2. Blockchain bridges – what are they?
Bridges can be defined as a system that transfers information between two or more blockchains, e.g., if you have BTC and you want to release it as Ethereum, you can do just that using such a bridge. It used to be that one of the biggest problems when it came to blockchains was the inability to work together. He works wonderfully as a single entity. However, it is unfortunately limited by its walls. Many times such transactions (BTC → ETH) led to high costs and congestion. Fortunately, bridges solve this problem. They allow the transfer of tokens, digital assets or smart contracts between two independent platforms. Importantly – a bridge is a neutral zone that allows users to switch seamlessly between one platform and another. This makes using cryptocurrencies much easier.
For bridges to work as they should, they must consist of:
● An actor / oracle / validator or relay. It monitors the state of the source string.
● A communicator that passes information from the source chain to the destination chain.
● Consensus. Some bridge models require consensus among source chain monitors to pass this information to the target chain.
● Cryptographic signature – information sent to the destination chain must be cryptographically signed.
If we take a closer look, the very concept of bridges is similar to that of layer two, although the two systems have distinctly different goals. As a reminder – layer two is built on top of an existing blockchain – improving speed. Interchain bridges are also independent entities, except that they do not belong to any chain of the network.
How do blockchain bridges work?
Bridges do many cool things: transform smart contracts or transfer data. However, they gained their popularity through token transfer. A good example, which we mentioned earlier, is the transfer on the line BTC → Ethereum. As you know, these are the two biggest cryptocurrency networks. Both have different rules and protocols. With bridges, we can transfer our BTC to Ethereum and do things with it that we couldn’t on the Bitcoin blockchain. Sounds great, right? 😀 From the inside, it works like this: you have BTC and you want to move some of it to Ethereum. Then the blockchain bridge will hold the BTC coin and create a counterpart to it in ETH. And it is this counterpart coin that you use in the way you want. The “actual” bitcoin coin doesn’t go anywhere. Instead, the amount of BTC you would like to move gets blocked in the smart contract, and you get access to the same amount in ETH. The whole idea is that the blockchain bridge catches your BTC, wraps it in an ERC-20 contract and gives it the functionality of an Ethereum token. The wBTC token, for example, which is a wrapped token, is the result of this very process.
Now let’s look at the difference if we wanted to swap BTC for ETH on a regular trading platform. You would have to deposit them in your wallet first, then transfer them to the exchange and swap them. By then we would have paid more in transaction fees than the amount of BTC you wanted to move. The whole transaction using bridges is quick and seamless.
Bridges – types.
In the blockchain world, there are four main types of bridge. Of course, each of them has its advantages and disadvantages. We will now take a look at each of them.
- Generalized, where protocols are specifically designed to transfer information across multiple blockchains. Due to the single integration and complexity, this type has access to the entire ecosystem within the bridge. One example of such a bridge is the IBC, which sends messages between two heterogeneous chains while having a guarantee of finality.
- Asset-Specific: this type of bridge provides access to a well-defined resource from a foreign network. These types of bridges are the easiest to implement and are very fluid. However, they have limited functionality and can be implemented in any destination chain.
- Chain-specified: is a bridge between two blockchains. Typically, its purpose is to handle simple operations, mainly related to locking or unlocking tokens on the source/target chain. They have limited complexity and therefore enjoy significantly faster time-to-market. However, due to the wider ecosystem, they are not as scalable.
- Application-specific: these bridges take the form of an application that provides access to at least two blockchains within its services. The application uses a smaller code base. To make the application work properly, modular adapters are installed on the blockchain. A blockchain with such an adapter gets access to all others to which it is already connected. Well, the definite downside of application-specific bridges is that it cannot be connected to others.
Trust-based and untrusted blockchain bridges
The downside of bridges is definitely centralization. As you have already noticed, during the ”transformation” of coins you temporarily lose control over them and entrust them into the hands of someone else. Let’s now check how bridges work with and without trust.
● Trust-based bridges – they are fast and cost-effective. Especially if you want to transfer a large amount of crypto. But in this case, the pool of services that are trusted is relatively small. By entering the territory of lesser-known brands, you are putting yourself at risk. Be careful – we always say that you should do thorough research before any investment. This is why they are unattractive, especially for smaller traders.
● Trustless bridges – are a decentralized option. Their purpose is to provide a high degree of security when transferring coins. Theoretically, they work just like a real blockchain. Using this solution, we do not have to fear that during the transaction our coins will end up in the wrong hands, but not all gold that glitters. The problem with these bridges is that in most cases the services are provided by independent contractors.
Examples of bridges
- Binance Bridge. It has the largest selection of cryptocurrencies you can trade. It supports all known blockchains, i.e., Ethereum, Solana, TRON etc.
- cBridge. You can access it directly from Binance if you would rather not use the main bridge. It offers many cryptocurrencies that you can interact with. Its downside, however, is that you have to link your wallet to it before performing operations.
- AnySwap. It offers many more features than just cryptocurrency transfer. Here, you also need to connect your wallet, but it allows you to see all your crypto balances and freely transfer them from one place to another.
- Corss-Chain Bridge. It supports cryptocurrencies, tokens and NFT across multiple networks. The platform is relatively young, as it was founded in March 2022. It runs on blockchain networks such as Avalanche, BNB Chain, Polygon, Ethereum, and Phantom.
- Umbria Narni Bridge. It allows us to transfer blockchain assets, using a liquidity pool where assets are stored in multiple chains. You can find blockchain networks like Polygon Mainnet, Ethereum Mainnet, BNB Chain, Avalanche, Solana, Cardano.
- Multichain. More commonly known to some crypto-explorers as Phantom Anyswap. Multichain is a cross-chain router protocol. It allows data and assets to flow between different blockchain networks. It supports many tokens.
- Wormhole. Compared to other bridges, it works a little differently. It locks the source cryptocurrency with a smart contract and ‘wraps’ the coin in a token minted by Wormhole on the target blockchain.
Blockchain bridges are a big facilitator in the cryptocurrency world. With them, we are moving closer to an innovative and standardized cryptocurrency economy. What is interesting and cool about the crypto world is that we are not limited to what we already have. New and innovative solutions are constantly being created to improve the already existing crypto world.
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