In brief
A blockchain bridge is a protocol that connects two blockchains to enable interaction between them. If you own bitcoin but want to participate in DeFi activity on the Ethereum network, the blockchain bridge will allow you to do so without selling your bitcoin. Blockchain bridges are fundamental to achieving interoperability in the blockchain space.
Introduce
To understand what a blockchain bridge is, you first need to understand what blockchain is. Bitcoin, Ethereum, and BNB Smart Chain are some popular blockchain ecosystems, all of which are based on different consensus protocols, programming languages, and system rules.
A blockchain bridge is a protocol that connects two economically and technologically separate blockchains to enable interaction between them. These protocols act like a physical bridge linking one island to another, where the islands are separate blockchain ecosystems.
Therefore, blockchain bridges allow for so-called interoperability, which means that digital assets and data stored on one blockchain can interact with another. Interoperability is the foundation that created the Internet: Machines all over the world use the same set of open protocols to communicate with each other. In the blockchain space, where there are many distinct protocols, blockchain bridges are essential for the easy exchange of data and value.
Why do we need blockchain bridges?
As the blockchain industry grows and expands, one of the most significant limitations is the lack of connectivity for different blockchains to work together. Each blockchain has its own rules, tokens, protocols, and smart contracts. Blockchain bridges help break these limitations and bring disparate cryptocurrency ecosystems together. An interconnected blockchain network can allow tokens and data to be exchanged between them seamlessly.
In addition to allowing cross-chain transfers, blockchain bridges also provide other benefits. They allow users to access new protocols on other chains and allow developers from different blockchain communities to collaborate. In other words, blockchain bridges are a key component of an interoperable future for the blockchain industry.
How do blockchain bridges work?
The most common application of blockchain bridges is to move tokens. For example, you want to transfer your bitcoin (BTC) to the Ethereum network. The usual way is to sell your BTC and then buy ether (ETH). However, this will incur transaction fees and leave you exposed to price fluctuations.
Instead, you can achieve your goal using a blockchain bridge without selling your cryptocurrency. When you use a bridge to connect 1 BTC to an Ethereum wallet, the blockchain bridge contract locks your BTC and creates an equivalent amount of Wrapped BTC (WBTC). Specifically an ERC20 token compatible with the Ethereum network. The amount of BTC you want to transfer is locked in a smart contract and equivalent tokens on the destination blockchain network are issued or minted. A wrapped token is a further tokenized version of another cryptocurrency. The wrapped token is anchored to the value of the asset it represents and can typically be exchanged for the (unwrapped) asset at any time.
From the user's perspective, this process is done in a few steps. For example, to use Binance Bridge, you would first select the chain you want to bridge and specify the amount. You will then deposit crypto to an address generated by Binance Bridge. Once the cryptocurrency is sent to the address within the time period, Binance Bridge will send you an equivalent amount of wrapped tokens on the other blockchain. If you want to convert your money back, you just need to do the reverse process.
What types of blockchain bridges are there?
Blockchain bridges can be classified according to their functions, mechanisms, and level of centralization.
Bridging custody and non-custody
A common classification is to divide blockchain bridges into two types: custodial (centralized) and non-custodial (decentralized).
Custody bridges require users to place their trust in a central organization to operate the system accurately and securely. Users should do extensive research to ensure that this third party is truly trustworthy.
Non-custodial bridges operate in a decentralized manner, relying on smart contracts to manage cryptocurrency minting and locking processes, eliminating the need to trust a bridge operator. In this case, the security of the system and the underlying code both require high requirements.
Bridge blockchain by functions
Another classification is based on how a blockchain bridge works. For example, wrapped asset bridges and sidechain bridges.
Wrapped asset bridges enable cryptocurrency interoperability, such as transferring bitcoin into the Ethereum network through wrapping BTC into Wrapped BTC (WBTC), an ERC20 token compatible with the Ethereum network. Sidechain bridges connect the parent blockchain to its child sidechain, allowing interoperability between the two. This is necessary because the parent and sidechain may have different consensus mechanisms. One example is the xDai Bridge, which connects the Ethereum mainnet with Gnosis Chain (formerly xDai blockchain), a stable payments sidechain based on Ethereum. xDai is secured by a different set of validators than those that operate the Ethereum network. The xDai bridge allows for easy transfer of value between two chains.
Mechanistic blockchain bridge
There are unidirectional bridges and bidirectional bridges. One-way bridging means users can only connect assets to a destination blockchain but cannot return to its parent blockchain. Two-way bridges allow connection of assets in both directions.
Benefits of blockchain bridges
The most important benefit of a blockchain bridge is improved interoperability.
They enable the exchange of tokens, assets and data across 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 of the Ethereum ecosystem. Interoperability between blockchains could be crucial to the future success of the industry.
Another advantage of blockchain bridges is improved scalability. Some blockchain bridges can handle a large number of transactions, helping to improve transaction processing efficiency. For example, the Ethereum-Polygon Bridge is a decentralized two-way bridge that acts as a scaling solution for the Ethereum network. As a result, users can benefit from faster transactions and lower transaction costs.
Risks from blockchain bridges
However, blockchain bridges also have some limitations. Attackers exploited smart contract vulnerabilities from several blockchain bridges. A large amount of cryptocurrency has been hijacked by malicious actors coming from cross-chain bridges.
Custody bridges may expose users to custody risks. Theoretically, a third party acting centrally behind a custodial bridge could steal users' funds. When using a custodial bridge, choose brands that are well-known and have a long track record.
Another potential technical limitation is transaction congestion. A bottleneck in the throughput capacity of one chain can hinder the interoperability of another large-scale blockchain.
While a bridge can alleviate congestion on a busy network, moving assets to another chain does not solve the scalability problem because users do not always have access to same set of dapps and services. For example, some Ethereum dapps are not available on Polygon Bridge, effectively limiting its scalability.
Ultimately, blockchain bridges can put the underlying protocols at risk from trust disparities. Blockchain bridges connect different blockchains, so the overall security of interconnected networks is equivalent to the weakest blockchain.
What is the future of blockchain bridges?
The Internet is a revolutionary system, in part because of its high interoperability. Blockchain bridges play a very important role in enhancing the interoperability of the entire blockchain industry and are the gateway to mass adoption. The industry has seen many innovative ideas, allowing users to exchange assets between multiple blockchain protocols. Blockchain bridges have grown significantly in number, users, and total transaction volume.
The need for blockchain bridges will likely continue to grow as the internet gradually transitions to Web3. Future innovations could bring greater scalability and efficiency to users and developers. Security risks associated with bridges will continue to be overcome by innovative solutions. Blockchain bridges are fundamental to achieving interoperability in the blockchain space.
summary
The development of the blockchain industry has been driven by continuous innovations. These include pioneering protocols such as the Bitcoin and Ethereum networks, followed by countless other layer 1 and layer 2 blockchains. The number of cryptocurrencies and tokens has increased exponentially.
With distinct rules and technology, these blockchains need bridges to connect with each other. A blockchain ecosystem linked by bridges will be more cohesive and interoperable, opening the door for greater scalability and efficiency. Currently, there are still many attacks on cross-chain bridges. Therefore, the search for a stronger and safer bridge design will continue.