Over the past few years, many 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 create a cross-chain architecture that facilitates communication between different blockchains.
In this guide, we’ll 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, enabling the seamless transfer of digital assets from one blockchain to another blockchain, thus powering the interoperability.
The blockchain ecosystem is becoming increasingly multi-chain, with dApps operating on twenty different blockchain networks, each with a unique approach to trust and security.
However, this development creates a problem for the whole ecosystem. Since native blockchains are not designed for direct cross-chain communication, assets and liquidity are siled and therefore fragmented.
For example, you cannot use native Bitcoin (BTC) on the Ethereum network, and vice versa, you cannot use native Ether (ETH) on the Bitcoin network. Therefore, users of both ecosystems operate in isolation and cannot communicate with each other on-chain.
For the blockchain space to evolve into a multi-blockchain ecosystem, interoperability is essential. Previously, many users were content to use Ethereum for dApps and Bitcoin for monetary transactions. But, to date, these pioneering networks are plagued with scalability issues that make them expensive and rather inefficient.
New protocols such as Layer 1 and Layer 2 chains have been created to provide low transaction fees and higher network throughput. Although these new alternative blockchains or second-layer solutions are scalable and fast, they are still unable to establish cross-chain communication, which means that an asset cannot be easily transferred 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 complicated steps and relies on crypto exchanges as middlemen.
The solution to this conundrum has been cross-chain messaging protocols, which allow smart contracts to read, write, and transfer data between blockchain networks.
Cross-chain interoperability solutions are key 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 minting crypto assets on the original chain via a smart contract and unlocking or minting the crypto assets on the new chain. This last part is also managed by smart contracts.
In other words, most cross-chain bridges work by “wrapping” tokens in smart contracts and issuing them on other chains.
A great example would be Wrapped Bitcoin (WBTC), an ERC-20 token backed by bitcoin. In order for you to receive WBTC on the Ethereum network, bitcoin must first be locked to the Bitcoin network and then 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 the BTC locked into the Bitcoin network is held by a custodian called BitGo.
Blockchain bridges are of three different types:
- burn and mint – A user mints 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 channel but then unlocks the same assets in a liquidity pool on the new channel.
Blockchain bridges may also possess arbitrary data messaging capabilities to enable sharing of information between blockchains. Called Programmable Token Bridges, they enable more complex cross-chain functionality such as swapping, staking, lending, or depositing tokens into a smart contract on the new chain while performing a bridging function.
List of Popular Blockchain Bridges
Cross-chain bridges are key to 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 multiple chains, including Solana (SOL), Ethereum (ETH), Terra (UST), Avalanche (AVAX), Polygon (MATIC), Binance Smart Chain (BSC), and more. others . Wormhole allows cross-chain transfer of information and assets from a source chain. This information is verified by a network of nodes before relaying it to the destination blockchain.
Polygon Bridge is a cross-chain protocol that allows the transfer of assets between Polygon and Ethereum. Users can transfer ERC-20 tokens and Ethereum NFTs to Polygon Layer-2 chains through its two cross-bridge solutions: Polygon Bridge (POS) or Plasma Bridge.
Both bridges can transfer 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 the Ethereum plasma scaling solution and supports the transfer of Ether (ETH), ERC-20 tokens, ERC-721 tokens and Polygon (MATIC) .
bridge of harmony
Harmony, a protocol for decentralized applications, has an inter-chain bridge called the 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 the corresponding assets. Traded assets can be redeemed at any time.
avalanche bridge is a cross-chain protocol that facilitates the transfer of ERC-20 tokens to Avalanche’s C chain and vice versa. The bridge works by receiving ERC-20 tokens from the Ethereum network. The transaction is validated and an enveloped ERC-20 token is minted on the Avalanche network. The process is reversed by unwrapping the tokens on the smart contract to unlock native ERC-20 tokens.
Binance Bridge allows you to convert digital assets such as BTC, ETH, LTC, LINK, etc. by wrapping them as tokens on BNB Smart Chain. This bridge is essential for bringing cross-chain liquidity to the Binance ecosystem.
The risks of inter-chain bridges
Cross-chain bridges have many benefits, but also come with risks, which can lead to the loss of users’ digital tokens.
For example, in the case of trusted and therefore centralized bridges, a custodian may decide to run away with users’ funds. Some cross-chain bridges attempt to prevent this by requiring custodians to post a “deposit” which is recouped in the event of malicious behavior.
Additionally, low-trust blockchain bridges typically use oracles and smart contracts to handle asset bridging. However, this poses a challenge as loopholes in the smart contract code can be exploited. The wormhole hack resulted in the theft of over $300 million and was caused by vulnerabilities in smart contracts.
Finally, if validators or custodians neglect to maintain cross-chain bridges, they will cease to function and user funds could be lost or simply unrecoverable. Ultimately, the centralized aspect of trusted gateways represents a fundamental risk, as evidenced by the Hacking the Ronin Bridge Protocol which has seen the malicious use of private keys to initiate fake withdrawals.