TL;DR
A blockchain bridge (or "blockchain bridge") is a protocol that connects two blockchains to allow interactions between them. If you own Bitcoin but want to participate in DeFi activity on the Ethereum network, a blockchain bridge allows you to do so without having to sell your Bitcoin. Blockchain bridges are fundamental to achieving interoperability within the blockchain space.
Introduction
To understand what a blockchain bridge is, you first need to understand what a blockchain is. Bitcoin, Ethereum and BNB Smart Chain are some of the main blockchain ecosystems. They all rely on different consensus protocols, programming languages and system-specific rules.
A blockchain bridge is a protocol that connects two separate blockchains, economically and technologically, to allow interactions between them. These protocols work like a bridge that connects one island to another, with the islands, in this case, being separate blockchain ecosystems.
Therefore, blockchain bridges offer interoperability. In other words, they allow digital assets and data hosted on one blockchain to interact with assets and data on another. Interoperability is a fundamental feature of the Internet: machines around the world use the same set of open protocols to communicate. In the blockchain sector, where there are many different protocols, blockchain bridges are essential to facilitate the exchange of data and value.
Why do we need blockchain bridges?
As blockchain technology has developed and expanded, one of the biggest limitations has been the difficulty of different blockchains working together. Each blockchain has its own rules, tokens, protocols, and smart contracts. Blockchain bridges help to overcome this problem and unite crypto ecosystems. An interconnected network of blockchains enables and facilitates the exchange of tokens and data.
In addition to enabling cross-chain transfers, bridges offer other benefits. With them, users have access to new protocols on other blockchains and developers from different blockchain communities can work cooperatively. In other words, blockchain bridges are an essential component for a more interoperable future of the blockchain industry.
How do blockchain bridges work?
The most common use case for a blockchain bridge is the transfer of tokens. For example, let's say you want to transfer Bitcoin (BTC) to the Ethereum network. One way to do this is to sell your BTC and then buy Ether (ETH). However, in this case, you would need to pay transaction fees and would be exposed to price volatility.
Alternatively, you can achieve your goal using a blockchain bridge, without having to sell your cryptocurrencies. When bridging 1 BTC to an Ethereum wallet, a bridge blockchain contract will lock your BTC and create an equivalent amount of Wrapped BTC (WBTC), which is an ERC-20 token compatible with the Ethereum network. The amount of BTC you want to transfer is locked in a smart contract and an equivalent amount of tokens are issued on the destination blockchain network. A wrapped token is a tokenized version of another cryptocurrency. It is linked to the value of the asset it represents and can normally be exchanged for that asset (unwrapped token) at any time.
From the user's point of view, this process requires a few steps. To use the Binance Bridge, for example, you must first select the source blockchain and specify the amount. You will then deposit the corresponding amount of cryptocurrencies into an address generated by Binance Bridge. After the cryptocurrencies are sent to the address (within the defined timeframe), Binance Bridge will send you an equivalent amount of wrapped tokens on the other blockchain. If you want to convert your funds back, just do the reverse process.
What are the types of blockchain bridges?
Blockchain bridges can be categorized according to their functions, mechanisms and levels of centralization.
Custodial vs. custodial bridges non-custodial
A common categorization is to divide blockchain bridges into two types: custodial (centralized) and non-custodial (decentralized).
Custodial bridges require users to trust a central entity to operate the system properly and securely. It is essential that users carry out research to verify the reliability of entities offering bridging services.
Non-custodial bridges operate in a decentralized manner, relying on smart contracts to manage the processes of blocking and issuing cryptocurrencies, eliminating the need to trust a central operator or entity. In this case, the security of the system depends on the quality and reliability of the underlying code.
Blockchain bridges - Classification by functions
Another type of classification is based on the functions of each blockchain bridge. Some examples include asset-wrapped bridges and sidechain bridges.
