How to swap crypto across blockchains

Blockchain technology and cryptocurrencies have transformed the financial sector, providing new avenues for trading and investing. One of the standout features of this technology is the ability to swap assets across different blockchains through a process known as Cross-Chain Swap. This method is rapidly gaining popularity as users seek to maximize the benefits and unique attributes of diverse blockchain systems. Let’s discuss how to proceed with Cross-Chain Swap, the different types of swaps, and much more.

What is a Cross chain swap?

Cross-chain swaps enable users to transfer assets between different blockchains directly, bypassing the need for centralised exchanges. This process improves blockchain interoperability by allowing seamless communication and transactions across diverse blockchain networks.

A user can exchange Bitcoin on its blockchain for Ethereum on the Ethereum blockchain without using a middleman. This removes the need to rely on centralised exchanges, which can be risky because of potential hacks, errors, or regulations.

Types of Cross-chain swap

The three main types of cross-chain swaps are:

1. Custodial centralised exchange (CCE): Users swap cryptocurrencies across networks through a custodial exchange, which holds their assets temporarily for simplicity and speed.
2. Smart-contract based: Tokens are swapped directly between blockchains using smart contracts without intermediaries.
3. Smart-order-routing based: A Smart-Order-Routing Engine finds the best deals by tapping into both centralised and decentralised exchanges for better pricing and lower fees.

How Cross-chain swaps work?

Cross-chain swaps enable the exchange of cryptocurrencies between two parties securely and efficiently using three key technologies:

1. Atomic swaps: Ensure the swap happens entirely or not at all, protecting both parties.
2. Hash time-locked contracts (HTLCs): A type of smart contract that enforces swap rules, requiring cryptographic proof within a set timeframe or returning funds to the sender.
3. Smart contracts: Automate transactions based on preset conditions, implementing HTLC rules for secure, trustless swaps.

This process ensures seamless and secure cross-chain cryptocurrency exchanges.

Here is a step-by-step explanation of how a cross-chain swap works:

1. Step 1: Party A starts the process by setting up an HTLC on their blockchain (Blockchain A) and depositing their cryptocurrency. The HTLC creates a hash and generates a secret key.
2. Step 2: Party B then sets up their HTLC on their blockchain (Blockchain B) using the hash received from Party A.
3. Step 3: Party A confirms that Party B has correctly established the HTLC on Blockchain B by verifying the hash.
4. Step 4: Party A uses the secret key to unlock the funds on Blockchain B, making the secret key visible on Blockchain B.
5. Step 5: Party B then uses the revealed secret key to access the funds on Blockchain A, completing the cryptocurrency swap.

How to Cross-chain swap efficiently?

1. You will need a cryptocurrency wallet capable of cross-chain swaps. Some options here are Atomic Wallet, Trust Wallet, and MetaMask.
2. Pick a platform that allows cross-chain swaps.
3. Ensure you have enough tokens for swap and transaction fees, especially during peak times. Always check current gas fees.
4. Access the swap platform, select tokens, enter the amount, review details, and check the estimated amount you will receive.
5. Confirm the transaction by signing with your wallet after verifying all details are correct. Review everything carefully.
6. Cross-chain swaps can take minutes to an hour. Be patient and wait for confirmation.
7. After confirming, check your wallet for the swapped tokens. Contact support if you encounter any issues.
8. Ensure your new tokens are secure. If not using them soon, consider moving them to a hardware wallet.

Understand slippage before placing your trade. It refers to the difference between the expected price of a swap and the price at which it is executed. Familiarise yourself with acceptable slippage rates and set slippage tolerance to minimise unexpected losses.