All You Need to Know About Token Swaps

George Chase, a writer and cryptocurrency expert, explains the idea and meaning of token swap, shares how to do it, and unveils the possible risks. If you have any interest in the cryptocurrency world, just read this and get educated on this issue today.

Photo: Pixabay

Photo: Pixabay

For every investment conscious and IT savvy fellow, one of the hottest topics of the last 2 years has been the cryptocurrencies. A lot of people have studied the phenomenon, some have invested in it, some other have been analyzing the trend and expected outcomes, while some got into the trading. A very good look at the issue will reveal that the popularity is widespread. So, a majority of the people in the world will have one thing or the other to do with one or two of the cryptocurrencies if a check was conducted.

One of the major activities that people involved in cryptocurrency dealings could encounter is the token swap. But because many of the people involved still do not understand the idea of a token swap, we will be elaborating on the meaning, and the facts surrounding the idea of a token swap.

The Meaning of Token Swap

Token swap is the act or practice of exchanging one cryptocurrency for the other at a set or an agreed rate. This could be described as a token migration too, and it is completely different from the selling and buying of cryptocurrency. Here, one coin is simply replaced with another, in a form of exchange. The old coin is exchanged for the new one for the major purpose of avoiding a loss of value.

Now, this process is gaining massive popularity among the blockchain projects in existence as it stands now. A look at the biggest 25 cryptocurrencies will reveal that two of them, namely the EOS and Tron are currently involved in the swap. Some others are hoping to join them soon.

This is a very important process, and massive stakes are involved. This is because the swap normally involves millions or even billions of dollars migrating from one cryptocurrency to the other. In the recent past, there were disagreements within crypto experts on issues concerning this process.  A few months back, many people involved in the blockchain industry were still ignorant of the intricacies of the process.

However, many things have been ironed out, and presently, there is more information about the process for all to assimilate.

In a more elaborate explanation, we can view token swap as the process of transferring the token balances of holders from their ethereum wallets to the compatible wallets of some other new project. The completing of the switch entails the movement of the token from one blockchain to the other.

Reasons for Token Swaps

If you are reading this with rapt attention, I bet you would have been preparing to ask why the swap is necessary in the first place. If you have, then you are a smart student and you deserve all the necessary clarifications. So, let’s go. Since the token was created, many firms have benefited by selling their goods and services and accepting investments from partners through tokens designed and run by them.

With this, firms can now have an avalanche of options, as against the simple selling of shares to investors. However, to build up a ‘mainnet,’ which entails a company’s personal blockchain, is not an easy and fast one. While they want to offer tokens to people to raise funds to design their blockchain, there is also the need to have these tokens in their blockchain for issuing after building it.

So, to solve this problem, they almost always opt to initially create their token on a blockchain that is already in existence. The concept of smart contract in blockchain allows the original owners the chance to fuse in another layer on their own original layer. So, firms that are just nascent in this will have the chance to have those that have established block chains initially host their own tokens for them. This allows them to raise some funds while their own blockchain is being developed.

Now, amongst all the tokens, the ethereum stands out as the most used for the creation of custom tokens. They came up with the concept of ERC-20 meaning “Ethereum Request for Comment,” which serves as a system through which upgrades to the ethereum blockchain could be requested internally. Tokens could be developed by any blockchain that is smart contract enabled. But the most popular and commonly used is the ERC-20.

The Process of Token Swap

For any particular token, there are specific instructions for the swap. So, you must read and follow the instructions. First of all, you must stop all trading activities with the token, so as not to confuse things. Also, halt actions like air drops, block rewards, and others. 

Some people may choose an exchange to handle the entire process for them. The token is put on the exchange that participates. They will hold the wallet for you and create a new one in your account on their platform after the swap and transfer the new tokens into it, as they shred the old wallet. You have the chance to get back the tokens into your personal wallet upon commencement of trading.

If you want to DIY, then you will need to get a wallet or a website link from the issuers of your coin. You download the wallet or register with the site. After this, an account with two different wallets will come up, representing the old and the new.  A prompt will come up, urging you to move your old token to a given address. When you do this, the wallet for the new account will come up in a jiffy.

Risks and Caveat

Even the experts agree that token swap could be a very complex process and that many people can easily screw things up. However, the most pronounced risk, and which you must run away from, is missing the deadline. You are a latecomer to everything, yes. But don’t come late here. Though people who miss the initial deadline or date are normally given a window, never rely on this. Your old tokens could be frozen or become inaccessible if you do.

George Chase

George Chase is a writer, content marketer, and cryptocurrency expert.  George lives in New York with his wife and three little kids. He manages some online business courses with his partner, real estate agent Max Polyakov.

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