top of page

What are Blockchain Bridges?

Updated: 49 minutes ago



Introduction


To understand what a blockchain bridge is, we first need to understand what a blockchain is. Bitcoin, Ethereum, and BNB Smart Chain are some of the major blockchain ecosystems, each using different consensus protocols, programming languages, and system rules.


A blockchain bridge is a protocol that connects two economically and technologically distinct blockchains to enable interaction between them. These protocols function like a physical bridge, connecting one island to another, with the islands representing separate blockchain ecosystems.


Thus, blockchain bridges provide interoperability, meaning that digital assets and data stored on one blockchain can interact with another. Interoperability is the foundation of the internet: devices worldwide use a common set of open protocols to interact with each other. In the blockchain space, where there are numerous different protocols, blockchain bridges are necessary to provide similar ease of data and value exchange.


Why do we need blockchain bridges?


As the blockchain space evolves and expands, one of the most significant problems that has arisen is the inability of different blockchains to effectively interact with each other. Each blockchain has its own rules, tokens, protocols, and smart contracts. Blockchain bridges help overcome these limitations and unite isolated cryptocurrency ecosystems. An interconnected network of blockchains allows for smooth token and data exchanges between them.


In addition to facilitating cross-chain transactions, blockchain bridges offer other benefits. They enable users to access new protocols on other chains and promote collaboration among developers from different blockchain communities. In other words, blockchain bridges are a key component of the future interoperable blockchain industry.


How do blockchain bridges work?


The most common use case for a blockchain bridge is token transfer. For example, suppose you want to transfer your bitcoins (BTC) to the Ethereum network. One way is to sell BTC and then buy ethers (ETH). However, this would incur transaction fees and expose you to price volatility.


Instead, you can achieve this goal using a blockchain bridge without selling your cryptocurrencies. When you "bridge" 1 BTC to the Ethereum wallet, the bridge contract locks your BTC and creates an equivalent amount of Wrapped BTC (WBTC), which is an ERC20 token compatible with the Ethereum network. The amount of BTC you want to transfer is locked in a smart contract, and corresponding tokens are minted on the target blockchain or can be created. A wrapped token is a tokenized version of another cryptocurrency, pegged to the value of the asset it represents and can usually be redeemed for it (unwrapped) at any time.


From the user's perspective, this process involves several steps. To use Binance Bridge, for example, you first select the chain you want to bridge to and specify the amount. Then, you send the cryptocurrency to the address provided by Binance Bridge. After sending the cryptocurrency, Binance Bridge will send you the equivalent amount of wrapped tokens on the other blockchain after a certain period. If you want to return your funds, you simply need to go through the reverse process.


Types of Blockchain Bridges


Blockchain bridges can be classified based on their functions, mechanisms, and level of centralization.


Custodial (centralized) and non-custodial (decentralized) bridges

One common way to classify blockchain bridges is to divide them into two types: custodial (centralized) and non-custodial (decentralized).


Custodial bridges require users to rely on a central organization for the proper and secure operation of the system. Users must conduct thorough research to ensure the reliability of this organization.


Non-custodial bridges operate in a decentralized manner, relying on smart contracts to manage the processes of locking cryptocurrency and issuing new tokens, eliminating the need to trust the bridge operator. In this case, the security of the system depends on the quality of the source code.


Functional blockchain bridges


Another way to classify blockchain bridges is based on how the bridge operates. Some examples include bridges for "wrapped" assets and bridges for sidechains.


Bridges for "wrapped" assets provide interoperability for cryptocurrencies, for example, allowing bitcoins to be transferred to the Ethereum network by "wrapping" them into tokens like Wrapped BTC (WBTC) that are compatible with the Ethereum network. Sidechain bridges connect the main blockchain with its child sidechain, facilitating interaction between them. They are necessary because the main blockchain and the sidechain may have different consensus mechanisms. An example is the xDai bridge, which connects the main Ethereum network with the Gnosis chain (formerly the xDai blockchain), a side stable payment chain based on Ethereum. xDai is secured by a set of validators different from those supporting the Ethereum network. The xDai bridge facilitates the transfer of value between these two networks.


Mechanisms of Blockchain Bridges


There are one-way (uni-directional) and two-way (bi-directional) bridges. A one-way bridge means that users can move assets only to one target blockchain but not back to their original blockchain. Two-way bridges allow asset movement in both directions.


Advantages of Blockchain Bridges


The most significant advantage of blockchain bridges is the ability to enhance interoperability. They enable the exchange of tokens, assets, and data between different blockchains, whether between layer 1 and layer 2 protocols or different sidechains. For example, WBTC allows Bitcoin users to explore decentralized applications (dapps) and DeFi services within the Ethereum ecosystem. Interconnectedness within the blockchain sector is critical for the future success of the industry.


Another advantage of blockchain bridges is scalability improvement. Some blockchain bridges can handle a large number of transactions, increasing efficiency. For instance, the Ethereum-Polygon bridge is a decentralized bi-directional bridge that serves as a scaling solution for the Ethereum network. As a result, users can execute transactions faster and with lower costs.


Risks of Blockchain Bridges


However, blockchain bridges have their limitations. Attackers can exploit vulnerabilities in the smart contracts of some blockchain bridges. Malevolent actors may illegally transfer significant amounts of cryptocurrency through bridges between different blockchains.


Custodial bridges may expose users to risks associated with custodial management. The centralized organization behind a custodial bridge theoretically could abscond with users' funds. When using custodial bridges, it's advisable to choose reputable brands with a long-standing reputation.


Another potential technical limitation is the bottleneck in transaction speed. Bottlenecks in throughput capacity in one of the chains may hinder the scalability of blockchain interoperability on a large scale.


While a bridge may alleviate congestion on an overloaded network, moving assets to another chain doesn't address the scalability issue, as users may not always have access to the same set of dapps and services. For example, some Ethereum dapps are not available on the Polygon bridge, limiting its scalability effectiveness.


Finally, blockchain bridges may expose the protocols of underlying networks to risks due to differences in trust levels. Since blockchain bridges connect different blockchains, the overall security of interconnected networks is as strong as the weakest link.


The Future of Blockchain Bridges


The internet is a revolutionary system, partially due to its high interoperability. Blockchain bridges play a crucial role in improving interoperability and mass adoption in the blockchain industry. They have facilitated significant innovations, allowing users to exchange assets between different blockchain protocols. The number of blockchain bridges, users, and total transaction volume has significantly increased.


The demand for blockchain bridges is likely to continue growing as the internet transitions to Web3. Future innovations may provide greater scalability and efficiency for users and developers. Innovative solutions addressing security issues related to bridges may emerge. Blockchain bridges are indispensable for creating an interoperable, open, and decentralized blockchain space.


Closing Thoughts


The development of the blockchain industry is driven by constant innovation. There are pioneering protocols such as the Bitcoin and Ethereum networks, followed by numerous alternative layer 1 and layer 2 blockchains. The number of cryptocurrencies and tokens is growing exponentially.


With different rules and technologies, they require blockchain bridges for connectivity. The blockchain system interconnected by bridges becomes more coherent and interoperable, opening opportunities for better scalability and efficiency. Despite numerous attacks on cross-chain bridges, the search for a more secure and reliable bridge design continues.



4 views0 comments

Recent Posts

See All

Comentarios


KRAK NEWS

bottom of page