Cryptocurrency trading just became more decentralized.
The rise in popularity that cryptocurrency trading experienced over the last year has meant that exchanges have been increasingly powerful. Some, like Coinbase, reportedly pulled in over $1 billion in revenues in 2017.
Designed to be free of third parties, the transfer of digital assets has become reliant on a middleman to ensure a secure and trustworthy exchange of value. Up until this point, an intermediary, like an exchange, has been required to ensure that both sides of an agreed transaction are met; only users familiar enough with each other to provide a wallet address had been able to trade directly peer-to-peer (P2P).
While 2017 saw the rise of intermediary revenue, 2018 will see the rise of self-directed trading of digital assets.
Atomic swaps are the antidote to centralized cryptocurrency trading. They make it possible for users to trade cross-chain, transferring ownership of different assets without the need for a trusted third party. Just recently, we hosted a live demonstration of Equibit Portfolio (our wallet), featuring the completion of an atomic swap on the Equibit network.
This is a big deal. With the development of atomic swaps, investors are able to directly trade Bitcoin for issued securities, P2P. The transfer of asset ownership is secure and recorded on the Equibit blockchain.
The performance of an atomic swap is significant not just because it advances the development and security of cryptocurrency trading, but because it removes points of vulnerability and insecurity from transactions.
In January the crypto community experienced the latest in a string of exchange hacks when Japanese exchange Coincheck was successfully targeted and drained of $530 million worth of NEM (58 million yen). At this point it's almost becoming expected to hear about exchanges being hacked, but it shouldn't be.
Considering that we're discussing intangible digital cash - whose existence is a series of numbers hosted by fellow crypto supporters on a distributed ledger - security must be a foremost concern, not an assumption. Intermediaries have long been faulty when it comes to compromised personal and financial information, just look at what happened with the Equifax breach in the US last summer.
Atomic swaps provide security not just in their elimination of a vulnerable third party, but in their series of timely steps that make the function irreducible. As such, in much the same way Bitcoin applied digital technology to currency and payments, Equibit eliminates the need for expensive infrastructure and third-party facilitation from depositories, brokerages, or transfer agents. Transfer and settlement will be securely managed within a decentralized environment.
But security is just the first part.
Over the past year the crypto community has been working towards development of swaps. At Equibit Group, we're proud to be a leader in completing a live demonstration with a strong user interface.
What makes Equibit's live demonstration especially noteworthy is that Equibit Group is the first to build a UI that guides users through the atomic swap process. Now, those wishing to trade digital assets can perform atomic swaps themselves - without needing to understand all that that entails.
The Equibit network tokenizes securities, allowing companies to issue equity and debt using the network's native coin, EQB, via a market dashboard; Equibit Portfolio. A decentralized securities network means that issuers and investors anywhere can create and transfer securities without the need for a transfer agent or custodian, reducing both cost and friction within capital markets.
This is the Equibit advantage; Equibit Portfolio makes trading digital securities an intuitive experience. Equibit Portfolio provides the first UI that the crypto community has seen that makes atomic swaps simple and available to the masses. Unlike typical wallets where a user can transfer an asset to another user P2P, atomic swaps allow users within Equibit Portfolio to securely trade different assets P2P without a guarantor, without any off-chain negotiations, or even having to personally know the counterparty. Plus, the Equibit blockchain also references the transaction on the other chain so that we can keep a price history of all trades made.
Now you know how easy it can be to perform atomic swaps on the Equibit network, but for the curious, here's how they work:
Using a feature called a hash time-locked contract (HTLC), an atomic swap consists of a series of operations whereby all or nothing occurs; this is what makes the steps involved in a swap indivisible (and why they're called "atomic"). The HTLC requires each party to perform an action towards the swap within a specific amount of time. If all the actions are not performed within the time limit, the trade will be cancelled and all prior steps nullified.
A HTLC on the Equibit network features four transactions between a seller and buyer, ensuring security for both parties. To initiate a transaction, a seller creates an order and broadcasts that message to the network. The first transaction commences when a buyer generates a secret key, then uses the hash of the key to lock their submitted payment. The seller then uses the same published hashed key to lock their securities, creating the second transaction. Seeing the transaction on the Equibit blockchain, the buyer can then unlock the securities using the secret key and send them to their own address. This is the third transaction. The fourth and final transaction within the HTLC sees the seller obtain the now published secret key to unlock the payment.
As a user, you're guided through these four steps smoothly, operating from our market dashboard where you'll find all the relevant market data you need to trade confidently. We believe that blockchain should make our lives easier; the technology should support a seamless experience.