Decred's swaps are heavily dependent on the mining process on both chains. At least an hour or two of waiting time is necessary for enough confirmations to assure the trade. With the lightning network, however, atomic swaps are off-chain. All transactions route through offline payment channels resulting in instant cross chain transactions independent of the mining process.

Zcash's implementation uses Hash-Time-Lock-Contracts (HTLC), borrowed from Bitcoin's lightning network that also supports atomic swaps with a superior efficiency.

In August Engineers from the Zcash project demoed a working implementation of cross chain atomic trades (XCT) between Zcash and BTC. Jay Graber and Ariel Gabizon shared their live video setting terms of the trade, generating two bitcoin and Zcash addresses and completing the swap after both agreed to terms. 

Another little-known project, Komodo, cried foul purporting they tested cross chain successfully as early as early January 2017. Komodo is decentralized ICO platform (dICO) to enable bypassing ICO prohibitions.

Interoperability of cryptocurrency blockchains is a highly sought after feature. Cryptocurrency expert Jimmy Song believes these early successes at cross chain cryptocurrency trades portend an exciting future for the cryptocurrency landscape.