What do Cross-Chain Swaps mean?

Blockchain’s worldwide use cases are changing and expanding. While blockchain might revolutionize various areas (such as banking, trading, gambling, and the capital market), its non-cumulative nature hinders wider adoption. There are several blockchain systems, from Bitcoin to Avalanche. All blockchains have separate chains. These networks can’t swap or transfer tokens from other blockchains.

This lack of interoperability hinders blockchain users who want to trade tokens on several blockchains. Uniswap, Dave, and other Ethereum-based apps are compatible and may easily exchange coins, swap assets, and make transactions. Cardano established a sidechain protocol for safe value transfer across Cardano blockchains. Even with these capabilities, blockchains couldn’t enable token swapping.

Since then, individuals have found ways to trade on blockchain platforms. Cross-chain swaps can improve the blockchain ecosystem. This article discusses cross-chain exchange in the blockchain ecosystem.

What is a cross-chain exchange?

Cross-chain swap, sometimes called atomic swap, allows the exchange of tokens between two blockchain ecosystems. It allows users to swap tokens without a mediator or centralized authority. Swap ERC-20 tokens for BSC tokens. Cross-chain swaps allow token trading between blockchain network members. The exchange is quick from the wallet, speeding up the process.

Tier Nolan created peer-to-peer blockchain exchanges. Charlie Lee, inventor of Litecoin, used the notion in 2017. He traded LTC for BTC and outlined the procedure.

Cross-chain swap atomically completes transactions across nodes (participants). “Atomic” comes from computer science and means undivideable. It means the transaction performs as agreed or becomes invalid.

How do cross-chain exchanges operate?

Cross-chain swaps trade coins between two blockchains using smart contracts. HTCLs encrypt transactions using unique combinations to ensure end-to-end verification. HTCL security features include:

1. Hashlock

Smart contracts may encrypt cash using Hashlock’s secret key (the combination of data). The exchange’s initiator possesses the secret key. He reveals the secret combination after authenticating the deposit. After the reveal, the receiver may view the deposit combination.

2. Timelock

Timelock protects blockchain transactions with time limits. It expedites transactions. It implies that the transaction must be completed within a certain time frame.

The benefits of a Cross-Chain Swap are as follows.

• Decentralized character

The global community is understanding the importance of decentralization. Cross-chain swaps provide a decentralized environment for multi-blockchain trading, hence empowering individuals.

• Enhanced protection

Cross-chain swaps use HTCL smart contracts that provide users with greater security and guarantee a reimbursement in the event of a disagreement or if the initial participant (sender) changes his mind. Thus, the system eliminates any security problems.

• Peer-to-peer transactions at low costs

Using a centralized exchange is expensive. You must also choose a reputable exchange, register, agree to the agreements, etc. Cross-chain swaps allow nodes to join the blockchain and exchange tokens. No single organization administers the protocol, saving time and money.

• High adaptability

By permitting the exchange of any tokens, cross-chain swaps offer a great level of flexibility. Users are not required to convert tokens into protocol-specific tokens, as they are in centralized exchanges.

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