A token swap, or crypto swap, is like trading your favorite Pokemon cards with anyone you like online. But instead of trading cards, you can trade digital crypto assets in exchange for your favorite crypto tokens, often, without a conventional centralized crypto exchange.

In this article, we take a deep dive into crypto token swaps, common types of swaps, how they work, and how you can perform a crypto swap easily.

What is a crypto swap?

What is a crypto swap?

A crypto swap is an exchange of cryptocurrencies usually performed on dedicated swap platforms, or decentralized exchanges (DEX). 

Instead of going the traditional way of selling a fiat currency for a crypto token, you can directly swap crypto tokens. This is helpful especially if you want to avoid KYC restrictions and don’t want to pay additional fees associated with centralized crypto exchanges.

Swapping tokens in crypto can be done on the same blockchain or across different blockchains, a feature offered by almost every decentralized crypto swap platform. Swapping cryptocurrencies is an ideal way to rebalance your crypto holdings, or step foot into the exciting world of decentralized finance (DeFi) where lending and borrowing can be a game changer for many users.

Types of Token Swaps

Token swaps can have many types, but the most common and important categories include on-chain and off-chain swaps.

Centralized exchanges usually carry out off-chain swaps, facilitating the transaction inside their own database as opposed to on a public ledger. Although this kind of token swap is quicker and might have cheaper costs, it presupposes confidence in a centralized exchange.

On the other hand, on-chain swaps take place solely on the blockchain and manage user-to-user transactions via smart contracts. These on-chain swaps are very common on DEX platforms like Uniswap and PancakeSwap, where buyers and sellers conduct on-chain transactions with each other via decentralized processes.

Both types of cryptocurrency swaps have special benefits: off-chain swaps give efficiency and speed, while on-chain swaps offer transparency and decentralization. You can choose any type of token swap based on your comfort level with speed, security, and control over your assets.

Common use cases

For several reasons, token swaps are becoming more and more common, particularly in the DeFi community. Portfolio diversification is one of the main use cases; investors can simply exchange crypto tokens to distribute their funds among several projects without leaving the cryptocurrency market. Yield farming, in which users exchange tokens needed to engage in yield-generating activities on DeFi platforms, is another popular application.

Since some projects only work with particular crypto tokens, swapping tokens in cryptocurrency is also useful for accessing decentralized applications (dApps) and making NFT purchases. For example, a token swap allows you to join a gaming platform that requires a specific cryptocurrency asset with little difficulty. As a result, token swaps are now an essential component of the crypto toolbox, facilitating user interaction with a variety of applications.

How do crypto swaps work?

There are some key fundamental ways in which cryptocurrency swaps work, and they frequently differ depending on whether they are off-chain or on-chain. 

Smart contracts play a key role in on-chain swaps. The smart contract returns the swapped token to the user after locking the original token in escrow when a user initiates a swap. Because these transactions are decentralized and trustless, users maintain complete control over their money throughout the transaction, negating the need for an intermediary. 

Cryptocurrency traders provide liquidity to liquidity pools provided by decentralized exchanges (DEXs). This allows other users to swap their favorite tokens and essentially creates an organic marketplace of buyers and sellers, which eliminates the need of traditional order books.

On the other hand, off-chain swaps are purely conducted on centralized exchanges, hence their data is not recorded on any public blockchain. This method allows users to benefit from lower fees and faster transaction processing times.

Both on-chain and off-chain swaps have different benefits when it comes to transparency, speed, and cost, which allows users the liberty to choose the method that suits their needs. With crypto swaps explained, let’s move on to why they’re important.

Why are token swaps important in crypto?

The crypto ecosystem can only thrive if its accessibility and functionality become at par with the understanding of crypto users. This is where token swaps come into the picture, as they fulfill both these parameters. 

Token swaps give users the liberty to adapt to volatile crypto market conditions as they can easily get new tokens by participating in DeFi activities including staking, lending, and yield farming. In addition, users can also diversify their portfolios and swap tokens through liquidity pools. All of this opens up a new pathway for new crypto users to get familiar with the world of web3.

The benefits of token swaps aren’t just limited to the crypto user. Blockchains also benefit from token swaps, as their interoperability is enhanced, thanks to cross-chain swaps, that facilitate the exchange of assets between blockchains.

