All You Need To Know About Token Swaps

The purpose of Token Swaps

When a cryptocurrency is being exchanged for another at a rate which has already been predefined, the process is known as token swap.

Token swap doesn’t involve buying or selling cryptocurrencies. It means that when one is being exchanged, another has to be replaced or the coin will lose its value. It is important to note that token swap is not rebranding where the token change their names and symbols. When a token swap is carried out, the entire blockchain which supports the token is changed. Therefore, the holders of the coins are urged to taken an action.

If your coins are sitting in an exchange, they may take care of the token swap process for you. However, you must be mindful that they can sometimes replace your new coins with old coins which has no value at all. So to prevent yourself from getting into such a satiation and ending up a useless coin, you must take precaution. Although you let the exchange take care of the token swap process, you must pay attention to what you are receiving.

The purpose of Token Swaps

Blockchains have been created so companies can sell their services or make investments using their own tokens which gives them a wide range of options.

But building blockchains can be a time consuming and financially draining process. In order to issue token, they must be able to create their own blockchain and to create their blockchain, they also need funding through the tokens they issue.

Making use of an existing blockchain can solve the problem of raising money to fund their own projects for many companies. For example, there are some blockchains which make it possible for other companies to create another layer on top of the native token. This way, companies can create tokens while using another company’s blockchain and raise funds for the creation of their own blockchain.

Ethereum is a great example of a blockchain which allows custom tokens to be created. in fact, blockchains which can make use of smart contracts are capable of being used to create tokens.

token swaps

The Process

As already mentioned, you can let an exchange handle the process for you. Or, you can also take care of the process by yourself if you have the necessary skills and knowledge. If you are letting an exchange handle the process, you can simply put your tokens on the exchange. The exchange will then hold the token in a wallet and create a new one for you when the exchange has taken place so the new coins can be transferred into the new wallet.

The wallet which is holding the old tokens will be made non-existent. In other words, they will be destroyed. As soon as trading with the new tokens starts, you will be able to transfer them to your own wallet and use them as they would normally do.

On the other hand, you can take care of token swap by yourself by involves the same process as with the exchange. Those people who were responsible for issuing you the coins will also issue you the wallet that you can use for holding the new coins.

Although both methods have the same steps, there could be a degree of risk associated with doing the process manually. The process may be confusing especially when you are given with options to choose from during the process. Moreover, mistakes can be costly when you are doing the swap by yourself.

Therefore, it is advisable to let the experts take care of the process for you. Putting your token on an exchange is a safer and easier method of swapping them.

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