In the cryptocurrency industry, most of the trading occurs on exchanges. Or at least, that is what the overall statistics would indicate. Since coin-tracking sites do not keep tabs on OTC, P2P, or other types of non-centralized trading, there is a lot more to this industry than meets the eye at first. Add in the atomic swaps which continue to gain popularity, and things will only get more interesting in the near future. Now is a good time to look back at what makes these atomic swaps so promising.
No one can deny the world of decentralized currencies, tokens, and assets is far too centralized when it comes to actual trading. Nearly every top exchange being used today is a centralized entity which controls users’ funds, determines which currencies can be traded and when, and seems to dictate the industry in its own way. Notorious examples include Coinbase, Binance, Kraken, Bithumb, GDAX, and so forth. All of these platforms offer convenient access to cryptocurrencies but at the price of not benefiting from financial freedom in any way.
Atomic swaps, on the other hand, do things very differently. It removes the need for centralized exchanges, which are also prone to attacks, hacking, and mismanagement. With an atomic swap, there is no need for a third party, which will eventually lead to proper decentralized trading. Direct trades between different interested parties is something this industry can benefit from tremendously. Overthrowing the centralized strongholds will be a major challenge, albeit users will come around to embracing the benefits of decentralized options sooner or later.
When a cryptocurrency investor or enthusiasts want to trade currency A for asset X, things often get complicated. Not every currency, token, or asset can be traded against every other token, asset, or currency on the market today. That may seem rather odd, but there are three major base trading pairs across most exchanges. The list includes Bitcoin, Ethereum, and XRP. Bar some minor exceptions, those are the main options for users to explore when dealing with any other currency, token, or asset today.
Through atomic swaps, things will work very differently. Not only does this form of trading connect users directly without an intermediary, but it allows for a virtually infinite number of potential trading markets to be created on the fly. Any currency, token, or asset becomes interchangeable with any other offering on the market at that time. Everything can be done in one smooth motion, which is what users should actively seek in this day and age.
When dealing with centralized trading platforms, there are always some fees to be paid. Whether it is on the deposit or withdrawal side, users will pay either way. Some exchanges even maintain maker and taker fees, while making the deposits and withdrawals free of charge. There is no such thing as a free lunch when using a third-party facilitator, especially in the cryptocurrency industry. That is only normal, as these companies need to make money in one way or another.
Through atomic swaps, however, the need for a third party is no longer there. As such, the maker, taker, withdrawal, and deposit fees are also non-existent. Users will still pay on-chain transaction fees for sending money to other users, which is only normal. These traders take place across their individual networks or blockchains every time, and very few currencies can be transferred without paying a fee of some sort. However, there may be some interesting solutions to counter those fees in the future, for all one knows.
Regardless of how people may look at centralized exchanges, they are not all powerful. Every single company facilitating cryptocurrency trading is subjected to system issues, wallet maintenance, regulatory concerns, and so forth. All of this requires users to put a lot of trust in the company they use, which is far from an ideal situation. If an exchange is found guilty of violating regulation, they can be shut down in specific regions or even altogether. This can create a fair few problems for users accordingly, either financially or otherwise.
By removing the need for these centralized entities, all of these associated problems will be resolved as well. Atomic trades do not suffer from wallet maintenance, regulators targeting specific platforms, or having to trust anyone but oneself and the other user. Although this latter option may still cause a few problems and concerns, the main objective of an atomic swap is to enable trustless trading. Only time will tell how that will work out exactly., but it’s certainly something that will need to be addressed before this new form of trading can take off.
Perhaps the biggest problem the industry faces right now is how very few markets are interoperable in any way. Although systems exist to connect different blockchains and currencies, tokens, or assets, those are still few and far between. Interoperability in this industry is a must if mainstream growth is ever to be achieved. Otherwise, it will always remain a very limited niche industry. The current infrastructure also forces users to focus on the “top markets” first and foremost, as those can provide access to the alternative markets. Diversification is crucial in this industry, yet it seems to be an overlooked facet more often than not.
Many people hope atomic swaps will be capable of changing this narrative. By default, the option to freely exchange currencies, tokens, and asset swill boost overall diversification. Since users can trade different offerings directly without jumping through additional hope, a very different cryptocurrency ecosystem can be created. Additionally, the concept of an atomic swap will facilitate interoperability between different projects on a completely different scale. Combined with fee-less and trustless trading solutions, there is a lot to look forward to in the years to come.
Disclaimer: This is not trading or investment advice. The above article is for entertainment and education purposes only. Please do your own research before purchasing or investing into any cryptocurrency.
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