This entire procedure attracts new investment and promotes innovation across blockchain projects that start to provide a more diverse amount of tokens and DeFi platforms to the end users. 

Crypto token swap vs token migration

A token swap is defined as exchanging one cryptocurrency for another, which can be on the same blockchain or across different blockchains. The process of token swapping allows users to diversify their crypto asset holdings and reposition themselves in the volatile cryptocurrency markets.

On the other hand, token migration is the process of a cryptocurrency project moving from one blockchain to another. For example, a layer-1 protocol can decide to move to a layer-2 blockchain to get additional benefits of lower transaction costs and increased speeds.

When token migration happens, usually a cryptocurrency project issues a new token with a new ticker, and all users have the option to seamlessly transition their current holdings to the new one. A recent example of this is $MATIC which was migrated to $POL, and the spot holdings of $MATIC tokens held by users were converted into $POL automatically.

Risks and considerations

Token swaps do offer a certain level of comfort to users, however, they are associated with some risks as well. For example, while doing on-chain swaps cryptocurrency traders can experience issues like slippage, where a swap doesn’t get executed at the intended price levels, which can lead to potential losses. 

Another risk is that users have to evaluate the security of the platform on which they are conducting these token swaps. This is because if smart contracts running behind a token-swapping platform are compromised, all funds can be lost. 

In off-chain token swaps, users can face the risk of counterparty default, which means that the centralized exchange sometimes fails to execute the transaction properly. While the fees and speed of a transaction might be lower on off-chain token swaps, users still have to analyze the security aspect of the centralized exchange.

In token migrations, users can face issues related to wallet compatibility, lack of support during the transition process, and the crypto exchange not supporting the token migration to begin with. All of these risks can lead to potential losses, and to avoid this, users can make sure that the cryptocurrency project’s team is reliable and has announced a partnership with the exchange before doing the token migration. 

How to perform a token swap: step-by-step guide?

A token swap is a simple process, here are some steps you can follow to complete a token swap. 

Connect your wallet: Connect or create a digital crypto wallet from scratch, for example, Metamask. Make sure you have the crypto token you want to swap in it.

Choose your swap tokens: Go on any decentralized exchange, for example, Uniswap, and select both tokens, i.e. the token you want to swap and the token you want to get in return.

Enter the amount: Enter the amount of tokens you want to swap. 

Double-check the amount and fees: Check the fees displayed on Uniswap that will occur for the entire swap process.

Accept the transaction: Accept the transaction in your digital crypto wallet.

Wait for confirmation: Wait for a few seconds to minutes for the transaction to complete and for the tokens to show in your digital crypto wallet. You have now swapped a token in the cryptocurrency market!

The first cryptocurrency appeared in 2009, and today, its name is known by almost everyone — Bitcoin. What made it so intriguing was the promise of a new kind of money: no government interference, full privacy, and everyone having the same rights within the system.

At first, Bitcoin (BTC) was not taken seriously. It wasn’t until 2013, when its price passed a few hundred dollars, that the rise of cryptos really took off, and they began spreading and multiplying globally. So, how many cryptocurrencies are there today?

How many cryptocurrencies are in the world?

Statista reports that by September 2024, the number of cryptocurrencies is getting close to 10,000. However, it’s worth noting that many of these cryptocurrencies may not be particularly relevant or active.

Statista also notes that other sources estimate there are around 20,000 cryptocurrencies in existence, though most of these are either inactive or have been discontinued.

As of early November CoinMarketCap, a leading cryptocurrency data aggregator that tracks prices, market cap, and trading volume, lists 9,916 cryptocurrencies, while CoinGecko, another popular crypto data platform known for its comprehensive market statistics, shows 15,142.

Figuring out exactly how many cryptos there are is tricky, since the number keeps changing, but we can say this for sure: there are way more now than there were in 2009.

Why are there so many cryptocurrencies?

Thanks to easier access to blockchain technology, even those with basic coding knowledge can launch their own cryptocurrency. Platforms like Ethereum allow developers to create tokens without needing to build their own blockchain from scratch.

This low barrier to entry has led to an explosion of new projects, each claiming to offer something unique, whether it’s faster transactions, privacy features, or use in specific industries. Some even target niche markets like gaming, art, or supply chains.

While many of these coins won’t survive long-term, the ease of creation fuels constant experimentation and innovation, driving the evolution of the entire crypto ecosystem.

