Atomic Swaps has the potential of completely revolutionizing the money transfer system in the crypto world. To put it in simple terms, atomic swaps will enable people to directly trade with one another wallet-to-wallet.
Since 2012, the concept of a trustless, peer-to-peer cryptocurrency has been a pretty hot topic. In July 2012, a developer by the name of Sergio Demian Lerner created the first draft of a trustless exchange protocol. The idea was pretty appealing, however, it wasn’t really fleshed out.
The breakthrough in atomic swap research happened around May 2013, when TIer Nolan provided the first full account of a procedure for atomic swaps. Tier Nolan is widely credited as the inventor of atomic swaps.
In this guide, we are going to look into how atomic swaps work and the advantages that they are going to bring into the ecosystem.
Problems With Centralized Exchanges
Suppose Alice has Bitcoin and wants to sell them for Litecoin. Similarly, we have Bob who has Litecoin but wants some Bitcoin instead. Normally what would have happened is that both of them would have had to go a centralized exchange, sell their cryptos and buy newer cryptos. However, there are a lot of problems with these exchanges.
#1 Hack Vulnerability
Centralized exchanges always have the risk of getting hacked. Probably the most infamous example of this is Coincheck which got hacked for $550 million worth of NEM. The worst part is that this hack greatly reduced crypto sentiment in Japan, a country that was traditionally known to be very crypto friendly.
#2 Subject to Mismanagement
The infamous Mt. Gox hack where bitcoins worth $500 million were robbed happened directly as a result of CEO Max Karpeles’s inept management. As Andreas Anatopoulos put it:
“Magic The Gathering Online Exchange (Mt. Gox) is a systemic risk to bitcoin, a death trap for traders and a business run by the clueless.”
#3 Volume Demands
Exchanges can’t deal with changes in demand, especially when there is a sudden increase in demand. Do know why BCH’s value nearly went down by half on 12th November?
Turns out, there was a sudden rise in demand and most exchanges couldn’t cope. Bithumb, in particular, suffered 90 mins of downtime and lost 60,000 BTC in volume.
#4 Subject to Government Regulation
Because the centralized exchanges are registered in particular countries, they are subject to the whims of the government,
Because of the reasons stated above, centralized exchanges are not the ideal way to go forward for mainstream adoption.
What Are Atomic Swaps?
Atomic swap is a peer-to-peer exchange of cryptocurrencies from one party to another, without going through a third party service like a crypto exchange. During this entire process, the users have full control and ownership of their private keys.
On September 20, 2017, Decred and Litecoin did the first known successful implementation of the atomic swap.
Another interesting thing to note about atomic swaps:
They can either be directly executed between separate blockchains with different native coins
Or, they can also be executed via off-chain channels that are offshoots of the main blockchain.
Atomic swap is also known as cross-chain trading.
How Does Atomic Swaps Work?
To give a very simplistic explanation. Two parties who are going to engage in atomic swaps decide on a shared secret. The two parties will share their cryptos if and only if their secrets match. So, this way, if somebody else barges into this exchange, they won’t be able to get their hands on any of the coins because they will not know this secret.
Ok, so now you know the concept, but how does it actually work?
In order to execute this, something known as Hashed Timelock Contracts or HTLCs are used. If you are familiar with the lightning network then you should know how hashed timelock contracts work. Right now we will just give you a brief description of what hashed timelock contracts are.
What are Hashed Time Contracts?
Hashed timelock contracts are a special form of payment channels. Payment channels are basically off-chain state channels which deal with payments.
A state channel is a two-way communication channel between participants which enable them to conduct interactions, which would normally occur on the blockchain, off the blockchain. What this will do is that it will decrease transaction time exponentially since you are no longer dependent on a third party like a miner to valid your transaction.
So what are the requirements to do an off-chain state channel?
A segment of the blockchain state is locked via multi-signature or some sort of smart contract, which is agreed upon by a set of participants.
The participants interact with each other by signing transactions among each other without submitting anything to the miners.
The entire transaction set is then added to the blockchain.
The state channels can be closed at a point which is predetermined by the participants. Closing can happen because of one of the following reasons:
Time lapsed eg. the participants can agree to open a state channel and close it after 2 hours.
