TL;DR
Blockchain bridges are fundamental to achieving interoperability within the blockchain space. They allow users who own one type of crypto to send their coins elsewhere and use them on another blockchain. For instance, if you own bitcoin but want to participate in the Defi space on the Ethereum network, blockchain bridges can help you achieve that without having to sell your bitcoin.
Introduction
A blockchain bridge is exactly what it sounds like, a bridge between blockchains. It’s a simple and powerful concept that brings together many innovations in the field of computing, including distributed ledger technology (DLT) and smart contracts. Blockchains are essentially a network of nodes that securely store data in encrypted blocks, forming a global database that is decentralized and transparent. Bitcoin, BNB Smart Chain, and Ethereum are one of some major blockchains that rely on consensus protocols, system rules, and programming language.
A blockchain bridge is a protocol that allows two chains to interact with each other. These bridges function like physical bridges, linking one place to another. In this case, the place itself will be a blockchain.
The essence of a blockchain bridge is to enable different networks to communicate with each other. This is called interoperability, meaning that digital assets and data from one blockchain can interact with another. Just as the internet relies on standards for data exchange, blockchain bridges play a similar role with different blockchains. Blockchain bridges allow for the exchang of data and value.
Why do we need blockchain bridges?
One of the most significant limitations to blockchain technology has been the lack of capacity for different blockchains to work together. Each blockchain has its own rules, tokens, protocols, and smart contracts.
Blockchain bridges allow tokens and data to be exchanged between isolated crypto ecosystems. These bridges will allow users to move between the different blockchains easily, allowing for a seamless experience that makes the technology more efficient for everyone.
Aside from enabling cross-chain transfers, blockchain bridges provide other benefits. They allow users to access new protocols on other chains and enable developers from different blockchain communities to collaborate. In other words, blockchain bridges are a critical component of an interoperable future of the blockchain industry.
What other benefits do blockchain bridges provide? For starters, blockchain bridges provide greater interoperability by enabling cross-chain transfers and communication between different blockchains. This enable developers from different blockchain communities to collaborate and allows users to access new protocols that exist in other chains. Thus, blockchain bridges play a vital role in greater interoperability and for the future of the blockchain industry.
How do blockchain bridges work?
Token transfers are the most common use case for a blockchain bridge. As an example, lets suppose you want to transfer your bitcoin (BTC) to Ethereum (ETH) network. One solution to this is to sell your BTC and purchase ETH. However, this would result in transactions fees and you could also be exposed to market volatility.
A smarter solution to this would be to utilize a blockchain bridge which will enable you to use your BTC on another network without having to sell. So how does it work? Continuing on our example, when you bridge 1 BTC to an Ethereum wallet, it creates a blockchain bridge contract. This contract will lock up your BTC and create an equivalent amount of Wrapped BTC (WBTC). WBTC is an ERC20 token that is compatible with the Ethereum network. So whenever you bridge the BTC to another chain, the BTC will be lockced up and an equivalent amount will be created/minted on the desired chain. This process can take a few steps. Getting your funds back is as simple as going through the reverse process.
Wrapped Tokens
Wrapped tokens are tokenized versions of another cryptocurrency. Wrapped tokens are pegged to the value of the asset it represents and could be redeemed back for that asset at any point in time. Wrapped BTC is a perfect example of this. Wrapped BTC is a tokenized version of BTC. It is pegged to the value of BTC but it exists as an ERC20 token on the Ethereum blockchain.
Types of blockchain bridges
There are various kinds of blockchain bridges, each performing different tasks. Blockchain bridges can be categorized according to their function, level of centralization, and their type.
Blockchain Bridges by Functions
Another classification is based on how a blockchain bridge functions. Some examples include wrapped asset bridges and sidechain bridges.
Wrapped asset bridges enable crypto interoperability, for example, porting bitcoins to the Ethereum network via wrapping the BTC to Wrapped BTC (WBTC), an ERC20 token compatible with the Ethereum network. Sidechain bridges connect the parent blockchain to its child sidechain, enabling interoperability between the two. They are needed because the parent and sidechain may have different consensus mechanisms. One popular example are the developers of the popular blockchain game Axie Infinity. In order to scale beyond what was possible on Ethereum, they created a dedicated Ethereum-linked sidechain called Ronin
Custodial vs. Non-custodial Bridges
Blockchain bridges can be categorized into two types: custodial (centralized) and non-custodial (decentralized).
