Cross-chain bridges enable asset transfers between different blockchain networks, but have suffered numerous attacks over the years.
Blockchain bridges, also known as cross-chain bridges, are designed to connect different blockchain networks and enable asset transfers between them. However, developers must address several fundamental security issues to ensure that these bridges are safe and reliable.
A major concern is the possibility of hacking or asset theft. As assets move between different blockchain networks, they are vulnerable to attacks by malicious actors. This can lead to loss of assets and harm the reputation of the blockchain network. Therefore, strong security measures such as encryption and multi-signature transactions must be implemented to mitigate this risk.
By the end of 2022, cross-chain bridge hacks had cost more than $2 billion, demonstrating the severity of bridge attacks in the industry. In August 2022, approximately $190 million was stolen from the Nomad bridge before white hat hackers returned $9 million worth of funds to users.
Axie Infinity’s Ronin bridge lost more than $615 million when the protocol was hacked in March 2022. Additionally, Binance recently assisted in recovering $3 million from the hacked Harmony bridge.
Another issue is the risk of smart contract bugs. For example, blockchain bridges often rely on smart contracts to facilitate asset transfers between networks. However, bugs in smart contracts can lead to unintended consequences, such as loss of assets. To combat this risk, it is critical to thoroughly test and audit smart contracts before deployment.
While blockchain bridges have the potential to significantly enhance the interoperability of different blockchain networks, it is critical to understand and address fundamental security issues to ensure that these bridges operate safely and reliably.
There are two main types of cross-chain bridges, trusted bridges and trustless bridges.
A bridge you can trust
Trusted bridges are cross-chain protocols that hold the user’s tokens during the bridging process. These protocols are also called custodial bridges. When a user wants to bridge from one blockchain to another, the tokens are locked in the bridge and are held accountable by the organization behind the bridge.
Since users are required to hand over custody of their cryptocurrency to a centralized entity when using a trusted bridge, it can be easier for hackers to compromise the protocol. Again, this is because it is a central point of control that malicious actors can target. Avalanche Bridge (AVAX) on Avalanche is a popular example of a trusted bridge. The Ava Labs organization controls the tokens locked in the protocol.
Trustless Bridge
Trustless bridges are decentralized bridge protocols that use smart contracts instead of centralized authorities to manage locked tokens and complete cross-chain transfers. Therefore, trustless bridges give users more control over their tokens and have no central point of failure.
However, trustless bridges are not perfect and can be compromised by malicious actors if there are vulnerabilities in the smart contract code.
Although there may be flaws in the code, an untrusted bridge is considered more secure than a trusted bridge.
An example of a trustless bridge protocol is Pendulum, a decentralized smart contract network that connects fiat rails to the decentralized finance (DeFi) environment. The bridge increases fiat liquidity in the DeFi industry by connecting compliant currency-pegged tokens from major blockchain networks to different ecosystems within the decentralized finance space.
What can blockchain platforms do to prevent further exploitation?
Blockchain platforms can learn from the cross-chain bridge hack by analyzing the vulnerabilities that were exploited and taking steps to prevent similar attacks in the future. One approach is to adopt trustless or minimal trust operations when building bridge architectures.
Trustless or minimal trust operations refer to designs that do not rely on centralized institutions or intermediaries to facilitate the transfer of assets between different chains. Instead, these designs use smart contracts and cryptography to ensure the security and integrity of the transferred assets.
An example of a trustless cross-chain bridge is an atomic swap, which allows assets to be exchanged between different chains without the need for a centralized intermediary. The process is achieved through the use of smart contracts, which hold the assets in escrow and release them to the correct party once the terms of the swap are met.
Another example is the use of sidechains, a separate chain pegged to the main chain. This process allows assets to be transferred to the sidechain, where they can be traded or processed using a different set of rules, and then moved back to the main chain in a secure and trustless manner.
By implementing trustless or minimal trust operations, blockchain platforms can improve the security of their cross-chain bridges and make them less vulnerable to attacks.