It could be based on the total amount of transactions done eg. close the chain after $100 worth of transactions have taken place.
Hashed timelock contracts or “HTLCs” are one of the most convenient applications of the payment channels.
So, what is an HTLC?
Earlier iterations of payment channels which use “timelocks”. An HTLC “extends” that by introducing “Hashlocks” along with the timelocks.
The HTLC enables opening up of payment channels where funds can get transferred between parties prior to a pre-agreed deadline. These payments get acknowledged via the submission of cryptographic proofs. Along with that, another brilliant feature of the HTLCs is that it allows a party to forfeit the payment given to them and return it to the payer. The idea is to use a multisignature transaction system that holds both traders accountable for a swap to be successful.
An old investing rule of thumb is working better than it has in a while.
It’s called the “60-40” rule — which describes a portfolio made up of 60 percent stocks and 40 percent fixed-income securities. Advisors have recommended the balance as a middle-of-the-road way of investing. It puts the majority of an investor’s money into stocks, which are riskier but higher yielding than bonds, while still having a solid amount held in government, corporate and agency bonds.
The Vanguard Balanced Index fund, which mirrors that portfolio rule, just had its best quarter in nearly a decade with a 9.5 percent gain in the first quarter.
The approach is usually more of a hedge. When stocks do well, it’s not typically the case that bond prices also rally. But this year has been different, thanks to the Federal Reserve.
The Fed signaled in January that it was putting the brakes on raising its short-term benchmark rates. Investors embraced the stance and bought bonds, pushing their prices higher as the yields fell. That also boosted stocks. Higher rates can sometimes dampen enthusiasm for stocks because rising borrowing costs eat into corporate profits and can make earnings valuation look too high.
Bond yields and prices move in opposite directions. In this case, lower yields means higher bond prices, and therefore more value for that 40 percent of an average investors’ “60-40” portfolio. With the Fed no longer a roadblock and the economy chugging along at a respectable 2 percent growth, U.S. stocks and bonds have both been in favor this year.
In other words, the quarter was “the perfect storm, in a good way” for investors, according to Paul Schatz, president at Heritage Capital.
“The rising tide of the first quarter has lifted all ships, debris and just about anything and everything in the ocean,” Schatz said. “The 60-40 portfolio was an easy winner.”
The other factor boosting U.S. Treasurys was how good they looked compared with the rest of the world. The German and Japanese 10-year government bonds, for instance, both yield negative interest rates. Any return looks great in comparison, especially for global investors looking for a place to park their money. The U.S. 10-year yields just under 2.5 percent.
“We might think of U.S. bonds as low income — but for the rest of the world it’s like a high yield bond,” said Ken Kamen, president of Mercadien Asset Management. “Worldwide demand is helping.”
The amount a retail investor should put in stocks versus bonds has a lot to do with their tolerance for risk and how close they are to retiring. Advisors often recommend that younger investors invest a greater portion of their money in stocks, or around 80 percent. Someone who is retired, on the other hand, might put 30 percent in stocks and have 70 percent in bonds.
Will it last?
Another rule of thumb advisors have used over the years is to subtract their age from 100. The remainder is the percentage of their portfolio that should be in stocks, some advisors say.
“It is the default for people, it has worked for the past 30 years and it continues to work,” said Rick Ferri, investment advisor and author of “All About Asset Allocation.” “It’s a pretty nice long-term allocation that outperforms most endowment funds for years, and is a tough balance to beat.”
Ric Edelman, CEO of Edelman Financial Services, said the fact that the 60-40 model worked so well is more of a reflection of the strong quarter than anything. The start to 2019 was a “a wonderful environment” for both stocks and bonds, he said. But that might not last.
“Sixty-forty has never not worked,” said Edelman. “But it’s unrealistic that the pace continues. We need to temper our enthusiasm.”
Based on the first quarter’s double-digit rally, if the S&P 500 stayed on the same growth trajectory, it would end the year up by more than 40 percent. Edelman expects that growth in share prices to retract, or slow at the very least.