How many types of cryptocurrencies are there?

How many crypto are there?

With so many different types of cryptocurrencies, each designed for a specific goal, here’s a breakdown of the main categories.

Bitcoin and Bitcoin forks 

Bitcoin is the first and most famous cryptocurrency, designed as a decentralized, peer-to-peer digital currency. Bitcoin forks like Bitcoin Cash (BCH) and Bitcoin SV (BSV) are versions of Bitcoin with minor adjustments to improve speed or transaction costs.

Altcoins 

Altcoins are basically any cryptocurrencies that aren’t Bitcoin, each offering something unique, whether it’s new features, different uses, or fresh technology to shake up the digital currency scene. For example, Ethereum (ETH) brings smart contracts to the table, while Solana (SOL) stands out for its fast and low-cost transactions.

Stablecoins 

Designed to reduce volatility, stablecoins are pegged to real-world assets like the US dollar. Tether (USDT) is the most widely used, offering stability for traders.

Meme coins

Meme coins like Dogecoin (DOGE) and Shiba Inu (SHIB) were created as fun projects but turned into something much bigger thanks to viral social media moments. Pepe Coin, inspired by the Pepe the Frog meme, has also become popular in the meme-crypto space.

Utility tokens 

These tokens are used to power specific applications. Chainlink connects smart contracts to real-world data, while Uniswap is used for governance in the Uniswap decentralized exchange. Binance Coin started as a way to pay lower fees on the Binance exchange but now has broader uses across the Binance ecosystem.

How many cryptos are actually significant?

There are thousands of cryptocurrencies out there, but only a small percentage are truly significant, in terms of widespread use, market value, and technological impact. Bitcoin remains the dominant force, widely recognized as the first and most valuable cryptocurrency.

Ethereum is another heavyweight, known for its smart contract capabilities and dApps, driving much of the DeFi and NFT boom. Other notable cryptos include Binance Coin, which powers the Binance ecosystem, and Solana, praised for its high-speed transactions.

Meme coins, like Dogecoin and Shiba Inu, have certainly gotten attention, but whether they’ll have lasting value is still a big question. The crypto world is moving fast, but not many assets have truly changed the industry. The ones that have are still the ones leading in terms of innovation and market impact.

With the advancement of IT technologies and blockchain platforms, a new type of contract has emerged: smart contracts.

In this article, we’ll explore smart contracts and how they’re being used today.

What are smart contracts. Smart contracts explained

What is a smart contract? It is like a digital agreement that runs on its own, with all the terms and conditions written directly into the code. It operates on a blockchain network, so the contract automatically carries out and enforces itself when the set conditions are met.

There’s no need for intermediaries like lawyers or banks because the contract’s rules are transparent and unchangeable once deployed. Essentially, smart contracts in cryptocurrency streamline and secure transactions, making them faster, more efficient, and less reliant on third-party oversight.

Historical background

The concept of smart contracts dates back to the mid-1990s when computer scientist and cryptographer Nick Szabo first proposed the idea.

He envisioned a digital protocol that could automatically execute the terms of a contract when predefined conditions were met, similar to a vending machine dispensing a snack when the correct amount of money is inserted.

But it wasn’t until blockchain technology came along, especially with the launch of Ethereum in 2015, that smart contracts took off. Ethereum’s blockchain gave developers the tools to create and run code that could handle complex agreements on its own. This breakthrough led to a wave of new decentralized apps, shaking things up by automating transactions and eliminating the need for middlemen.

How do smart contracts work

Smart contracts use straightforward “if/when…then…” commands written into the blockchain. They automatically handle tasks like releasing funds, registering assets, or sending notifications once conditions are met. The blockchain’s permanence ensures transactions are visible only to authorized parties.

Smart contracts can get pretty complex, involving various conditions everyone has to agree on. This means deciding on how transactions are recorded, handling any exceptions, and figuring out how to resolve disputes. 

Every node in the network keeps a copy of all the smart contracts along with the blockchain and transaction data. When a contract receives funds, all nodes execute the contract’s code to agree on the result, ensuring that everything runs smoothly without a central authority. 

Not every blockchain can run automated contracts, so it’s good to know which ones do and which don’t. While platforms like Ethereum, Arbitrum, Avalanche, Base, and BNB Chain do, others, like the base blockchain of Bitcoin, don’t. The main difference is whether a blockchain can handle and store complex logic. Once a smart contract is set up, it usually stays as is, even for those who created it. This stability helps it resist censorship and prevents it from being easily shut down.

