What are bridges between blockchains?
Before delving into the discussion of bridges, it's important to understand the structure of blockchains themselves. Bitcoin, Ethereum, and BNB Smart Chain are among the most prevalent blockchain ecosystems, each utilizing unique consensus protocols, programming languages, and system rules.
In this context, a bridge is a protocol that connects two blockchains with distinct economic models and technological characteristics, enabling them to interact with each other. These protocols act like a bridge between two islands, uniting separate blockchain ecosystems.
Such bridges facilitate the interaction of digital assets and data existing in one blockchain with another blockchain, thereby ensuring their compatibility. Compatibility is a fundamental characteristic in the world of the Internet, where devices worldwide use common open protocols to communicate with each other. Therefore, the role of bridges in the blockchain space cannot be underestimated, as they provide a convenient means for the exchange of data and digital assets.
Why Bridges Are Needed in the Blockchain World
As blockchains emerged and evolved, users encountered a problem that hindered their ability to move assets between different blockchains. Each blockchain operates according to its unique rules, utilizes its tokens, protocols, and smart contracts. Blockchain bridges create the opportunity to unite isolated ecosystems and establish connections between different blockchains, facilitating seamless token and data exchange.
Bridges enable cross-chain transfers, provide access to new protocols on different blockchains, and promote collaboration among developers from various blockchain communities. In other words, bridges play a crucial role in ensuring compatibility in the blockchain industry.
How Blockchain Bridges Function
Blockchain bridges are most commonly used for transferring tokens between different blockchains. Suppose you have Bitcoin (BTC), and you want to move it to the Ethereum network. The conventional way would be to sell BTC and then buy Ethereum (ETH), but this might involve additional fees and expose you to price volatility.
On the contrary, a blockchain bridge allows you to move assets between different networks without selling them. To transfer, let's say, 1 BTC to the Ethereum network, the bridge contract locks your BTC and generates an equivalent amount of Wrapped BTC (WBTC) - these are ERC20 tokens compatible with Ethereum. Your BTC is locked in a smart contract, and equivalent tokens are created in the target blockchain. A Wrapped token, or wrapped asset, is a digital representation of the original asset, pegged to its value and usually redeemable at any time.
Performing a transfer only requires a few steps. For example, to use the Binance Bridge, you first select the source network and specify the amount you want to transfer. Then, you send your cryptocurrency to the provided Binance Bridge address. Afterward, Binance Bridge transfers an equivalent amount of wrapped tokens to you on the target blockchain. To convert your funds back, you follow the same steps but in reverse order.
Types of Blockchain Bridges and Their Functions
Blockchain bridges can be classified based on their functionality, mechanisms, and levels of centralization.
- Custodial and Non-Custodial Bridges:
Custodial (centralized) bridges provide security through central governing authorities. When using such bridges, it is important to assess their reliability and security.
Non-custodial (decentralized) bridges operate without central control and manage locking and minting processes using smart contracts. They do not require trust in the bridge operator, and their security depends on the code.
- Blockchain Bridges by Function:
Bridges with wrapped assets ensure compatibility between different cryptocurrencies, allowing, for example, the conversion of Bitcoin into ERC20 wrapped tokens compatible with Ethereum.
Bridges with sidechains enable compatibility between the main blockchain and its child sidechain, even if they use different consensus mechanisms. An example of such a bridge is the xDai Bridge, connecting Ethereum and Gnosis Chain.
- Blockchain Bridges by Mechanism:
One-way bridges transfer assets only in one direction, typically to the destination blockchain, but not back to the source blockchain.
Two-way bridges allow the movement of assets in both directions between two blockchains.
Benefits of Blockchain Bridges
The key benefit of blockchain bridges lies in their ability to foster compatibility. These bridges facilitate the exchange of tokens, assets, and data across different blockchains, encompassing first and second-layer protocols, as well as sidechains. For instance, thanks to WBTC, Bitcoin users can engage with decentralized applications (Dapps) and make use of DeFi services within the Ethereum ecosystem. Compatibility plays a pivotal role in ensuring the prospective success of the blockchain sphere.
Additionally, bridges offer an elevated level of scalability. Some among them possess the capacity to handle substantial transaction volumes, thereby amplifying the efficiency of blockchain networks. Take, for example, the Ethereum-Polygon Bridge, a decentralized bidirectional bridge that also serves as a scaling solution for the Ethereum network. This enables users to execute transactions more swiftly and with reduced fees.
Blockchain Bridge Risks
There are drawbacks associated with the operation of bridges between blockchains. For instance, there have been instances where malicious actors exploited vulnerabilities in bridge smart contracts to steal significant sums of cryptocurrencies in the cross-chain environment.
Custodial bridges pose risks to users due to their centralized asset storage approach. It's essential to bear in mind that the central entity overseeing custodial bridges theoretically possesses the potential for fraudulent activities and could misappropriate users' funds. Therefore, when using such solutions, it is advisable to prefer well-known and established brands with a history of reliability.
Another potential technical limitation is low throughput. Scalability issues within one of the blockchain networks can adversely affect the overall scalability of the blockchain network.
Despite bridges aiding in reducing network congestion, asset migration to another network does not always address scalability issues, as users may encounter restrictions in accessing certain Dapps and services. For example, some Dapps available on Ethereum may not be accessible on Polygon Bridge, limiting scalability possibilities.
It's also worth considering trust-related risks associated with blockchain bridges. Since bridges connect different blockchains, the overall network security relies on the least reliable side.
The Future of Blockchain Bridges
The internet has gained immense significance, partially due to its high compatibility. Blockchain bridges play a pivotal role in enhancing compatibility and popularity within the blockchain sphere. They facilitate the exchange of assets between different protocols, which has already led to numerous innovations, an increase in the number of bridges, their users, and transaction volumes.
It is likely that the demand for blockchain bridges will continue to grow as we move closer to the concept of Web3. In the future, developers may achieve higher scalability and efficiency for users, and they may also develop solutions to mitigate security risks associated with bridges. In any case, these protocols will play a fundamental role in creating a compatible, open, and decentralized blockchain space.
The blockchain industry is in a constant state of flux and development. It encompasses not only well-known protocols like Bitcoin and Ethereum but also numerous first and second-layer projects. The number of cryptocurrencies and tokens in this space is rapidly increasing.
Since each blockchain project operates under its unique rules and technologies that can vary significantly, bridges have become an integral part of ensuring compatibility between different blockchains. They connect various elements of this ecosystem and open up new possibilities for scalability and efficiency.
However, networks providing these bridge connections between blockchains face numerous threats and attacks. Therefore, there is active ongoing work to create more secure and reliable bridges to ensure the protection of users and assets.