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What are they and how do they work?

What are they and how do they work?

Over the past few years, many new public blockchains with support for smart contracts have emerged, which has created a need for interconnection in the crypto space. Developers in the space are currently hard at work creating a cross-chain architecture that facilitates communication between different blockchains.

In this guide, we will explain what crossbridges are, how they work, and list the most popular ones.

What are cross bridges?

Cross-chain bridges, also known as blockchain bridges, are infrastructure protocols that connect independent blockchain networks, allowing digital assets to be seamlessly transferred from one blockchain to another blockchain, thereby ensuring interoperability.

The blockchain ecosystem is increasingly becoming multi-chain, with dApps running on many different blockchain networks, each with a unique approach to trust and security.

However, this development creates a problem for the entire ecosystem. Because native blockchains are not designed for direct cross-chain communication, assets and liquidity are scattered and thus fragmented.

For example, you cannot use your own bitcoin (BTC) on the Ethereum network, and vice versa, you cannot use native ether (Ethereum) in the Bitcoin network. Therefore, users of both ecosystems work in isolation and cannot communicate with each other on the network.

For the blockchain space to evolve into a multi-block ecosystem, interoperability is key. In the past, many users have been happy with using Ethereum for dApps and Bitcoin for money transactions. But to this day, these pioneering networks suffer from scalability issues that make them costly 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 still cannot interconnect, meaning 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 convoluted steps and depends on crypto exchanges as intermediaries.

The solution to this puzzle is cross-chain messaging protocols that allow smart contracts to read, write, and transfer data between blockchain networks.

Interoperability solutions are an integral part of creating an interconnected blockchain network that can move data and tokens back and forth.

How do cross bridges work?

Cross-chain bridging typically involves locking or burning crypto assets on the original chain with a smart contract and unlocking or minting crypto assets on the new chain. The last part is also handled by smart contracts.

In other words, most cross-chain bridges work by wrapping tokens into smart contracts and issuing them on other chains.

A prime example is the wrapped bitcoin (WBTC), an ERC-20 token backed by Bitcoin. In order for you to receive WBTC on the Ethereum network, a bitcoin must first be locked on the Bitcoin network and then created on the Ethereum network using a chain bridge. In the case of WBTC, this bridge is operated by a centralized company, which means 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 – The user burns crypto assets on the original chain and the same assets are minted on the new chain.
  • Castle and Mint – The user locks crypto assets in a smart contract on one chain, and simultaneously wrapped tokens will be minted on another chain as an IOU. Conversely, wrapped tokens on the destination chain are burned to unlock the original assets on the first chain.
  • Block and Unblock – The user locks crypto assets in the first chain, but then unlocks the same assets in the liquidity pool in the new chain.

Blockchain bridges can also have arbitrary data sharing capabilities to enable the exchange of information between blockchains. Called programmable token bridges, they provide more complex cross-chain functions such as swapping, staking, lending, or staking tokens in a smart contract on a new chain while the bridging function is performed.

List of Popular Blockchain Bridges

Bridges are needed to improve interoperability and overall liquidity in the crypto space. Some of the most popular cross chain bridges include:

worm-hole

worm-hole 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 many more. . Wormhole provides cross-chain transmission of information and assets from the source chain. This information is verified by the network of nodes before passing them to the target blockchain.

polygonal bridge

polygonal bridge is an internet protocol that allows you to transfer assets between Polygon and Ethereum. Users can transfer ERC-20 and Ethereum NFT tokens to Polygon’s layer 2 chains through two cross-bridge solutions: Polygon Bridge (POS) or Plasma Bridge.

Both bridges can transfer crypto assets from the Ethereum network to Polygon, but differ 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, Plasma Bridge uses the Ethereum plasma scaling solution and supports the transfer of Ethereum (ETH), ERC-20 tokens, ERC-721 tokens, and Polygon (MATIC).

Bridge of Harmony

Harmony, a protocol for decentralized applications, has a cross-chain bridge known as the LayerZero bridge that allows the transfer of digital assets between the Ethereum, Binance Smart Chain and Harmony networks. Users can transfer ETH and BNB tokens to the Harmony blockchain and receive the corresponding assets. Exchangeable assets can be redeemed at any time.

avalanche bridge

avalanche bridge is a cross-chain protocol that facilitates the transfer of ERC-20 tokens to and from the Avalanche C-chain. The bridge works by receiving ERC-20 tokens from the Ethereum network. The transaction is verified and a wrapped ERC-20 token is minted on the Avalanche network. The process is reversed by deploying tokens on a smart contract to unlock native ERC-20 tokens.

Binance Bridge

Binance Bridge allows you to convert digital assets such as BTC, ETH, LTC, LINK, etc., turning them into tokens on the BNB smart chain. This bridge is essential to ensure cross-chain liquidity in the Binance ecosystem.

Cross bridge risks

Bridges have many benefits, but they also come with their own risks that can lead to the loss of users’ digital tokens.

For example, in the case of trusted and therefore centralized bridges, the custodian may decide to abscond with the user’s funds. Some cross-chain bridges try to prevent this by requiring custodians to provide a “collateral” that is refunded in case of malicious behavior.

In addition, minimal trust blockchain bridges typically use oracles and smart contracts to manage the pooling of assets. However, this presents a problem as flaws 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 bridges between chains, they will stop working and user funds may be lost or simply cannot be recovered. Ultimately, the centralized aspect of bridges of trust presents a fundamental risk, as evidenced by Hacking the Ronin Bridge Protocol who have seen the malicious use of private keys to initiate fake withdrawals.

Written by khirou

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