Types of smart contracts

Smart contracts in blockchain generally fall into three types:

Smart Legal Contracts 

Smart Legal contracts are designed to align with formal legal agreements, meaning the parties involved are legally accountable for meeting the contract’s terms. These can range from contracts that facilitate cryptocurrency-to-fiat conversions to those that handle real estate registrations.

Many existing smart contracts are legal in nature, underpinning various platforms including cryptocurrency exchanges, DeFi projects, GameFi projects, and blockchain-based platforms like NFT marketplaces and real estate tokenization platforms.

Decentralized Autonomous Organizations

DAOs are communities governed by a set of rules encoded into smart contracts. Once these rules are established, DAOs use these contracts to enforce them, provide legal mechanisms for protection, and impose penalties for breaches. Essentially, DAO smart contracts function as the organization’s laws and “digital” bureaucracy.

Examples include governance protocols for Decentraland, Uniswap, Polkadot, and MakerDAO. In these projects, governance is managed by holders of the native tokens, who can propose changes (like adjusting fee structures, altering blockchain code, or adding/removing parachains) and vote on them. DAO contracts handle the voting process and count the votes.

Application Logic Contracts 

ALCs operate under a governing program and are primarily tasked with managing interactions between this program and the blockchain. For instance, ALCs might facilitate the integration of Internet of Things devices with blockchain.

Benefits of smart contracts

The advantages of using blockchain are impressive for individuals, businesses, and governments.

Transparency: One of the biggest perks is transparency. Every transaction on a blockchain is public and can be verified, so once data is added, it can’t be changed. This means you can trust that smart contracts are secure and haven’t been tampered with, giving you peace of mind whether using them personally or for business.

Cost efficiency: Smart contracts take care of a lot of the legwork when it comes to setting up and managing agreements. Since they don’t require intermediaries like lawyers, banks, or brokers, they save money and streamline processes.

Building trust: Because smart contracts are automated, they reduce the chance of human error and build trust between parties.

Secure storage and backup: Losing data is a big risk for any organization. While backups are important, they’re not always foolproof. Blockchain technology, however, keeps data across many nodes, so it’s much less likely to be lost or tampered with as long as the blockchain itself is running.

Security: Smart contracts are incredibly secure, thanks to advanced encryption and security protocols. They’re some of the safest tools for handling transactions today, offering strong protection against hacking and tampering — just like cryptos.

Use cases

Token smart contracts in cryptocurrency are used to create, manage, and assign ownership of specific digital tokens on blockchain networks. These contracts program the functionalities of the tokens they issue, giving them various roles.

For instance, they might enable tokens to serve as utility tokens for apps (offering features or benefits within an application), governance tokens that give holders voting power in a protocol, security tokens representing shares in a company, or NFTs that represent ownership of unique physical or digital assets.

Smart contracts examples

Examples of smart contracts in action:

Ethereum. Ethereum allows developers to build dapps and underpins many DeFi projects. Smart contracts on Ethereum are super flexible, handling everything from turning real-world assets into digital tokens to automating transactions. It’s a hub for a lot of groundbreaking blockchain activity.

Then there’s Binance Smart Chain. It’s celebrated for its speed and efficiency. While it’s compatible with Ethereum, it offers lower fees and better performance, making it a great choice for various projects. It’s become a popular choice for DeFi projects and tokenization due to these advantages.

Polkadot. Polkadot is all about connecting different blockchains. It lets you create parallel blockchains that can interact with each other and supports smart contracts for various applications, enhancing blockchain interoperability.

Chainlink. Chainlink is like a bridge that connects smart contracts to the real world by providing them with external data. Thanks to its decentralized oracles, these contracts can access real-time information, which makes them even more dynamic and adaptable.

Future of smart contracts

The future of smart contracts is bright and full of potential. As technology keeps evolving, these contracts are set to get smarter, safer, and more efficient. This is thanks to ongoing upgrades in blockchain tech and better programming tools.

We’re likely to see this technology contracts revolutionize industries beyond finance and legal sectors, influencing areas like supply chain management and government operations. All in all, smart contracts are gearing up to be a major force in shaping the future of our digital world.