What if there were no exchanges to hack?
As a new generation of crypto users begin to invest in the technology, developers are growing concerned about its infrastructure. They’ve seen this happen before – new users enter the space attracted by big gains, then suddenly, a catastrophic failure, usually at the very exchanges designed to hold and custody those funds.
But out of adversity, inspiration is taking hold, with high-profile coders turning their focus to atomic swaps, a concept that claims to allow for the direct, peer-to-peer transfer of cryptocurrencies across different blockchains. In the place of the vulnerable exchanges we use today, the idea behind atomic swaps is that these large repositories of customer money could be rendered obsolete by code.
And seasoned blockchain developers like Alex Bosworth believe this is all too necessary, especially given that users today need to effectively give up custody of their assets if they choose to hold funds on exchanges.
He told CoinDesk:
“Putting users in control of their own private keys has the best aggregate track record for security despite individual cases of loss. Funds under centralized control on exchanges have led to the most massive security failures we’ve seen.”
Andrew Gazdecki, CEO and co-founder of Altcoin.io, which recently launched a beta wallet for atomic swapping between crypto tokens, describes the problem in similar terms, arguing that users should be empowered to hold their own private keys (the alphanumeric strings that allow users to unlock, access and spend their funds) without relying on others.
“There are literally billions of dollars being held within these digital honeypots, and it’s nearly impossible to find the perpetrators,” he said.
Early examples of atomic swaps technology emerged in various stages in 2017, and while there’s disagreement as to the timeline they’ll be available to the public, some believe 2018 will be their year.
As Jameson Lopp, a BitGo software engineer, recently tweeted:
“Nearly instant atomic swaps … are coming sooner than everyone thinks. Definitely not a year away, but mere months.”
Atomic swaps already?
In some ways, atomic swaps are already here – depending on the kind of atomic swap you’re looking to make.
For instance, last year saw swaps between different blockchains built on similar code – the cryptocurrencies decred, litecoin and bitcoin – executed. Meanwhile, atomic swaps between cryptocurrency tokens on the same blockchain became more commonplace, with decentralized exchanges such as 0x and, as mentioned above, Altcoin.io, adding instant trades between tokens on ethereum compatible protocols.
Cryptocurrencies running on blockchains with much different codebases, though, must rely on purpose-built tools to facilitate these kinds of transfers today.
Toward this goal, a tool for exchanging zcash for bitcoin called ZBXCAT was developed last year. Described by co-developer Jay Graber as the “walkie-talkie of payments,” the tool will soon be accompanied by a simplified web interface.
Indeed, atomic swaps “could always be done manually,” Graber said. However, because this requires a degree of technical skill, before atomic swaps see mainstream use, easier to use platforms will need to be developed.
At the same time, Lightning Labs, a company devoted to promoting bitcoin’s Lightning Network, recently conducted its first off-chain atomic swap on its test blockchain. Completed in November, the transaction saw litecoin and bitcoin swapped on an off-chain payment channel.
Off-chain hurdles
Off-chain atomic swaps of this type are highly anticipated since trading would be automatic, not reliant on the processing times of different blockchains, but the technology needed to implement off-chain atomic swaps – things like the Lightning Network and Raiden Network on ethereum – are still under development.
Which is why some, like Lightning Labs CEO Elizabeth Stark, are less optimistic about cross-blockchain atomic swaps.
Stark recently discounted the hype, writing on a development channel, “Anyone telling people that Lightning swaps will be ready in months doesn’t know what they’re talking about.”
And in interview with CoinDesk, Stark said:
“There’s still a good amount of infrastructure to build.”
One website, swapready.net, provides a breakdown of how close each cryptocurrency is to supporting cross-chain atomic swap capabilities – and to date, there’s very few that can interoperate.
Mirroring Stark’s sentiments, Philippe Castonguay, developer relations manager at 0x, which offers on-chain atomic swaps of tokens on ethereum, told CoinDesk that developers looking to create atomic swaps between vastly different protocols are faced with “a lot of challenges.”
The infrastructure needed to interface between bitcoin and ethereum, for example, is still in development, and “to make it even worse, these cross-chain platforms also need to solve some of the main problems other blockchains are trying to solve, such as scalability,” Castonguay said.
Still optimistic
Yet, even with a lot a work still to do, many remain assured advances are close.
Bosworth, whose work has focused mostly on developing applications for bitcoin’s Lightning Network, for one, made his excitement about a new era public, tweeting: “The atomic age is coming, what cannot be swapped will be left behind.”
And Castonguay, whose work focuses on ethereum, also remains encouraged by the development happening within that ecosystem. Even if swaps between blockchains with different code bases prove cumbersome, he believes the blockchain could yield other solutions given the expansive capabilities of its code.
“Eventually the ethereum blockchain will be able to communicate with other blockchains,” he said. “Once this happens, all the different coins from different blockchains will be representable on the ethereum blockchain.”
For example, if bitcoin and ethereum blockchains can communicate with each other in a trustless way, then users could have an ERC-20 bitcoin on the ethereum blockchain, pegged one to one with bitcoin on the bitcoin blockchain, he posited.
Such short-term solutions, he thinks, could help advance the atomic swaps concept overhaul.
Castonguay concluded:
“I do believe it is possible that some blockchains might be able to interact with one another this year, but I think 2019 through 2021 would be a safer bet.”
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in BitGo.
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