Cross-Chain Bridges: What Are They & How Do They Enable Blockchain Interoperability?
Over the last few years, numerous new smart contract-enabled public blockchains have come online, creating the need for cross-chain interoperability in the crypto space. As it stands, developers in the space are working hard to build out cross-chain architecture that facilitates communication between different blockchains.
In this guide, we will explain what cross-chain bridges are, how they work, and list the most popular ones.
What Are Cross-Chain Bridges?
Cross-chain bridges, also known as blockchain bridges, are infrastructure protocols that connect independent blockchain networks, allowing the seamless transfer of digital assets from one blockchain to another blockchain, thus powering interoperability.
The blockchain ecosystem is increasingly becoming multi-chain, with dApps operating across a score of different blockchain networks, each with a unique approach to trust and security.
However, this development creates a problem for the overall ecosystem. Because native blockchains are not built for direct cross-chain communication, assets and liquidity are being siloed and thus fragmented.
For instance, you cannot use native Bitcoin (BTC) on the Ethereum network, and conversely, you can’t use native Ether (ETH) on the Bitcoin network. Therefore, users of both ecosystems operate in isolation and can’t communicate with one another on-chain.
For the blockchain space to evolve into a multi-blockchain ecosystem, interoperability is key. Previously, many users were content to use Ethereum for dApps and Bitcoin for monetary transactions. But, to this day, these pioneer networks are plagued with issues of scalability that make them costly and rather inefficient.
New protocols like layer-1 and layer-2 chains were created to offer low transaction fees and higher network throughput. While these new alternative blockchains or second-layer solutions are scalable and fast, they remain unable to do cross-chain communication, meaning that an asset cannot easily be ported from one layer to another.
Often, sending assets from a blockchain network like Ethereum to a layer-2 protocol like Polygon, Optimism, or Arbitrum involves many convoluted steps and relies on crypto exchanges as intermediaries.
The solution to this conundrum has been cross-chain messaging protocols, which enable smart contracts to read, write and transfer data between blockchain networks.
Cross-chain interoperability solutions are integral to giving rise to an interconnected network of blockchains that can move data and tokens back and forth.
How Do Cross-Chain Bridges Work?
Cross-chain bridging typically involves locking or burning crypto assets on the original chain through a smart contract and unlocking or minting the crypto assets on the new chain. The latter part is also handled by smart contracts.
In other words, most cross-chain bridges operate by “wrapping” tokens in smart contracts and issuing them on other chains.
A prime example would be Wrapped Bitcoin (WBTC), an ERC-20 token that is collateralized using bitcoin. For you to receive WBTC on the Ethereum network, bitcoin must first be locked on the Bitcoin network and then be created on the Ethereum network using a cross-chain bridge. In the case of WBTC, this cross-chain bridge is operated by a centralized company, meaning that the BTC locked in the Bitcoin network is held by a custodian called BitGo.
Blockchain bridges come in three different types:
- Burn and mint - A user burns crypto assets on the original chain, and the same assets are minted on the new chain.
- Lock and mint - A user locks crypto assets in a smart contract on one chain, and simultaneously, wrapped tokens will be minted on the other chain as an IOU. Conversely, wrapped tokens on the destination chain are burned to unlock the original assets on the first chain.
- Lock and unlock - A user locks crypto assets on the first chain but then unlocks the same assets in a liquidity pool on the new chain.
Blockchain bridges can also possess arbitrary data messaging capabilities to enable the sharing of information between blockchains. Referred to as programmable token bridges, they enable more complex cross-chain functionality like swapping, staking, lending, or depositing tokens in a smart contract on the new chain while, at the same time, a bridging function is being executed.
List of Popular Blockchain Bridges
Cross-chain bridges are essential in improving interoperability and overall liquidity in the crypto space. Some of the most popular cross-chain bridges include:
Wormhole is a cross-chain messaging protocol that facilitates communication between several chains, including Solana (SOL), Ethereum (ETH), Terra (UST), Avalanche (AVAX), Polygon (MATIC), Binance Smart Chain (BSC), and many more. Wormhole enables the cross-chain transfer of information and assets from a source chain. This information is verified by a network of nodes before relaying them to the destination blockchain.
Polygon Bridge is a cross-chain protocol that enables the transfer of assets between Polygon and Ethereum. Users can transfer ERC-20 tokens and Ethereum NFTs to the Polygon layer-2 chains through its two cross-bridge solutions: Polygon (POS) bridge or Plasma bridge.
Both bridges can port crypto assets from the Ethereum network to Polygon but are distinct in that the POS bridge uses proof-of-stake (PoS) to secure its network and supports the transfer of ETH and ERC tokens. On the other hand, the Plasma Bridge uses Ethereum plasma scaling solution and supports the transfer of ether (ETH), ERC-20 tokens, ERC-721 tokens, and Polygon (MATIC).
Harmony, a protocol for decentralized applications, has a cross-chain bridge known as a LayerZero bridge that enables the transfer of digital assets between Ethereum, Binance Smart Chain, and Harmony networks. Users can migrate ETH and BNB tokens to the Harmony blockchain and get corresponding assets. The exchanged assets can be redeemed at any moment.
Avalanche Bridge is a cross-chain protocol that facilitates the transfer of ERC-20 tokens to Avalanche’s C chain and back. The bridge works by receiving ERC-20 tokens from the Ethereum network. The transaction is validated, and a wrapped ERC-20 token is minted on the Avalanche network. The process is reversed by unwrapping the tokens on the smart contract to unlock the native ERC-20 tokens.
Binance Bridge allows you to convert digital assets like BTC, ETH, LTC, LINK, and more by wrapping them as tokens on BNB Smart Chain. This bridge is essential in bringing cross-chain liquidity to the Binance ecosystem.
The Risks of Cross-Chain Bridges
Cross-chain bridges have many benefits but also have their risks, which can lead to the loss of users’ digital tokens.
For example, in the case of trusted and thus centralized bridges, a custodian can decide to abscond with user funds. Some cross-chain bridges try to prevent this by requiring custodians to provide a “bond” that is recouped in case of malicious behavior.
Also, trust-minimized blockchain bridges typically use oracles and smart contracts to manage the bridging of assets. However, this poses a challenge since flaws in the smart contract code may be exploited. The wormhole hack resulted in the theft of $300+ million and was caused by vulnerabilities in the smart contracts.
Finally, if validators or custodians neglect to maintain cross-chain bridges, they will stop working, and user funds may be lost or simply not be retrievable. Ultimately, the centralized aspect of trust bridges represents a fundamental risk evidenced by the Ronin bridge protocol hack that saw the malicious use of private keys to initiate fake withdrawals.
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