By
Grace
July 8, 2022
4 Min Read
A blockchain bridge is a connection that enables the transfer of tokens or other data from one chain to another. Blockchain bridges are designed as a solution to limited interoperability, which is one of the main challenges that blockchain technology faces today. They allow interaction with another chain’s dApps and facilitate the connection of separate blockchains, turning the blockchain landscape into an ecosystem, where applications can interact with one another, evolving and growing.
We already mentioned that blockchain bridges enable interoperability between different networks, like Ethereum and Bitcoin, for example. But to fully understand bridges in blockchain, it’s important to go back to the basics of the technology. The important thing to remember here is that each blockchain has its own standard, its own set of rules that is rarely compatible with other chains.
That’s why true cross-chain token transfers are impossible - after all, tokens that are designed to run on chain A adhere to a different standard than the standard required by chain B. But while this obstacle may seem insurmountable, it can be circumvented. This is possible thanks to what we call ‘wrapped tokens’ - synthetic representations of existing tokens that are designed to support a different token standard.
Blockchain bridges utilize wrapped tokens to facilitate interactions between blockchains. Here’s how it all works.
Once a user sends crypto or assets from one network to another via a bridge, the assets are not really transferred. Rather, they are locked on the network via smart contracts or other mechanisms. An equivalent amount of wrapped tokens are produced on the blockchain to which the assets are “sent” . Once the user decides to claim their assets, the new tokens are destroyed while the original ones are unlocked.
For instance, sending a Solana coin to an Ethereum wallet via a bridge would involve the Ethereum wallet receiving a wrapped token, essentially, an ERC20 version of the original SOL token.
Not all blockchain bridges are the same. They can be divided into trusted or centralized bridges and trustless or decentralized bridges.
Trusted bridges rely on a governing entity or authority for controlling operations. Under this type of bridge, members are obliged to cede control of their assets to a governing body. They’re a reliable solution for transferring high-volume assets. However, there are not as many reliable services available today, which could force users to trust smaller and less-known companies. One of the most popular trusted bridge initiatives is Wrapped Bitcoin (wBTC), which allows sBitcoin users to pursue the opportunities of Ethereum.
On the other hand, trustless bridges are more decentralized and considered the safer alternative for users transferring coins. Their functionality is reliant on smart contracts and code-based algorithms. This results in a boost in security, where governance is similar to that of the blockchain technology itself. As a result of the use of smart contracts, users are empowered to keep control of their funds and assets. Trustless bridges may be considered the safer option. They prevent risks of corruption and intentional bad practice. However, as we’ll see below, decentralized bridges are not infallible.
Blockchain networks are decentralized and rely on their own governance rules and communities. While data stored on the chain is fully transparent, the infrastructure of the network is designed to serve a stand-alone ecosystem. Although blockchain technology has proven to be effective in some scenarios, it has a siloed nature, preventing the progress of DeFi and other decentralized applications. Rather than utilizing the functionalities of different dApps to facilitate growth, the technology is limited due to the lack of communication between separate chains.
Blockchain bridges offer a compatible way to interoperate securely across blockchains and offer a multitude of opportunities.
By providing a way for dApps to utilize the strengths and opportunities of different blockchains, bridges can contribute to a boost in their capabilities. They enable innovation in protocols, leading to new and creative solutions.
Another main challenge that blockchain bridges can help overcome is scalability. With blockchain becoming more and more popular, different networks will need to support higher transaction volumes and provide faster processing. With their ability to facilitate cross-chain transfers, bridges can be used for the creation of scalability solutions where the transaction load is shared between interconnected chains. On top of that, with the help of bridges, users can easily transfer their assets from an expensive network like Ethereum to a low-fee platform.
For DeFi and other dApps to evolve, grow, and meet the expectations of the dynamic world, it’s vital for separate blockchains to communicate with one another. Overcoming the siloed nature of blockchains empowers blockchain bridges to escape the single network barrier in the blockchain space. As a result, DeFi progress will be enabled.
Despite the fact that bridges in their ultimate form may be bullet-proof solutions, today, they’re still relatively new. In their nascent phase, bridges bring several challenges to the blockchain table.
When it comes to bridge development, the importance of smart contracts cannot be understated. This is particularly true for decentralized bridges, which rely on self-executing programs to power their core functionalities, such as the minting and burning of wrapped tokens. Badly written or poorly optimized smart contracts could create potential exploits or other vulnerabilities that could be targeted by bad actors. One such example is the Wormhole hack in February, in which a hacker was able to steal 120,000 wETH by exploiting smart contract vulnerabilities.
In the case of trusted bridges, control is in the hands of a single entity or a small group of users. If certain transactions are not in the best interest of bridge operators, they have the power to prevent transfers of assets via the bridge.
Another risk that stems from the centralization of trusted bridges is related to collusion formations. Governing members have the power to come together and steal funds from users.
Blockchain bridges are a step forward to creating an open Web 3.0, where different networks can communicate and operate with one another. As a result, we can expect to see significant innovation and progress within blockchain technology. Via the use of bridges, blockchain has the potential to become more relevant and easily adaptable. However, there are a number of challenges that must be faced in order to prevent security risks, bad practices, and errors in the technology.
At LimeChain, we have significant experience in building bridges connecting some of the most prominent Web3 networks. Among the projects we’ve worked on is Hashport, a Web3 portal connecting Hedera Hashgraph with EVM-compatible networks, including Ethereum. So, if you’re looking for an experienced blockchain bridge developer, you’ve come to the right place! Get in touch with our experts and tell us more about your project!