Custodial bridges require users to place their trust in a central entity. They need to trust that the central entity properly and safely operate the system. As a result of this, users should research the identity of this entity, as well as its reputation and past behavior. This information can be obtained from various sources such as news articles, blogs and commentary about the project.
Non-custodial bridges rely on the use of smart contracts to manage the crypto locking and minting processes. This removes the need to trust an operator. In this case, security is equivalent to the underlying code; if the underlying software has vulnerabilities, so will this type of system.
Blockchain Bridges by Types
There are one-way (unidirectional) bridges and two-way (bidirectional) bridges.
One-way bridge
One-way bridge use smart contracts to allows users to bridge assets from the native blockchain of one protocol to the native blockchain of another protocol but not vice versa.
Two-way bridges
Two-way bridges allow asset bridging in both directions.
Benefits of blockchain bridges
Blockchain bridges are the key mechanism for cross-chain communication, enabling greater interoperability between blockchains. They also enable the exchange of tokens, assets, and data across from different blockchains. These asset transfers could come from layer 1 and layer 2 protocols or from various sidechains.
As an example, WBTC enables bitcoins users to explore and exploit the DeFi space and decentralized applications (dApps) of the Ethereum ecosytem. Therefore, the success of this industry's future depends on the interoperable blockchain sector.
Some blockchain bridges such as the ETH-Polygon Bridge can improve scalability, allowing a large number of transactions to be processed. This can contribute to the efficiency of blockchain networks, providing users with faster transactions and lower transaction costs.
Risks of blockchain bridges
While blockchain bridges have many benefits, including increased interoperability and scalability, they also face some unique challenges.
Hacking
Specifically, malicious actors have exploited vulnerabilities in smart contracts used to create some cross-chain bridges. They’ve also stolen significant amounts of crypto by exploiting the permissionless nature of these blockchains.
Custodial Bridges
Custodial bridges should be used with caution. It is possible for the centralized entity behind a custodial bridge to steal or lose users’ funds. Therefore, it is increasingly important to research long established and reputable custodial bridges with a track record of trust.
Transaction Throughput
There is also the possibility of transaction rate bottlenecks as a technical limitation. Large-scale blockchain interoperability could be hindered by a single chain's throughput capacity bottleneck.
Bridges can alleviate congestion on busy networks, but moving assets to another chain doesn't solve the scalability issue as users won't always have access to the same suite of dapps and services. The Polygon Bridge, for instance, does not support all Ethereum dapps, which limits its scaling capabilities.Polygon Bridge, which limits its scaling efficacy.
Expose Protocol Risks
Due to the disparity in trust, blockchain bridges could expose the underlying protocols to risks. Interconnected blockchain networks are secure only as strong as the weakest link because blockchain bridges connect different blockchains.
What’s the future of blockchain bridges?
Interoperability is one of the reasons why the internet is a revolutionary system. It is imperative that blockchain bridges are built in order to enhance the blockchain industry's interoperability and mass adoption. In addition to allowing users to exchange assets between various blockchain protocols, they have enabled some essential innovations. The number of blockchain bridges, the number of users, and the total transaction volume have grown significantly since.
As the internet moves to Web3, the need for blockchain bridges is likely to grow. Users and developers may benefit from future innovations that provide greater scalability and efficiency. Innovative solutions could be developed to address bridge security risks. A decentralized, open, and interoperable blockchain space relies on blockchain bridges.
Popular Blockchain Bridging Platforms
Formerly known as Fantom Anyswap, Multichain positions itself as a cross-chain router protocol. It enables the exchange of data and assets across different blockchain networks. No other cross-chain bridge service supports as many token types as Multichain. To see the full list click here.
Wormhole locks in the original token with a smart contract then wraps the coin in a Wormhole minted token on the target blockchain.
Closing thoughts
Innovation drives the development of the blockchain industry. There are the pioneer protocols like the Bitcoin and Ethereum networks, followed by a myriad of alternative layer 1 and layer 2 blockchains. As a result, many more projects have sprouted in hopes of adding to the growing innovations in the space.
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