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What Are Blockchain Bridges ?


 What Are Blockchain Bridges and How Do They Work?

What Are Blockchain Bridges

A blockchain bridge is a tool that allows you to transfer assets from one blockchain to another, solving one of the main weaknesses of blockchains - the lack of interoperability.

Because blockchain assets are often not compatible with each other, bridges create synthetic derivatives that represent an asset from another blockchain.

If you use a bridge to send Solana coins to an Ethereum wallet, that wallet receives a token that is "wrapped" by the bridge and is converted into a target blockchain-based token. In this case, the Ethereum wallet would receive a "bridge" version of Solana converted to an ERC-20 token - the general token standard for exchangeable tokens on the Ethereum blockchain.

As bridges open new markets and work towards a brighter multi-chain future, they present their own security challenges, as evidenced by a massive $326 million exploit in the nascent Wormhole Bridge in February 2022.

Blockchain Bridge Types

Some bridges, known as one-way or one-way bridges, only allow you to transfer assets to the target blockchain and not vice versa. Wrapped Bitcoin, for example, allows you to send Bitcoins to the Ethereum blockchain - to convert BTC to the ERC-20 stable currency - but does not allow you to send ether to the Bitcoin blockchain.

Other bridges such as Wormhole and Multichain are bidirectional or bidirectional, which means you can freely convert assets to and from blockchains. Just as you can send Solana to the Ethereum blockchain, you can send Ether to Solana.

Bridges are either custodian (also known as centralized or trusted) or unattended (decentralized or unreliable). The difference explains who controls the tokens used to create the bridged assets. All wrapped bitcoins (WBTC) are held by BitGo, making it a centralized bridge. Conversely, Wormhole-bridged entities belong to the protocol, which means it's more decentralized.

While staunch advocates of decentralization may argue that the surveillance-based nature of WBTC makes it less secure than decentralized alternatives, bridges that decentralize surveillance over bridged assets are not necessarily more secure, as demonstrated by the success of the Wormhole Bridge.

Why should you use a blockchain bridge?

Moving assets from one blockchain to another blockchain has numerous benefits. First, the blockchain you transfer assets to can be cheaper and faster than the native blockchain. This is certainly true for Ethereum, where high transaction fees and slow throughput make it difficult for newcomers to participate in decentralized finance (DeFi).

  • If investors are moving assets on a Layer 2 network, a faster blockchain that sits on top of the Ethereum blockchain like Arbitrum or Polygon, they can exchange ERC-20 tokens for a fraction of the cost without sacrificing exposure.
  • Other investors can use bridges to make the most of markets that only exist on another blockchain. For example, the DeFi Orca protocol is only available on Solana, but supports an encapsulated version of ETH.
  • Bridges are getting easier and easier to use. Many DeFi protocols have built-in bridges to allow their users to exchange tokens of different protocols without having to leave the platform. This makes the process of converting tokens via bridges less cumbersome.

Are blockchain bridges safe?

As with all cryptos, your capital is at risk. Some new decentralized bridges are relatively untested and even tested ones are open to exploits. The most notable recent example is Wormhole, but a week before this attack, a bridge called Qubit was bought for $80 million.

  • According to an analysis by blockchain analytics firm Elliptic, the Wormhole attack occurred because the Wormhole allowed the attacker to mint 120,000 wrapped Ethereum without risking ETH. The attacker then removed the free WETH. A high-frequency trading firm called Jump Trading has covered losses to recover the protocol.
  • Trust bridges have different risk profiles. Instead of the risk that an attacker will abuse the protocol and consume the funds in the protocol, the risk is that the company holding the assets in question is corrupt or negligent, or loses control of the assets due to incompetence or orders.