First Ever Atomic Swap Between Bitcoin and Litecoin and What This Means for Litecoin
Over the past weekend, an Atomic Swap was completed between the Litecoin and Bitcoin testnets. So what exactly does this mean for Litecoin and why did it cause the price to rise?
What is an Atomic Swap?
An Atomic Swap is an agreed exchange between two otherwise separate blockchains, in this case the Litecoin blockchain and the Bitcoin blockchain. An Atomic Swap allows someone to exchange one cryptocurrency for another as long as you have someone on the other blockchain willing to complete the swap. So for example if I have have 1 Bitcoin and you the reader have 100 Litecoins and I wanted to swap my Bitcoin for your Litecoin and vice-versa. An atomic swap would allow us to complete this exchange while making sure we are both secure while using a trustless system. known as Hash Time Locking Contracts or HTLCs. HTLCs ensure that both users receive payment by requiring both participants in a trade to acknowledge that they have received payment before a specified deadline by providing a cryptographic poof of payment. If this is not provided then the user will risk losing their right to claim their payment which would return the funds back to the original sender. If we return to our example, this means that if I wanted to claim my payment from you, I would need to produce a number that only I know otherwise your funds would be returned.
Does this mean the end for exchange services like ShapeShift?
Not necessarily, although this is new and exciting technology in order to use it with a specific cryptocurrency, that cryptocurrency will need to have an implementation of the lightning network which at the moment is only rolled out on a limited amount of cryptocurrencies. So it’s likely exchange services will still be needed for a long time yet as only a few cryptocurrencies have actually planned to implement the lightning network into their respective blockchain so far.
What does this mean for miners?
Bitcoin Miners are rightfully worried about the widespread adoption of this technology as it will mean that they will be not be making as much profit on transaction costs as they currently do. As there will be less of them made. This could mean that the world of Bitcoin mining becomes decentralised as large corporate entities move away from Bitcoin mining as less transactions are made but this remains to be seen. If a large group of miners were to move way from the Bitcoin network due to the drop in transaction fees the market could be completely uprooted if they start to use their large scale mining operations to mine different cryptocurrencies.
What does the mean for Litecoin?
When the news broke that a successful transaction had been completed on the Litecoin testnet, Litecoin the price began to spike as the market became very excited at the prospect this advance in technology brings. Once this gets rolled out and is useable by all users of the Bitcoin and Litecoin blockchains. This could definitely make Litecoin live up to the description of ‘the silver to Bitcoins gold’ as it could potentially solve some of the scaling issues faced with the bitcoin network by allowing the Bitcoin network to act as more of a long term storage of value like physical gold does in the traditional market. While Litecoin with it’s shorter block times and faster transaction times could act more like a currency being used for smaller and day to day transactions. Overall it’s an exciting new advancement in the world of blockchain technology as cryptocurrency once again provides another feature to it’s feature set which once again proves it’s much more useful than traditional fiat currency.