Bridges between blockchains: what is it and how does it work?

Description

What is a blockchain bridge, what is it used for, and what are the features of a crypto bridge? Learn about everything from our article.

Blockchain bridge definition

Crypto bridge, what is it? A Crypto bridge is a specialized application for making transactions between different blockchains (two or more). It's a trendy feature, especially with the changing internal relationships between numerous cryptocurrency investors and the emergence of new blockchains between 2020 and 2022.

What are the benefits of blockchain bridges?

The cryptocurrency ecosystem is dynamic. New participants, technologies, and services are constantly emerging. Therefore, one of the important characteristics remains the speed of cryptocurrency transfer and availability for this function.

However, it's easy to make a mistake in this variety (through inexperience or inattention). And if you send a cryptocurrency from one blockchain to another without adapting in advance, the entire investment will simply burn up (will be blocked forever). That's why the need for such a chain bridge service arose.

Another reason: is the scaling of the blockchain, specifically Ethereum. The technology of the second largest cryptocurrency in the world faced insurmountable difficulties at a certain point: speed of transactions, excessively high gas fees, and scaling. Most of the cryptocurrency market products were created using Ethereum smart contracts, and the internal problems of this blockchain affected users. So an original way out of the predicament was invented: blockchain bridges.

What is the core functionality of blockchain bridges?

How bridge works: there is a reason why this service is called a "bridge. It's actually a linking element for transferring value between technologically incompatible blockchains. One "pillar" of the bridge is on the territory of one network, and the other on the territory of another, which allows you to move the selected amount between different networks. Consider an example.

How to use a bridge? You want to transfer an amount of 10 BTC that belongs to the Bitcoin network to the ERC-20 standard Ethereum network. If you just specify two sender and receiver addresses and send 10 coins, the whole amount will be burned with no possibility to return. But with a bridge, this is easy to do.

For starters, 10 BTC are sent to the crypto bridge and are blocked there. At the same time, the Wrapped Token Bitcoin (WBTC) of the ERC-20 standard is minted for the same amount of 10 coins. A Wrapped Token is a digital copy of the original asset, created on another blockchain and pegged to the value of the original coin. The amount issued is locked into the original blockchain and provides the value of the Wrapped Token.

For example, the 10 WBTC can now be used for passive earning in decentralized finance (DeFi) services created in the Ethereum blockchain.

When the asset is returned to the original blockchain, the situation is mirrored: the wrapped token is sent to the chain bridge, the blocked amount of the original asset is released and transferred to the user, and the unsecured Wrapped Token is burned.

What types of blockchain bridges exist?

Blockchain bridges are of two types, depending on the level of autonomy of the technology:

• centralized;
• decentralized.

The name itself speaks to the essence of the bridge: centralized ones are managed and regulated by a central authority, most often an exchange. Decentralized has no control and regulation body.

Bridges can also differ in the number of stages of cross-chain transactions and the need for confirmation by the sending side. There are lock-and-mint, burn-and-release, and burn-and-mint types of blockchain bridges.

Lock-and-mint is the first type. It features a third party, an intermediary who simultaneously accepts and blocks the cryptocurrency and evaluates and issues tokens on the new blockchain.

Burn-and-release is very similar to lock-and-mint, only here it is possible to send tokens back to the original blockchain.

Burn-and-mint allows wrapped tokens to be re-released to a third network without returning to the original blockchain. The unsecured tokens in the second network are burned.

What are the benefits of blockchain bridges for users?

Blockchain bridges have lightened the cryptocurrency ecosystem by making it more agile and operational. There are several obvious benefits that bridges offer their users:

1. Reduced transaction costs and increased speed of sending funds.

At some point, large blockchains such as Ethereum have felt technological problems with scaling, transaction speed, and especially the cost of sending funds. The fee for a simple transaction could be as high as a record $300 at a time. Tier 2 blockchain bridges such as Optimism or Arbitrum reduced the transaction cost to below $1.

2. Variety of uses for cryptocurrency investments. For example, bridges have increased the number of options for using crypto investments—the same Bitcoin. For the first cryptocurrency, there were not many options for additional earnings. Wrapped Bitcoin allowed BTC to be used as collateral for credit, in crypto deposits, and so on. ,

3. Additional Incentives. Often bridge developers or destination networks additionally incentivize their users through an airdrop. It's another option to earn money.

