Submarine Swaps

Alex Bosworth, creator of Lightning apps and, and developer of the submarine swaps project, spoke about submarine swaps at the SF Bitcoin Developers.

So what are submarine swaps ?

Submarine swaps is a new type of swap that can be done on the Lightning network, it’s pretty simple but could be ground breaking in terms of user adoption. The idea here is that the swap happens between On-chain and Off-chain payments, for example, if I have some Litecoin on chain and would like to fund my Bitcoin Lightning channel, I’ll make an on chain Litecoin payment that pays a certain amount of coins to whoever owns a hash pre-image I define, then I’ll go to a swap provider, show them that transaction, and ask them to fund my Bitcoin channel with Bitcoin in exchange for this hash pre-image. That way I get Bitcoins in my channel while they can redeem the Litecoin transaction and receive Litecoins in their wallet.

This can be used by exchanges to withdraw to Lightning channels without operating a Lightning node, they can be used by merchants to accept almost any Altcoin and just swap them to Bitcoin using a swap provider without having to pay network fees on both chains. This type of swap can be a major boost in Lightning adoption as it offers Lightning payments to almost anyone, even without running a Lightning node.

Submarine Swaps are a promising development that has however some drawbacks, like the issue of finding swap providers with decent responsiveness so that, on both ends, the market value of the exchanged coins does not change much while doing the swap. The swap is also limited by the block validation time of the on-chain transaction, the off chain transaction can be instant but you need to wait for the on-chain transaction to be confirmed so both parties are safe. This could be a problem with chains that have longer block times as Lightning invoices expire after a certain time which means expiration parameters should be changed for certain Altcoin swaps.

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