What is a Bitcoin cross-chain atomic swap?

A Bitcoin cross-chain atomic swap, also known simply as a cross-chain atomic swap, is a trustless and decentralized method of exchanging assets between two different blockchain networks, such as Bitcoin and Litecoin, without the need for intermediaries or centralized exchanges. It allows users to swap cryptocurrencies directly with each other in a peer-to-peer manner while maintaining control over their private keys throughout the process.

Here's how a Bitcoin cross-chain atomic swap typically works:

1. **Initiation**: The process begins with two parties, let's call them Alice and Bob, who wish to exchange their assets. Alice wants to exchange bitcoins (BTC) for litecoins (LTC), while Bob wants to exchange litecoins for bitcoins.

2. **Smart Contracts**: Both Alice and Bob create special smart contracts on their respective blockchain networks, each containing the conditions of the trade. These smart contracts ensure that the exchange of assets is atomic, meaning that either both parties receive their desired assets or neither party receives anything.

3. **Hashed Time-Locked Contracts (HTLCs)**: The smart contracts typically utilize a mechanism called Hashed Time-Locked Contracts (HTLCs), which lock the assets being exchanged until certain conditions are met. This ensures that neither party can take advantage of the other or back out of the trade once it has been initiated.

4. **Exchange Execution**: Once the smart contracts are set up, Alice and Bob exchange the necessary information to complete the swap securely. This includes cryptographic hashes, public keys, and other relevant data needed to unlock the HTLCs.

5. **Atomic Swap**: Using the information provided by each other, Alice and Bob can then execute the atomic swap by revealing the pre-image of the cryptographic hashes to unlock the HTLCs on both blockchain networks simultaneously. This allows the assets to be exchanged directly between the two parties without the need for a trusted third party.

6. **Completion**: Once the HTLCs are unlocked, the exchange is completed, and both parties receive their desired assets on their respective blockchain networks. The entire process is trustless and decentralized, ensuring that neither party can cheat or manipulate the exchange.

Cross-chain atomic swaps offer several benefits, including increased privacy, reduced counterparty risk, and enhanced interoperability between different blockchain networks. They allow users to exchange assets across different blockchains seamlessly while maintaining control over their funds and without relying on centralized exchanges or third-party custodians.