What is an atomic transaction?

I received an email earlier today asking clarification of the term “atomic transaction.”  Occasionally you may see this used in an article describing a unique advantage that cryptocurrencies such as Bitcoin have.  Angel investor, Ben Davenport, used it in a quote that I published over at CD last week:

“[I]magine the power of being able to make a trustless trade of stock for bitcoin with a stranger, at a distance, with no third party involved. With colored coins, I can construct a single atomic transaction which encodes such an exchange. That, to me, is the most important basic thing that colored coins can enable.”

In short, when exchanging one cryptocoin with another (such as a Bitcoin for a Litecoin or colored coins), either the trade occurs or it does not.  Michael Goldstein explains this concisely over at Lex Cryptographia:

Two parties agree to exchange one cryptocurrency for another, and the transaction is done in such a way that neither side can execute their portion of the trade without releasing funds to the other party. The trade either happens in its entirety, or not at all, which means nobody can walk away empty-handed. The worse possible outcome is that no trade occurs at all and everybody keeps what they had.

The key is the nLockTime function described in Atomic cross-chain trading.  I also recommend looking through the Bitcointalk thread Alt chains and atomic transfers.

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One thought on “What is an atomic transaction?

  1. An outstanding share! I have just forwarded this onto a colleague
    who was doing a little homework on this. And he in fact ordered me lunch due to the fact that I discovered it
    for him… lol. So let me reword this…. Thanks for the meal!!

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