Blockchains were not originally able to communicate directly with each other: coins on the Bitcoin blockchain don’t automatically appear on Ethereum. A cross-chain bridge is a tool for transferring assets or messages from one chain to another. It’s very convenient, but it’s also one of the most incident-prone parts of the crypto industry.

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■ Lock and Mint

The most common cross-chain method is “lock and mint”: users send their assets to a bridge contract on the source chain, where they are locked, and the bridge mints an equivalent amount of wrapped assets on the destination chain. To transfer them back, the process is reversed: the wrapped assets on the destination chain are burned, and the assets locked on the source chain are released.

WBTC on Ethereum is one example: each WBTC corresponds to one bitcoin held by a custodian. It lets bitcoin be used in Ethereum DeFi applications, but holders also have to trust the custodian.

■ Provide liquidity on both sides

Another type of cross-chain method doesn’t mint wrapped assets. Instead, it provides a liquidity pool on each of the two chains: users deposit tokens on the source chain and withdraw native tokens from the pool on the destination chain. This gives users native tokens, but when pool depth is limited, large cross-chain transfers can incur significant slippage.

■ How does a bridge know you’ve locked up your tokens?

No matter which method is used, the bridge needs to confirm that the transaction really took place on the source chain. Common approaches include confirmation signatures from a multisig or validator committee, running a light client for the source chain on the destination chain to verify it, or using zero-knowledge proofs to prove the state of the source chain.

The more verification relies on a small number of signers, the more concentrated the trust: if these signers’ private keys are stolen or there’s a flaw in the contract’s verification logic, attackers may be able to “prove” a lockup that never happened and withdraw the assets held in the bridge.

■ Risks and things to keep in mind

Bridge contracts often hold large amounts of assets, making them a prime target for attackers. According to Chainalysis statistics from August 2022, cross-chain bridge attacks accounted for about 69% of the crypto assets stolen that year up to that point.

The value of wrapped assets depends on the bridge itself. If something goes wrong with the assets locked on the source chain, wrapped tokens on the destination chain may lose their peg. So it’s worth making a habit of confirming you’re using the official site, trying a small transfer first before moving a large amount, and checking which bridge issued the version of the token you received.

■ A few final thoughts

Cross-chain bridges solve the problem of moving tokens between different chains, but every cross-chain transfer adds another layer of trust. When you need to bridge assets, choose a well-established solution and transfer in batches. Try to use only an amount you can afford to lose.

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