Different blockchains can’t communicate directly by default: coins on the Bitcoin chain don’t just appear on Ethereum. A cross-chain bridge is a tool for transferring assets or messages from one chain to another. It’s convenient, but it’s also one of the most incident-prone parts of the crypto industry.

Related coin: $ZRO at 1.947 (24h -4.61%).

▍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 target chain. To transfer back, the process is reversed: the wrapped assets on the target chain are burned, and the assets locked on the source chain are released.

WBTC on Ethereum is one example: each WBTC is backed by 1 bitcoin held by a custodian. It lets bitcoin be used in Ethereum DeFi applications, but holders also have to trust the custodian.

▍Liquidity on both sides

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

▍How does a bridge know you locked your tokens?

Whatever the method, a bridge needs to confirm that the transaction actually took place on the source chain. Common approaches include getting confirmation signatures from a multisig wallet 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 centralized the trust becomes. If those signers’ private keys are stolen or there’s a vulnerability in the contract’s verification logic, attackers may be able to “prove” a lockup that never happened and withdraw the assets held by 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 figures from August 2022, about 69% of the crypto assets stolen that year up to that point were taken in cross-chain bridge attacks.

The value of wrapped assets depends on the bridge itself. If something goes wrong with the assets locked on the source chain, the wrapped tokens on the destination chain may lose their peg. That’s why it’s worth getting into the habit of checking the official site, testing with a small amount first before transferring a large sum, and paying attention to which bridge issued the version you receive.

▍In a nutshell

Cross-chain bridges solve the problem of moving tokens between different chains, but every cross-chain transfer adds another layer of trust. When you do need to transfer across chains, choose a well-established solution and make transfers in batches. Understanding how bridges work helps you make informed decisions; it’s not a way to predict price movements.

What else would you like to learn about? Let me know in the comments.