4. Diversity in the cryptocurrency ecosystem. Not only have chain bridges been able to solve blockchain scaling problems, but they have also diversified cryptocurrency options in general. Investors could easily move their funds between different networks, thereby increasing their income.

What are the risks of blockchain bridges? Are they safe to use?

Despite the relevance of this type of service and the many pros, there is a downside to blockchain bridges. It mainly concerns the security of the transfer and storage of funds and the fair distribution of rights among participants. The main risks include the following:

1. 51% control attack. This is a common risk of unplanned centralization and control of the service through the concentration of most validation nodes (51%) in a single user's hands. In this case, the controlling share of validators can cancel or replace any transactions of their choice, which affects the provisioning of wrapped tokens.

2. A planned attack on the bridge smart contract. Surprisingly, many security problems arise simply from undetected smart contract vulnerabilities. The attacker uses the technology bugs to withdraw funds to his wallet.

3. Blockchain problems. A less common but still relevant risk of an attack on the blockchain network itself. In this case, the speed of unfreezing or freezing funds may be reduced, and transactions in the blockchain may be suspended. For example, this is often the case with Solana.

What are the prospects for blockchain bridges in the medium and long term?

Blockchain bridges remain a popular service, even now. Many people are comfortable using blockchain bridges because it allows them to increase their earnings from their crypto investments. However, at the moment, there is no consensus on a bright future for bridges. Perhaps in the coming years, blockchain developers will create a single adaptive standard for their networks, which will help eliminate additional services. In addition, leading blockchains are solving their problems through planned updates, and this will reduce the demand for blockchain bridging.

For now, it is safe to say that all developments to improve blockchain as a technology are still underway, and the abandonment of bridges will definitely not happen in the coming years. Perhaps by then, the helper services will find another vocation for their work.

What to look for when choosing a bridge?

What does the choice of chain bridge depend on? First: you must decide on the blockchains between which the transaction will take place. There are quite convenient blockchain bridges for two blockchains or even multichain solutions between several networks. For example, the best crypto bridges are Multichain Bridge, Synapse, and Portal Token Bridge for multiple networks. Avalanche, Tezos Wrap - for a convenient turnover between two networks.

Second: analyze the support of major market players. For bridge example crypto, when Arbitrum bridge appeared, the most significant DeFi services built on Ethereum (Uniswap, SushiSwap, Curve) supported it.

Third: pay attention to the exchange bridges offered by the large exchange trading services players. An example of such a famous bridge is Binance Bridge.

How do blockchain bridges work?

How bridge works: there is a reason why this service is called a "bridge. It is actually a linking element for transferring value between technologically incompatible blockchains. One "pillar" of the bridge is on the territory of one network, and the other on the territory of another, which allows you to move the selected amount between different networks. About the same as a real bridge between different islands in the Gulf of Thailand and the Andaman Sea. Consider an example in the blockchain.

How to use a bridge? You are in Thailand and want to transfer an amount of 10 BTC that belongs to the Bitcoin network to the ERC-20 standard Ethereum network. If you just specify two sender and receiver addresses and send 10 coins, the whole amount will be burned with no possibility to return. But with a bridge, this is easy to do.

For starters, 10 BTC are sent to the crypto bridge and are blocked there. At the same time, the Wrapped Token Bitcoin (WBTC) of the ERC-20 standard is minted for the same amount of 10 coins. A Wrapped Token is a digital copy of the original asset, created on another blockchain and pegged to the value of the original coin. The amount issued is locked into the original blockchain and provides the value of the Wrapped Token.

The 10 WBTC can now be used. For example, for passive earning in decentralized finance (DeFi) services created in the Ethereum blockchain.

When the asset is returned to the original blockchain, the situation is mirrored: the wrapped token is sent to the chain bridge, the blocked amount of the original asset is released and transferred to the user, and the unsecured Wrapped Token is burned. The ability to move value between blockchains is not tied to the physical exchange and location of the investor. Anyone in Thailand from any location (Phangnga, Pattani, Bangkok, or any other) can use the open blockchain bridge service.

Conclusion

Cryptocurrency bridges are a convenient and popular service. They have fulfilled their main mission - to support operational agility and turnover of cryptocurrencies. With bridges, many services became easier and more transparent, and investors' earnings increased. Today, the cryptocurrency bridge is an essential element of the entire ecosystem, available to every investor interested in making money.