In today’s evolution oriented state of affairs, the need for third party organizations, mediums and services is at peak, blockchain is no exception for the matter. However, this new line of technology may cause some to lose their balance at least until the effects wear off. Atomic swaps refer to the exchange of one cryptocurrency for another, removing the need for external third party utility tokens, which are trade and development based platforms, operating to support and fortify cryptocurrencies as well as startups. A concise example of this would be to transfer/convert 1,000 Bitcoins into 50,000 Litecoin without the need for any sort of exchange or conversion in the middle. See, it sounds good to the ear! But wait, does that mean utility tokens will cease to prevail? What about ICOs and startups?
For cryptocurrencies, atomic swaps mean a smoother flow of transactions, reduced transaction costs, plus an overall private channel of communication. Furthermore, atomic swaps utilize a technique called Hash Time Locked Contracts (HTLC). These contracts allow synchronization of the payer and receiver through time-locks that produce deadlines. Both the receiver and payer have to provide cryptographic proof of the transaction, without which the contract is terminated. By simultaneously submitting both currencies into these contracts, HTLCs ensure that the amount you are exchanging for is ensured and cannot be “outbid” as they can be on Decentralized Exchanges (DEXs). A DEX is a marketplace for cryptocurrency that is open-source or can be used, modified or contributed to by anyone. Similarly, there is no danger of “accidental collision”. Let’s not forget, perhaps, the most significant advancement from March this year, called the Lightning Network. as they announced on twitter;
Big day for bitcoin, Lightning goes live on mainnet! ⚡
Announcing the first Lightning beta release for the live bitcoin network, lnd 0.4. Read about it here: https://t.co/aaYec7Orsj ????????????????????????????
— Lightning Labs⚡️ (@lightning) March 15, 2018
Today we’re excited to announce the first ever Lightning cross-chain swap from Bitcoin to Litecoin!⚡️⛓️????
— Lightning Labs⚡️ (@lightning) November 16, 2017
What is lightening network
Fast, efficient and convenient, the lightning network provides channels for cryptocurrency holders who can use this channel to carry out all types of transactions at any given time without any exchange involved. Only when either person decides to touch the blockchain again, would the need to end the channel arrive. The need to send someone some Bitcoins would be catered. All at lightning speed.
With Lightning Network, investors who have their crypto assets residing on dissimilar blockchains can now exchange assets directly, an “all or nothing” policy. Surprisingly, the move paved a climactic way for Litecoin earlier this year as it went up to staggering 12 percent.
At the same time a new service was launched by Atomic Wallet, a multi-assets wallet with a decentralized platform with atomic swap support, which included an exclusive Monero (XMR) – Bitcoin (BTC) atomic swap support. The announcement came with a waiting time of 2 months before the launch. Decred and Litecoin initiated their atomic swap last year in September;
— Decred (@decredproject) September 19, 2017
Moreover, a good chunk of our trust issues and reservations arrive from lack of transparency. Atomic Swaps entail transparent exchanges. You do the math!
As with any new entry into the world of crypto, it takes a while before any investors pay heed. More so, it takes an even greater amount of time before competition sinks in and you become a force to be reckoned with. Similarly, people are just getting comfortable with the lightning network, so it may take time before trust is built around HTLCs as well.
Another concern most people will figure out on their own involves liquidity. Since LN and all major atomic swaps have yet to develop completely, initial channel availability is bound to be low. Most atomic swaps have exchanges based around channels that involve users on both ends to use multi signature. Since less channels will be available for quite a while, less percentages of exchanges are predicted to be made. Most likely, you can’t get on a channel unless you have a heavy bag of tokens. Lightning Labs CEO Elizabeth Stark, extended a reality check and is of the view that there’s still a good amount of infrastructure to build.
Now, Utility tokens, or sometimes known as app tokens, are the reasons contributors are able to use services and beta phase applications offered by startups following their respective ICOs. Once Utility tokens are wiped out, per say, there probably isn’t much left for crowdfunding opportunities such as ICOs. However, in truth, Utility tokens differ from security tokens or equity tokens, all used asynchronously in ICOs. Security tokens differ from Utility tokens in that they are tradable assets or, in simple words, investments. Whosoever posses security tokens have their form of security deposited with the concerned startup. The intention, of course, is to gain profitable outcomes. Nonetheless, it would be impractical to dismiss the importance Utility Tokens have in Initial Coin Offerings.
To predict the atrocity or success of cryptocurrency trade of a certain time, one must keep in mind the trend in the market that seems to last 5 years at most. This time, a significant shift towards atomic trade seems apparent and closer to reality each day, especially with the likes of Bitcoin, Ethereum and Litecoin. Ultimately, a trade-off may be brewing. Only time will tell.