Blockchain bridges: A Simple Guide
The prospective future of decentralized blockchain networks demands clean interplay and interoperability. Since the creation of Bitcoin in 2009, it experienced an inordinate surge alongside the number of blockchain networks with various designs and functionalities.
As the blockchain network grows, it has experienced boundaries in inter-network relay and data exchange, leading to the query of decentralization, as blockchain networks are designed to run seamlessly, through hundreds of thousands of stakeholders instead of a centralized body. This has further led to a decrease in adoption fees since applications developed for one network only work effectively on that network.
Various projects have however evolved over the years to attach networks, taking into consideration the smooth flow of data from one network to another while the adoption rate increase.
This article has a laser-focus view on what blockchain bridges are, It’s advantages, associated risk, how it works, types of blockchain bridges, Cross-chain solutions, how blockchains communicate, and the future of Blockchain bridges.
What is a Blockchain bridge?
A blockchain bridge is a tool that helps users port assets from one blockchain to another, fixing one of the foremost ache factors with blockchain which is the case of interoperability and inclusivity.
With a key value proposition of blockchain technology revolving around the promise of decentralization, the Blockchain space has however witnessed an explosion of blockchain networks being created, with a huge variety of designs and intended functionality. This became the norm shortly after 2008 when the Bitcoin white paper was published.
The concept of this decentralization involves the ability for networks to be owned and run by several, sometimes thousands of stakeholders as opposed to the conventional, extra centralized company version of governance.
Whilst the numerous advantages posed by Blockchain bridges, it still has an unresolved setback in creating a seamless, unified and centralized network ecosystem. Not only does the lack of interaction between blockchain networks limit decentralization, it also hinders the progression and importance of the technology by placing limitations around innovation, and economic growth.
As blockchain technology keeps advancing, several projects have however turned to face this problem and are also geared towards resolving this breach and gap to make its application more acceptable and whole with far-reaching impacts. These projects have a goal in common as most have begun by building “bridges among networks. The sudden move to a global space where blockchains and structures are interoperable will permit programs/applications to build on each other’s services and strengths.
A blockchain bridge (also known as a cross-chain bridge) connects two points like a physical bridge. It facilitates communication between two blockchain networks by helping in the transfer of data and digital assets. Both chains may have different protocols, rules, and governance structures, but the bridge provides a secure means for both chains to work together (ie., communicate and share data). Blockchain bridges can be designed to exchange any type of data, including smart contract calls, and decentralized identities.
Advantages offered by Blockchain Bridges
Blockchain bridges run on several advantages. Notwithstanding, this technology also has its disadvantages and associated risk which possesses potentials of a long-term threat to the entire ecosystem. The following are advantages which blockchain bridges have.
Cross-Chain Transaction
With cross-chain transaction, each blockchain is created in a protected ecosystem with its own set of rules and consensus protocols, creating constraints on each blockchain. As a result, there is no direct communication or transaction of tokens between blockchains. Blockchain bridges, on the other hand, allow tokens and information to be transferred from one chain to another.
Low Network Traffic
One of the swift advantages which Blockchain bridges offer is it’s help in minimizing traffic on congested blockchains like the Ethereum ecosystem, as well as distributing it across other less congested blockchains, improving the scalability of the Ethereum network.
Enhanced Developers Experience
Developers building DApps on the Ethereum network have often had negative experiences due to low transaction processing rates and high gas fees, especially during periods of high traffic and congestion. However, blockchain bridges make it possible to process the same tokens on other blockchains faster and at a lower cost. To this end, developers from different blockchains have continued to collaborate in order to create new user platforms.
Regulates Monopolization
In view of monopolization hovering over blockchain, cross-chain technology has contributed to market stability by reducing monopolization by large players. For example, Bitcoin and Ethereum are the most popular cryptocurrencies, accounting for more than 70% of the total market share. As a result of this dominance, there is little room in the market for startups to test their tactics and gain a foothold against the current competition. This problem is gradually being eliminated with the aid of blockchain bridges.
Associated Risks with Blockchain bridges
It’s good to note at this point that Blockchain bridges are not without their fair share of downsides and limitations. Over time, attackers have exploited the vulnerabilities of a few blockchain bridges’ smart contracts. In the process, large quantities of crypto have been misappropriated by this malicious actors from cross-chain bridges.
One problem which custodial bridges pose is the potential to reveal it’s users to risk. This is being said in terms of the fact that the centralized entity behind a custodial bridge could theoretically make-do with users’ funds. When using custodial bridges, it’s advisable to go for established brands with long-term track records.
Going forward, another potential technical setback with blockchain brigdes is that of transaction fee bottlenecks. While a bridge can alleviate congestion on a busy network, transferring assets away to some other chain doesn’t resolve the scalability trouble as users won’t always have access to the same suite of Dapps and services.
