Source: Screenshot at YouTube
The development of newer blockchains has already made the multichain future a reality. According to statistics, there are more than 125 Layer 1 and Layer 2 blockchains, each with its own tradeoffs, security assurances, scalability, and other features. Better interoperability throughout the blockchain ecosystem is required as a result of the increase in blockchains.
What are Cross-Chain Bridges?
The ability to transfer assets and data between separate blockchains is made possible through a cross-chain bridge, which lets users effortlessly access other protocols.
Because blockchains act as isolated silos that cannot communicate with one another, bridges are required. For instance, you cannot use ETH or BTC on the other. As opposed to historical banking systems, which allow your credit card to be used at many suppliers
The development of the blockchain ecosystem has increased interest in blockchain bridges. In the past, few people were interested in using other blockchains; consumers were more inclined to use Ethereum for decentralised applications (dApps) or Bitcoin for high-value payments.
However, the shortcomings of these well-known blockchains, like Ethereum, prompted the creation of additional platforms. Benefits including lower transaction fees, increased network throughput, and access to novel yield-earning activities were provided by these new chains.
A cross-chain bridge helped solve the problem by providing an easier way to move funds between different networks. One of the earliest cross-chain bridges, Wanchain, was launched in 2018. Since then dozens of bridges have gone live, sporting unique tradeoffs, strengths, and use cases.
How does a cross-chain bridge work?
A lock-and-mint model is used by the majority of cross-chain bridges to transfer value between chains. Here’s how that actually functions:
1. Alice pays the transaction fee and transmits units of Token A to a specific address on the source chain (such as Ethereum).
2. A trusted validator or trusted custodian has Alice’s Token A secured in a smart contract.
3. Equivalent Token B units are created on the final blockchain (such as Polygon).
4. Alice is given access to Token B through her wallet address and can use it at her discretion to complete transactions on the new network.
But what if Alice requires Token A after finishing her work on the second chain? The burning mechanism enters the picture at this point:
1. Alice sends any extra token B units to a particular address on the second chain. These tokens are effectively “burned” in the sense that they are lost forever.
2. Alice’s Token A is released on the source chain by the validator or custodian. The liberated monies are subsequently given to Alice in her original pocketbook.
It is crucial to comprehend the actual operation of a cross-chain bridge. On the Ethereum network, you cannot actually send Bitcoin to any addresses. Your transaction will either fail or you will lose your money.
Cross-chain bridges function by creating native assets you can utilise on another chain and “wrapping” tokens in smart contracts. The ERC-20 token-wrapped BTC (wBTC), for instance, employs BTC as security. Before getting wBTC tokens on the Ethereum network, users must first deposit BTC onto the Bitcoin blockchain.
Why do we need a cross-chain bridge?
A cross-chain bridge is important because they allow for greater productivity of assets, better user experience, and maximum liquidity for dApps.
Source: YouTube Screenshot
How are cross-chain bridges categorized?
Because of the different qualities of cross-chain bridges, we can easily split them into categories like the types of blockchains they support and the trust mechanisms they have in place. Here’s a broad classification of bridges according to their features
Supported chains
We can also classify cross-chain bridges according to the type of blockchains they support. This classification covers the following scenarios:
Transferring one asset between two chains
There are bridges for transferring a specific cryptocurrency to another chain. Examples are wBTC (managed by BitGo) and tBTC (managed by Keep Network)–both allow you to transfer BTC from the Bitcoin blockchain to Ethereum.
Transferring many assets between two chains
Some bridges allow you to move more than one token but only between two chains. For instance, Rainbow Bridge can send ETH and multiple ERC-20 tokens from Ethereum to the NEAR protocol. Similarly, Gravity and ZeroSwap allow multi-asset transfers between Ethereum and Cosmos and Binance Smart Chain (BSC) respectively.
Transferring assets from one chain to multiple chains
Certain cross-chain bridges enable users to connect one chain to multiple blockchains. An example is Wormhole, which bridges assets from Solana to Ethereum, Fantom, Avalanche, Terra, and Polygon.
Transferring multiple assets between different chains
Some cross-chain bridges boost interoperability by facilitating the movement of tokens across independent blockchains. Developers can integrate such bridges into dApps to increase available liquidity.
Transferring assets across different chains under one application
Cross-chain dApps often support more than one chain, so they can access more liquidity and users. They rely on bridges that let users move assets across various chains within the same dApp.
However, this type of blockchain bridge is restricted to one application. For instance, Anyswap DEX (now Multichain) had a bridge to allow users to move assets between different (supported) chains.
Transferring NFTs between different chains
Given the size of the NFT market, it’s no surprise there are services for bridging NFTs. NFT bridges are useful for the following reasons:
a. Users can take advantage of cheaper minting fees on other chains.
b. Users can take advantage of higher liquidity by moving NFTs with cross-chain bridges.
Popular NFT bridges include Wormhole, Multichain, Quigon, and Polygon Bridge.
What are some potential risks of using cross-chain bridges?
A cross-chain bridge undoubtedly has many benefits, but it also has downsides that can include theft, failure to work properly, and hacking. Let’s break down some of the vulnerabilities inherent in a cross-chain bridge a bit further and give some examples:
Theft of user funds
In the case of trusted bridges, custodians can go rogue and steal user funds. Some bridges pre-empt this problem by forcing custodians to provide a “bond”, which can be slashed in the event of malicious behavior
Liveness Issues
If validators or custodians neglect their duties, then a cross-chain bridge may stop working and affect users. This also introduces the risk of censorship, especially if trusted parties refuse to release funds.
Malicious Exploits
Decentralized bridges aim to reduce trust assumptions and assure users of better safety. In most cases, trustless blockchain bridges use oracles and smart contracts to manage the bridging of assets.
The problem is obvious: smart contracts can always be exploited. Some of the biggest bridge hacks, including the $600m Poly Network exploit and $350m Wormhole attack, resulted from using vulnerable smart contracts.
What are some of the best cross-chain bridges?
Some of the best cross-chain bridges are:
Axelar
Connext
Synapse
Wormhole
Ren Bridge
Polygon PoS Bridge
cBridge
Binance Bridge
Cross-chain bridges are critical to a multichain future and can unlock massive value for the blockchain ecosystem. By promoting seamless interoperability between previously-siloed blockchain networks, bridges enable users to access greater liquidity and better UI while extracting more value from owned assets.