Wrapped asset bridges offer interoperability between cryptocurrencies. For example, transferring Bitcoins to the Ethereum network through the process of wrapping BTC into Wrapped BTC (WBTC), an ERC-20 token compatible with the Ethereum network. Sidechain bridges connect the “parent” blockchain to its “child” sidechain, allowing interoperability between the two. They are necessary because the main blockchain and its sidechain may have different consensus mechanisms. One example is the xDai Bridge, which connects the Ethereum mainnet to the Gnosis Chain (formerly xDai blockchain), an Ethereum-based payment sidechain. The xDai system is protected by a set of validators different from those that maintain the Ethereum network. The xDai Bridge allows for the easy transfer of values between the two blockchains.
Blockchain bridges - Classification by mechanisms
There are one-way bridges (unidirectional) and two-way bridges (bidirectional). With a one-way bridge, users can only transfer assets to one destination blockchain. In other words, it is not possible to do the reverse process, returning the asset to its native blockchain. Bidirectional bridges allow the transfer of assets in both directions.
Benefits of blockchain bridges
The most important benefit of blockchain bridges is the ability to improve interoperability.
They allow the exchange of tokens, assets and data between different blockchains, whether between layer-1 and layer-2 protocols or between multiple sidechains. For example, WBTC allows Bitcoin users to explore the decentralized applications (DApps) and DeFi services of the Ethereum ecosystem. Blockchain technology with a high degree of interoperability is fundamental to the future success of the sector.
Another benefit provided by blockchain bridges is increased scalability. Some bridges have the capacity to handle a large number of transactions, which improves overall efficiency. For example, the Ethereum-Polygon Bridge is a decentralized two-way bridge that functions as a scalability solution for the Ethereum network. Therefore, users can benefit from faster transactions and lower transaction costs.
Risks associated with blockchain bridges
Blockchain bridges have some limitations. There have been cases where hackers managed to exploit vulnerabilities in the smart contracts of some bridges. Large amounts of cryptocurrencies were stolen from cross-chain bridges.
Custodial bridges can expose users to custody risks. The centralized entity responsible for the bridge can theoretically steal users' funds. When using custodial bridge services, choose brands and companies with a good reputation and that have been operating for a long time.
Transaction fee bottlenecks are another potential limitation. A bottleneck in the transfer capacity of a single blockchain can hamper large-scale blockchain interoperability.
While a bridge can alleviate congestion on a busy network, transferring assets to another blockchain does not solve the scalability problem as users will not always have access to the same set of DApps and services. For example, some Ethereum DApps are not available on the Polygon Bridge, which limits their effectiveness in terms of scalability.
Furthermore, blockchain bridges can expose the underlying protocols to risks related to trust disparity. Because bridges connect different blockchains, the overall security of interconnected networks can be undermined by the network with the lowest level of security among them.
What is the future of blockchain bridges?
The internet is a revolutionary system. In part, because of its high degree of interoperability. Blockchain bridges are essential to improving interoperability and mass adoption of the blockchain industry. They have enabled some fundamental innovations, allowing the transfer of assets between many blockchain protocols. Blockchain bridges have grown a lot in terms of bridging services, users and total transaction volume.
As the Internet evolves towards Web3, the demand for blockchain bridges is likely to continue to grow. Future innovations can provide greater scalability and efficiency to users and developers. Innovative solutions may emerge to address the security risks associated with bridges. They are essential for building an interoperable, open and decentralized blockchain space.
Final considerations
The development of the blockchain industry is driven by constant innovations. We have pioneering protocols such as the Bitcoin and Ethereum networks, followed by a multitude of alternative Layer-1 and Layer-2 blockchains. The number of cryptocurrencies and tokens has grown exponentially.
With so many independent rules and technologies, the interoperability offered by blockchain bridges is necessary. A bridged blockchain ecosystem is more cohesive and interoperable, opening up opportunities for greater scalability and efficiency. With several attacks on cross-chain bridges, the search for a safer and more robust bridging design continues.