Others are less excited about the old-school model, regardless of how great the quarter was. As money manager Peter Tanous put it — the 60-40 model is “dead.” Tanous, who has been in the business for 50 years, said there was a time when it worked great because bonds would kick back 8 percent.
“The problem is, that has not been true for a number of years,” Tanous told CNBC. In the prolonged low-rate environment over the last decade, “the 40 percent in bonds is sitting there ’doing nothing.”
“You need to look for other creative ways to create income, and you may need to take a little more risk compared to the old days,” he said.
— With reporting by CNBC’s Michael Santoli
At some point in their life, most small businesses will go to a bank or other lending institution with what they believe to be sound business loan proposals to borrow money for expansion of their operation. Many small business owners, however, initially fall victim to several of the common and potentially destructive myths that concern applying for loans. You should always do your own research.
By: Phoenix Lee/
Myths concerning applying for a loan
For example, first-time borrowers commonly believe:
Lenders are lined up and eager to provide money to small businesses.
Banks are willing sources of financing for start-up businesses.
Loans are obtained by talking the lender out of funds.
When it comes to seeking money, the company speaks for itself.
A bank, is a bank, is a bank, and all banks are cold, impersonal institutions.
Banks, especially large ones, do not need and really do not want the business of a small firm.
Research shows that 67 per cent of all small businesses that borrow money get that money from commercial banks. This places banks among the largest sources of credit; and makes them one of the most vital components to small business survival. Understanding what your bank wants and how to properly approach them with sound business loan proposals can mean the difference between getting your money for expansion and having to scrape through finding cash from other sources.
The name for people who simply walk into a bank and ask for money is “Bank Robbers”. To present yourself as a trustworthy businessperson, dependable enough to repay borrowed money, you need to first understand the basic principles of banking.
Your chances for receiving a loan will greatly improve if you can see your proposal through a banker’s eyes and appreciate their position. Banks have a responsibility to government regulators, depositors, and the community in which they are in. While a bank’s cautious perspective may be irritating to a small business owner, it is necessary in order to keep the depositors money safe, the banking regulators happy, and the economic health of the community growing.
Banks differ in the types of financing they make available, interest rates charged, willingness to accept risk, staff expertise, services offered, and in their attitude toward small business loans. Selection of a bank is essentially limited to these choices. Furthermore, a bank will typically not make business loans to any size business unless a current account or money market account is maintained.
Ultimately, your task is to find a business-oriented bank that will provide the financial assistance, expertise, and services your business requires now and is likely to require in the future.
A good loan specialist will be able to assist you in deciding which bank will best suit your needs and prepare sound business loan proposals.
As such, you should devote time and effort to building a background of information and goodwill with the bank you choose, and get to know the loan officer you will be dealing with early on. You should also build a favourable climate for a loan request long before the funds are actually needed. The worst possible time to approach a new bank is when your business is in the throes of a financial crisis. That is like walking into a funeral parlor carrying a body.
Remember that bankers are essentially conservative lenders with an overriding concern for minimising risk. Logic dictates that this is best accomplished by limiting loans to businesses they know and trust, and to those who make sound business loan proposals.
Experienced bankers know that every firm encounters occasional difficulties; a banker you have taken the time and effort to build a rapport with will have faith that you can handle these difficulties. A responsible reputation for debt repayment may also be established with your bank by taking small loans, repaying them on schedule, and meeting all facets of the agreement in both letter and spirit.
By doing so, you gain the bankers trust and loyalty. He or she will consider your business a valued customer, favor it with privileges, and make it easier for you to obtain future financing.
Lending is the essence of the banking business and making mutually beneficial loans is as important to the success of the bank as it is to the small business. This means that understanding what information a loan officer seeks, and providing the evidence required to ease normal banking concerns, is the most effective approach to getting what is needed.
Sound business loan proposals should contain information that expands on the following points:
What is the specific purpose of the loan?
Exactly how much money is required?
What is the exact source of repayment for the loan?
What evidence is available to substantiate the assumptions that the expected source of repayment is reliable?
What alternative source of repayment is available if management’s plans fail?
What business or personal assets, or both, are available to collateralise the loan?
What evidence is available to substantiate the competence and ability of the management team?