What are Blockchain Bridges and How Do They Work?

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What are Blockchain Bridges and How Do They Work?

What are Blockchain Bridges and How Do They Work?

Summary

  • Just like in the real world where bridges exist to connect one physical location to another, blockchain systems use bridges to connect to one another. With bridges, they will be able to transfer assets and information between each other.

  • Trusted and trustless bridges are the main two types of blockchain bridges in use today.

  • Trusted bridges are the more centralised options and need a central entity to operate and facilitate the transfer of information and funds between the two blockchain systems.

  • Trustless bridges replace the central entity in trusted bridges with computer code and smart contracts. As a result, trustless bridges are more decentralised and can be more secure, given that the underlying code of the smart contract is drafted properly and audited vigorously.

  • Blockchain bridges allow Dapp developers to leverage multiple blockchain systems and their liquidity. Dapp users will be able to switch between different networks and use the one that offers better fees and transaction time.

  • Trusted and trustless blockchain bridges have their own risks. With trusted blockchain bridges, you’d need to trust a custodian to hold your assets and issue new tokens for you. Trustless bridges are prone to bugs which can expose them to million-dollar hacks.

Table of Contents

What are Blockchain Bridges?

Just like in the real world where bridges exist to connect one physical location to another, blockchain systems use bridges to connect to one another. With bridges, they will be able to transfer assets and information between each other.

Blockchain systems are mostly developed in an isolated manner; each system has its own rules and standards and allows its members to reach a consensus in a specific way. These measures usually make blockchain systems incompatible.

In other words, you cannot simply transfer a crypto token from one blockchain to another and expect it to be functional there. You cannot send your valuable Bitcoin to an Ethereum address without having it lost and rendered useless!

This is why we need blockchain bridges.

Blockchain brides allow you to transfer information and tokens between different blockchain systems. However, in the background, they don’t actually send the tokens to a new blockchain!

Let’s see what it means with an example:

You have some Bitcoin, however, you are really interested in the Ethereum blockchain and its ecosystem of Decentralised Applications (Dapps). You would like to use the value of your bitcoins on Ethereum.

Now, in the traditional way, you have to convert your bitcoins for Ether using a centralised exchange. Then you can transfer your ethers to your Ethereum wallet and use it on the blockchain.

Blockchain bridges mainly aim to streamline this process for you.

By using a blockchain bridge, you will send your bitcoins to another address which can be a smart contract or reliable custodian based on the type of the bridge. Then the blockchain bridge will transfer some tokens of the target blockchain to your address. As you can see, the actual tokens aren’t transferred between the two networks.

By enabling communication between independent blockchain systems, blockchain bridges try to address the interoperability issue of today’s blockchains. With blockchain bridges, developers will be able to create more innovative products and solutions as they can benefit from the features of multiple blockchain systems.

Types of Blockchain Bridges

Blockchain bridges come in different forms and types. Let’s discuss some of the main ones.

  • Trusted Bridges

Trusted bridges are the more centralised options and need a central entity to operate and facilitate the transfer of information and funds between the two blockchain systems.

While using trusted bridges, users need to trust the central entity with their funds and believe in the integrity and security of the bridge.

  • Trustless Bridges

Trustless bridges replace the central entity in trusted bridges with computer code and smart contracts. As a result, trustless bridges are more decentralised and can be more secure, given that the underlying code of the smart contract is drafted properly and audited vigorously.

The benefit of trustless bridges is that the users don’t have to trust a central entity with their funds and can rely on a secure smart contract to handle the transfer between the two blockchains.

  • Hybrid Bridges

Developers can also combine the two models to take advantage of the benefits of both. In a hybrid design, a central entity will be present and will get involved in specific operations. The transfer of funds, however, will stay decentralised and will be managed by smart contracts.

  • One-way or Unidirectional Bridges

One-way or unidirectional blockchain bridges will only allow you to send information and tokens from one blockchain to another. Just like a one-way road, you cannot send tokens from the target chain back to the original chain.

  • Two-way or Bidirectional Bridges

You would probably have an idea of how two-way or bidirectional blockchain bridges work now. Unlike one-way bridges, two-way blockchain bridges will allow you to transfer funds and information between the two blockchains. In other words, both blockchains can send and receive tokens and data.

Applications of Blockchain Bridges

In today’s crypto and blockchain space where transaction fees are still one of the main challenges, blockchain bridges can be quite helpful. On the Ethereum blockchain, for instance, blockchain bridges allow you to have your transactions executed on a cheaper and faster alternative (known as L2 rollups) without losing your original ERC-20 tokens.

Additionally, blockchain bridges allow Dapp developers to leverage multiple blockchain systems and their liquidity. Dapp users will be able to switch between different networks and use the one that offers better fees and transaction time.

With blockchain bridges, you will be able to easily own another native crypto token; all you need to do is use a blockchain bridge that connects the blockchain you have your tokens on to the target blockchain.

Some projects, like Wrapped Bitcoin (WBTC), will allow you to gain exposure to the price of another token on the blockchain of your choice. Wrapped Bitcoin is not an actual Bitcoin and simply represents the ERC-20 version of Bitcoin on the Ethereum blockchain.

WBTC follows the price of BTC and allows you to gain exposure to the Bitcoin market by holding an Ethereum-native crypto token.

Risks of Blockchain Bridges

Trusted and trustless blockchain bridges have their own risks. With trusted blockchain bridges, you’d need to trust a custodian to hold your assets and issue new tokens for you. Aside from this, the bridge operators may impose their own censorship and block/hold specific users based on their own discretion.

These issues don’t apply to trustless blockchain bridges as they rely on computer code and smart contracts to transfer funds and information between two blockchain systems. However, they are prone to bugs which can expose them to million-dollar hacks.

The Ronin bridge hack is a notorious example of a faulty smart contract, a vulnerability that led to the loss of more than $600 million in users’ funds.

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