Atomic swap is a type of peer-to-peer (P2P) function that allows for the exchange of one cryptocurrency for another, without the need for a central intermediary such as an exchange. This is done through the use of smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller written directly into lines of code.

During an atomic swap, both parties create a smart contract with their own set of conditions, such as the amount of cryptocurrency to be exchanged and the time frame for the exchange. The smart contracts are then connected, and once both parties have met the conditions set out in their respective contracts, the exchange is automatically executed.

Because the swap is done directly between the two parties, it eliminates the need for a central intermediary and the associated fees, which results in increased security and privacy. Furthermore, atomic swap can be performed across different blockchain networks, thus allowing for cross-chain trading.