Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The crypto market ends the week at a total market capitalization of $2,17 trillion. Bitcoin continues to trade at around $62,300. Ethereum experiences no changes and stagnates at around $2,400. XRP is down by 2%, Solana by 1%, and Dogecoin by 3%. Almost all altcoins are trading in the red, with very few exceptions. The DeFi sector decreased the total value of protocols (TVL) to around…
What Really Happens When Swapping Crypto?
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The process of swapping crypto can be complex. Sometimes, you may need more exchange assets. For instance, you may want to exchange BTC for ZIL. Generally, there are very few exchanges that support direct BTC to ZIL exchanges.
Therefore, an individual must find a BTC trading pair in many scenarios. Next, exchange the BTC to another pair connected to ZIL, then complete by exchanging the second asset to Zil. Generally, following the whole exchange process involves two transactions. The above means that a user pays multiple transaction fees to complete a single exchange.
However, another system that quickly helps exchange assets arose in the crypto world: Swapping. But, what is Swapping, and how does it work?
Crypto Swapping (Atomic Swapping)
Crypto swapping, also known as Atomic Swapping, is a system that involves the direct conversion of one asset to another. Such swaps mainly deal with assets from chains like Bitcoin and Zilliqa.
It’s impossible to exchange such assets without using an exchange platform or Atomic Swap. However, crypto swaps are simple since they involve only one pair. Moreover, it streamlines the two-part process to a single step: click, sell, and later confirm. So, how does crypto swapping work?
How Does It Work?
The process of swapping crypto involves moving the crypto from one wallet to another wallet without middle pairs. There are multiple steps in the Process of Swapping cryptos. This section will look at what the investor and the system do.
STEP 1: Create A Transaction
The first step is the creation of a contract or transaction. At this point, you can use Swapping smart contracts, which makes things easy.
When creating a transaction, a user needs to put all the details. For instance, you must feed in;
- The cryptocurrency assets you are ready to Swap in and out. In this case, you are Swapping BTC for ZIL.
- The correct amount of cryptocurrency; is the BTC you want to swap out.
- Put your ZIL wallet address on the platform.
The system continuously and automatically calculates the amount of ZIL you will receive based on the prevailing rates. Then, could you confirm the transaction by verifying all the necessary details and automatically sending it?
STEP 2: The Process Within
HTCL Creation
When you create a transaction, the HTCL automatically appears. So, what is the HTCL?
Hash Timelock Contract is a system that consists of two keys, the hash lock key, and the time lock key. The hash lock key mainly sends the crypto asset to both traders. This happens as soon as they confirm their part in the contract.
The second key, timelock, sets a time limit within which both parties confirm the transaction. If the contract does not receive confirmation after the preset period, the timelock refunds the assets to the sender.
Creating the Preimage
Immediately after creating the HTCL address, another secret code comes up, the preimage. This preimage undergoes a process called hashing, which involves locking the preimage.
This hashed preimage is the main thing in the Swapping Process. The smart contract will automatically send the preimage to the second party’s address. At this point, the other trader must confirm and verify the details and the amount deposited.
STEP 3: The Final Process
This final process involves the second trader from the second blockchain creating a similar trade. This means they automatically deposit the number of assets needed. Remember, in this case, we were swapping BTC for ZIL. The second trader is the one selling off the ZIL.
Therefore, the second trader creates a trade with the ZIL and writes the sender’s newly created wallet address. One good thing about this new address is its connection to the same hash as the original transaction.
Once they send the required amount, each party can unlock their received assets. The first party uses the secret passcode in the first trade to unlock. Meanwhile, the second party now unlocks their amount. This is the final point of exchanging/swapping.
Would it Be Possible to Swap Between CBDCs?
The short answer is YES. It would be possible to Swap between CBDCs. This is especially important now that many countries, including the USA, China, Canada, Japan, and Spain, are introducing CBDCs. It will be possible to Swap between the Yen, Yuan, CAD, and all digital sovereign currencies. But how?
Generally, this would require developing top international infrastructure similar to Swapping smart contracts(Atomic Swaps). The process should be identical to the above-discussed process. However, since it involves national currencies, there could be some bits of centralization.
Some platforms have been working on creating the interconnection of CBDCs using Atomic Swaps. Therefore, CBD will also be able to use the Swap system; FOREX will not die with the introduction of CBDCs.
Final Word – Swapping Crypto
This guide analyzes the entire Process of Swapping cryptos between the two parties. It has discussed what traders on both sides often do and what the system does. Generally, the traders create a transaction that generates an HTCL. This HTCL, in turn, makes the preimage, which goes to the second party’s account for verification.
Once the second party verifies, they create their trade using the same hash as the first. Finally, the process ends with both parties unlocking the amounts.
Btc
Bitcoin
$62.547
price
price
0.84959%
price change
As the world strives to turn digital, CBDCs are the future of the global economy. CBDCs will streamline FOREX trading since investors will complete every step at home.
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Wayne Jones
@wjones
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