Bitcoin Atom Wants to Make Cryptocurrency Transfers Truly Peer-to-Peer
Satoshi Nakamoto’s Bitcoin white paper envisioned the use of an electronic money that would be “purely peer-to-peer.” This means no third parties would be involved in any way–online payments would go directly from one party to another without any interference. Though this is how Bitcoin and other cryptocurrencies were designed, for the most part, this isn’t how they’re exchanged.
This is because a large number of cryptocurrency transactions go through exchanges like Bitfinix, Bithumb, and Bittrex. Alone, these three exchanges account for over $12 billion in 24-hour trading volume. The rise in the value of many cryptocurrencies has seen a surge in trading volumes over the past couple of months, with one major drawback–exchanges are becoming increasingly more centralized and increasingly more powerful. The cryptocurrency community, of all people, should be wary of the dangers of centralization.
One project, Bitcoin Atom (BCA), is working on a network that will allow users to exchange digital assets in a truly decentralized manner.
The platform will use atomic swaps (AS) and integrated hash time-locked contracts (HTLCs) to give users freedom from any intermediaries or centralized bodies like exchanges. The BCA network allows parties to interact and transact directly–the original purpose of cryptocurrencies and decentralized blockchains.
How Do Atomic Swaps and HTLCs Work?
Atomic swaps permit two users operating on different blockchains to directly exchange cryptocurrencies through a completely trustless process. Both parties agree to the terms before the transactions–for example, fifty Litecoins for one Bitcoin–and use their private keys to sign a copy of the transaction. Once the signatures are in place, the exchange happens immediately.
Atomic swaps use hash time-locked contracts (HTLCs) that require the two entities to fulfill the trade’s requirements. HTLCs mandate that the parties independently generate cryptographic proofs of payment to confirm reception of the exchanged funds in a given amount of time. If either party can’t confirm the transaction in the stated time frame, the coins are returned to the original sender. Thus, atomic swaps and HTLCs allow users to transact directly without the need of any middlemen.
The Bitcoin Atom Network and the Benefit of Direct Peer-to-Peer Transactions
At its core, Bitcoin Atom is a SegWit enabled Bitcoin fork. Their goal is to use HTLCs to enable users to exchange cryptocurrencies via on-chain atomic swaps. The team plans to integrate cross-chain trading utilities and an atomic swap API into Bitcoin’s core software and fork it into the BCA blockchain.
The result is that BCA blockchain users can transact directly with one another without the need for a standard cryptocurrency exchange. All users have to do to initiate a transaction is open their Bitcoin Atom node and place a buy or sell order. Once an agreement with another party is made, the HTLCs will ensure that the transaction goes through quickly and securely.
By eliminating the need for third-party cryptocurrency exchanges, Bitcoin Atom will greatly lower transaction costs for both parties. Many cryptocurrency exchanges charge fees for every transaction, in addition to fees for bank deposits and withdrawals. This means more money is the pockets of exchanges and less money for individuals. The widespread use of cryptocurrency exchanges has replaced one centralized authority–banks–with another centralized authority–cryptocurrency exchanges. The end result is exactly the same.
Additionally, users don’t have to be dependent on the operational status of cryptocurrency exchanges to make exchanges. It is not uncommon for third party exchanges to have problems, especially during times of high volumes. The result is that users end up trusting these centralized parties with their money, only to have them fail in their time of need. This is the exact problem cryptocurrencies are supposed to solve.
Thankfully, with the advent of the Bitcoin Atom network, these issues can be done away with. The development team is working on integrating instant off-chain swaps, with the goal of implementing their HTLC API by January 2018. The full atomic swap network could be up and running by the end of 2018.
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