What is a Coin Swap, and How Do You Participate in One?

Cryptocurrency is not like any other investment vehicle. It demands that its investors be involved on a level that has previously not been available to the general public. This offers a lot of freedom, but it also demands much responsibility.

On top of making sure that you’re being safe with your exchange procedures and making sure that your assets are stored securely. You’ll also need to keep up with news regarding your coin or token in the event of a coin swap.

While sometimes these are surprise events that take place when an asset needs room to grow, in other cases, these are planned upon the asset’s creation. As an investor, you should make it a point to be informed about any events that could influence the value of your investments.

In this article, we’ll go over exactly what a coin swap is and how you can be prepared for it if one of your assets is scheduled to go through this particular event.

What is a coin swap?

A coin swap is when the developers of a coin or token decide to issue an alternative asset to their community. In most cases, this means that the initial asset will become worthless. The original currency will no longer be supported, and it will likely be delisted from exchanges.

Often times there is a limited time frame for users to participate in this activity and to claim the new coin or token. For this reason, it’s important for investors to keep tabs on their investment’s various social media channels to make sure that they are not missing an important event like a swap.

If you do happen to miss the announcement, then there might not be anything that the development team can do for you. Your investment will likely be lost, and you’ll be out your money. This can understandably be scary for investors, but as long as you keep yourself informed then there’s no reason to be scared of a coin swap, regardless of the circumstances.

Why would they swap a coin or token?

The ability to do this is part of the bigger picture of cryptocurrency that allows it to continue to evolve to meet the needs of the community. Cryptocurrencies do not have to become outdated, they can simply improve themselves and be useful again. The specific reasons for a coin swap can vary, but in general, it’s either one of two scenarios.

Planned crowdfunding style swaps

Many projects use the Ethereum network to crowdfund their projects. While some of them will stay on the network permanently, for others Like EOS this is a temporary solution. Since these are proposed projects still in the development phase, their own networks are not yet ready. So instead, they issue a placeholder token for investors to trade on the Ethereum chain. This allows for an immediate economy for their growing ecosystem.

Once their own main networks launch, they will swap these tokens for the newly issued asset. If you invest in a lot of Ethereum based tokens, then you should be aware of this, and it would behoove you to take the time to see if your asset is going to be going through a swap or not. Usually, this will be included in the information at the time of the sale, but there are occasions where they may decide to add it later for various reasons.

In this case, you’ll likely need a new wallet, because it will no longer belong to the ERC20 token class. The team will release a compatible wallet sometime before the swap, and you’ll be required to download this in order to participate. Your new assets will go to this wallet.

There’s a problem with the original chain or it needs to be upgraded

In the case of some assets, there could be an issue with the original chain, or if it’s an older project, they may need to upgrade. If the code base they have used is not quite up to the standards of today’s assets, then the team may decide to change tokens.

This allows them to upgrade, with the potential to offer new features to their investors and community members that they may otherwise have been incapable of implementing. This could include new functionalities such as stealth transactions or the ability to plug into new kinds of software for usability.

Some projects could also issue a new token for the purpose of controlling the supply or fixing some type of catastrophe where much of the supply was lost in some way. Many times they do this to lower the supply to help with price appreciation, however, it could happen the other way as well if there were not enough assets for whatever reason.

Investors should be wary of these types of swaps because how they affect your investment could be rather unpredictable, and it’s unsure whether you’ll be coming out ahead or behind depending on how it’s orchestrated. It will be up to your discretion whether or not to follow through with the exchange or to sell before it happens.

How do you participate in a coin swap?

The procedure will vary depending on the project, and it’s up to the investor to keep tabs on these events by following the project’s social media channels. If there is going to be a swap, it will be announced on these channels repeatedly. The team will make the announcement, and then give a date for the exchange to occur.

Investors should make a note of this date and be sure that they are in compliance before it happens. In most cases, you’ll simply need to hold the assets in your wallet, and then wait for further instructions from the team. However, here’s some things you should know in order to be prepared that will apply in most scenarios.

Exchanges and third parties do not always support swaps.

While sometimes exchanges and third-party wallet providers such as Coinomi or Bittrex will support swaps, this is not always the case. You’ll need to consult your specific project’s team in order to be sure, and in almost every case it’s safer to keep your coins or tokens in a private client wallet designated by the team to make absolutely sure.

If you leave your assets on an unsupported wallet it could be difficult or impossible to participate, especially if the third party provider decides to delist or stop supporting your asset! It’s entirely possible that not every partner will be interested in continuing to support the project.

Make sure you have an official and updated wallet.

In most cases, you’ll need to download an official client wallet from the project’s website. You should make sure that you’re using the latest version and if you’re not, update it before the event date occurs to make sure you don’t have any issues.

Though most of the time you’ll still be okay as long as you have a compatible wallet. Keep in mind that in most swaps, you’ll need a wallet that you own the private key for. (Exchange wallets do not meet this criteria.)

Make sure your coins are in the wallet before the snapshot.

In many cases, a project will wait for a certain block before exchanging assets. That means you’ll need to have your assets in your wallet by that specific block in order to participate. Once this snapshot happens, you’ll be out of luck if they aren’t there.

Transfer your assets now rather than later to be safe, as there’s no guarantee you’ll be able to get any coins or tokens if you miss it. You should be able to see what block the chain is on by utilizing the coin’s explorer.

Make sure to follow the instructions of the team exactly.

Swaps vary for each project. The team will make all of the instructions available long before the date of the swap occurs. They may ask you to send your assets to a wallet address or to perform some other task to participate. Always read their instructions carefully, and don’t be afraid to ask if you don’t understand something. It’s better to be safe than sorry here.

What happens to assets that don’t get swapped?

If you’ve missed the coin swap, then you might be out of luck. Many times after the snapshot has occurred, then there’s no way for anyone to exchange their tokens or coins, and you could be left with worthless assets.

In some cases, some of these assets continue to trade on their old chains, but that’s not very common. The development team will no longer support the old asset, and it’s likely that these coins will just turn into dead coins.

For those who unfortunately missed their opportunity to exchange you might be able to contact the developers for assistance. In some cases, there may be a chance that they could help you out, but it would depend on the project, and often this is out of kindness to their community members.