The decentralized money ecosystem can't rely on centralized exchanges for ever. Atomic Swaps enable users to trade without trusting each other.
01 - Atomic Swaps are trustless cross-chain transactions. How do they work?
They ensure that one participant cannot steal the other's funds by using two time-locked contracts that require the same secret, but different signatures to be redeemed.
02 - To allow Atomic Swaps, both chains must support branched transactions, signature checks, a way of time locking coins and share a hashing function.
03 - To begin, the initiator sends coins to a smart contract using the participant's address, but securing it with a secret.
04 - Then the initiator shares with the participant the secret hash, the contract and the contract transaction.
05 - The participant must audit the contract and make sure it uses her address, has the coins they agreed and is locked for more then 48hs.
If everything is fine, she publishes a similar contract on the other chain using the same secret hash.
06 - The initiator then audits the second contract. If everything is ok, the initiator can redeem the funds, revealing the secret. Because the secret in now public, the participant can also redeem his funds using her signature.
07 - If something goes wrong, both can get their funds back after 48 hours, when the timelock expires.
08 - Atomic Swaps are already here. Decred has built a command line tool that allows anyone to make P2P cross-chain transactions with strangers in cyberspace!