Blockchain bridges: Guide to cross-chain data sharing LogRocket Blog
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Having a token only on a particular chain limits the token to what does bridge mean in crypto that chain’s specific capability. The number of blockchains supported by a bridge depends on the respective provider. For example, Multichain currently supports over 90, CBridge 45, Anyswap 35, and Stargate 8 different blockchains. A concept of allowing blockchains to be compatible with each other and build upon each other’s features and… This means you can’t use bitcoin (BTC) on the Ethereum network or ether (ETH) on the Bitcoin network directly.
- Custodial bridges require users to place their trust in a central entity to properly and safely operate the system.
- Instead of individual copies, the liquidity pool method envisions a constantly flowing river of cross-chain value.
- A hacker fiddled around enough with the bridge’s smart contract code to find an exploit that allowed them to bypass signature verification.
- In addition, cross-chain bridges can also be combined with arbitrary data messaging capabilities—the ability to move not just tokens but any type of data between blockchains.
How do blockchain bridges work?
Blockchains continue to evolve in terms of architecture and scaling capabilities. As the number of blockchain networks increases, so does the demand for https://www.xcritical.com/ blockchains to become interoperable. In this guide, we will explore what blockchain bridges are and how they work.
What are the types of blockchain bridges?
5 years of experience in crypto research of writing practical blockchain and crypto analysis on Medium. According to Chainalysis, cross-chain bridge hacks accounted for almost 70% of all stolen funds in 2022. Today, Arbitrum is the largest bridge that connects to the Ethereum ecosystem, with over $10 billion in TVL, according to Glassnode. Stay up to date with our latest exchange reviews, promotions, how-to guides and educational articles on Bitcoin, cryptocurrency & more. Ben Knight is a freelance writer with a passion for music and finance from Melbourne, Australia. He completed his Master’s in Writing, Editing, and Publishing in 2019, following a Bachelor’s degree in Creative Writing.
What are the biggest blockchain bridges?
Every blockchain is created in a protected ecosystem with its own set of rules and consensus protocols, resulting in limitations for each blockchain. As a result, there is no direct communication or token transaction between blockchains. Blockchain bridges, on the other hand, enable the transfer of tokens and information from one chain to another. Blockchain bridges are important because they allow for interoperability between different blockchain networks. This means that users can access a wider range of decentralized applications and services and are not limited to a single blockchain ecosystem. A blockchain bridge, also known as a crypto bridge or cross-chain bridge, is a protocol that connects two different blockchains.
Risks of Using Blockchain Bridges
Some novel decentralized bridges are relatively untested and even those that have been tested are subject to exploits. The most notable recent example is Wormhole, but a week before that attack, a bridge called Qubit was exploited for $80 million. Other investors might use bridges to make the most of markets that exist only on another blockchain. For instance, the DeFi protocol Orca is available only on Solana, but supports a wrapped version of ETH. Since blockchain assets are often not compatible with one another, bridges create synthetic derivatives that represent an asset from another blockchain.
Why Cross-Chain Bridges Are Necessary in Web3
As a result, users can benefit from faster transactions and lower transaction costs. Blockchain bridges are crucial methods or protocols that facilitate seamless communication and interaction between distinct blockchain ecosystems. As these bridges facilitate the movement of assets and data across multiple blockchains, they can potentially overload the network, affecting transaction speeds and performance. By allowing transactions to flow across multiple blockchains, these bridges can optimize network performance, enhancing the efficiency of financial operations. Encouraging collaboration and communication between bridge developers, security researchers, and blockchain communities fosters knowledge sharing and the development of robust cross-chain security solutions.
Why do we need a blockchain bridge?
Essentially, some bridges use a trusted system and others use a trustless system of verifiers. For instance, if you wish to transfer Solana to an Ethereum wallet, the wallet will need to obtain a token processed by the bridge. This token undergoes a “wrapping” process, which converts it into a form compatible with the target blockchain. Specifically, the Ethereum wallet will acquire a Solana “bridge” version that has been converted into an ERC-20 token, adhering to the standard for tokens on the Ethereum blockchain. While a bridge can alleviate congestion on a busy network, moving assets away to another chain doesn’t solve the scalability issue as users won’t always have access to the same suite of dapps and services.
Seamless Asset Transfer and Interoperability
However, because each sidechain is isolated, any security impairment will only affect the sidechain itself and not the main chain. Miners and validators are required for proof-of-work and proof-of-stake sidechains, respectively. With proof-of-work models, miners can be rewarded through merged mining, which involves simultaneously mining two different cryptocurrencies based on the same algorithm. Web3 games and other projects can now port their token across multiple chains and reduce network stress.
You can deposit your ETH into the bridge, which securely locks it and mints an equivalent amount of “wrapped” WETH on the Polygon network. This WETH functions identically to native ETH within the Polygon ecosystem, allowing you to participate in the desired yield farm without sacrificing your original position. Bridges exist to connect blockchains, allowing the transfer of information and tokens between them. Other bridges like Wormhole and Multichain are bidirectional, or two-way, meaning you can freely convert assets to and from blockchains.
Blockchain bridges employ advanced mechanisms to ensure secure and efficient cross-chain interactions. These methods vary but primarily include the Wrapped Asset Method and the Liquidity Pool Method. One recent hack was Solana’s Wormhole bridge, where 120k wETH ($325 million USD) was stolen during the hack(opens in a new tab). Alternatively, L1s like Solana and Avalanche are designed differently to enable higher throughput but at the cost of decentralization.
Blockchain bridges are a cornerstone for achieving interoperability within the dApp and crypto ecosystems. And, just like with complex math problems, when you take a look at different bridging solutions in the crypto ecosystem, you will find that there is no one way of enabling communication between blockchains. Bridges have different designs with unique strengths and trade-offs, and thus, there are a plethora of options when it comes to which bridge can be used to communicate between two blockchain networks.
It’s worth noting that the development of blockchain bridge technology is an ongoing process, and new types or variations may emerge as the industry evolves. Every kind of blockchain bridge serves specific purposes and caters to different use cases, offering unique trade-offs between trust, security, and decentralization. It’s essential to consider the characteristics of each bridge type when choosing the most suitable solution for a particular blockchain interoperability requirement.
Developers creating DApps on the Ethereum network have often had a negative experience due to slow transaction processing rates and high gas fees, particularly during periods of high traffic and congestion. However, blockchain bridges enable those same tokens to be processed on other blockchains faster and at a lower cost. Developers from different blockchains continue to work together to create new user platforms. A cross-chain bridge is a type of decentralized application that enables the transfer of assets from one blockchain to another. Cross-chain bridges increase token utility by facilitating cross-chain liquidity between distinct blockchains.