Different blockchains originally couldn't communicate directly: coins on the Bitcoin blockchain 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 areas in the crypto industry.

$ZRO and $W are the tokens of the cross-chain messaging protocols LayerZero and Wormhole, respectively. Currently 1.822 (24h -1.67%).

▍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 bridge 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 places a liquidity pool on each of the two chains: users deposit on the source chain and withdraw native tokens from the pool on the target chain. This method gives you native tokens, but when pool liquidity is limited, large cross-chain transactions may experience significant slippage.

▍How does a bridge know you locked your coins?

Whatever the method, the bridge needs to confirm that the transaction actually took place on the source chain. Common approaches include confirmation signatures from a multisig wallet or a committee of validators, running a light client for the source chain on the target 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: if the private keys used for these signatures are stolen, or there’s a flaw in the contract’s verification logic, an attacker 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 data from August 2022, about 69% of the crypto assets stolen that year up to that point came from 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, wrapped tokens on the target chain may lose their peg. So it’s worth making a habit of checking the official link before bridging, trying a small amount first when transferring a large sum, and checking which bridge issued the version you receive.

▍A few final words

Cross-chain bridges solve the problem of moving coins between different chains, but every cross-chain transfer adds another layer of trust. When you need to bridge, choose a well-established solution and transfer in batches. Knowledge can help you avoid pitfalls, but it can’t replace risk management.

If you know someone who’s new to this, feel free to share this with them.

This is not a recommendation to buy or sell in any form. Proceed at your own risk.