Finally, Blockchain bridges may want to reveal the underlying protocols to dangers associated with the disparity in trust. Due to the fact tha Blockchain bridges connect different blockchains, the general security of the interconnected networks is as sturdy as the weakest link.
How do Blockchain bridges work?
Consider an example with two Blockchain networks: Chain A and Chain B.
When transferring tokens from chain A to chain B, the bridge can be designed to lock the token on chain A while a new one on chain B mints. In this scenario, the total number of tokens in circulation remains constant but is split between the two chains. If chain A had fifteen tokens and then transferred five tokens to chain B, chain A would still have fifteen tokens (with five locked tokens), but chain B would have five more.
The owner of the minted tokens can redeem them at any time; they can burn (or destroy) them from chain B and unlock (or release) them on chain A, because Chain A has always held a locked copy of each token, its value will remain consistent with the market price on Chain A. These “lock and mint” , “burn and release” procedures ensure that the quantity and cost of the tokens transmitted between the two chains remain constant.
Types of Blockchain bridges?
Before delving into the principal aspects of the types of Blockchain bridges which are Trust and Trustless bridges, it is good to note that some bridges, called unidirectional or one-way bridges are bridges which help users to port assets that are most effective to the target blockchain but cant’t be done the other way round. For instance, Wrapped Bitcoin permits you to send bitcoin to the Ethereum blockchain — to convert BTC to an ERC-20 stablecoin — however it doesn’t assist in sending ether to the Bitcoin blockchain.
Other bridges like Wormhole and Multichain are bidirectional, or two-way, in this wise, one may freely convert assets to and from blockchains. Just as users can send Solana to Ethereum’s blockchain, they can also send ether to Solana.
The distinction between trust and trustless bridges explains who controls the tokens which might be used to create the bridged assets. For example, all wrapped bitcoin (WBTC) is held in custody by BitGo, making it a centralized bridge. Conversely, bridged assets on Wormhole are held by the protocol, which means it’s more decentralized. Sequel to the above, Blockchain bridges may be categorized according to their functions, mechanisms, and tiers of centralization.
Blockchain bridges by functions
In terms of blockchain bridge classification by function, some examples consist of wrapped asset bridges and sidechain bridges. Wrapped asset bridges allow crypto interoperability, for instance, porting bitcoins to the Ethereum network by wrapping the BTC to Wrapped BTC (WBTC), an ERC20 token well suited to the Ethereum network.
Sidechain bridges on the other hand connects the parent blockchain to its off-shoot sidechain, allowing interoperability among the two. They are needed due to the fact that the parent and sidechain might have specific consensus mechanisms. One instance is xDai Bridge, which connects the Ethereum mainnet to Gnosis Chain (formerly recognised as xDai blockchain), an Ethereum-based stable payment sidechain.
Blockchain bridges by mechanisms
With regards to bridge by mechanism, they can simply be defined as one-way (unidirectional) bridges and two-way (bidirectional) bridges. A one-way bridge means users can most effectively bridge assets to one destination blockchain but can’t process a reverse action to the native blockchain. Prospectively, two-way bridges permit asset bridging in both direction.
Having discussed the unidirectional and bi-directional concept in Blockchain bridges, Let’s have a look on the basic classification: Trust-based bridges and trustless bridges.
Trust Based Bridges
Trust Based Bridges, also referred to as federation or custodial bridges, are centralized bridges that require a central entity or federation of mediators to run. To change coins into any other cryptocurrency, users have to depend on the contributors of the federation to affirm and verify the transaction. The federation contributors are in large part incentivized to maintain transactions running; they’re not to identify and prevent fraud. Trust-based bridges may be a cool cost-effective preference whilst moving a massive amount of cryptocurrency.
Trustless bridges
Trustless bridges are decentralized bridges that depend upon system algorithms (i.e., smart contracts) if you want to operate. This form of bridge works like an actual blockchain, with person networks contributing to transaction validation. Trustless bridges can offer customers a higher feeling of safety and add greater flexibility whilst transferring cryptocurrency.
Cross-chain Solutions
Examples of blockchain bridges are listed below:
Binance Bridge
The Binance Bridge permits customers to switch assets among the Binance Chain and different chains, including Ethereum, and even the use of Binance Smart Chain wrapped tokens. The Binance Smart Chain (BSC) is an Ethereum-compactible blockchain that assists smart contracts in the same way Ethereum does, however, it is done at a decreased cost.
Portal (Wormhole)
Portal gives limitless transfers of assets between Solana and many other Defi blockchains, including Ethereum, Terra, Binance Smart Chain, Avalanch, oasis, and Polygon.
Wrap Protocol
The Wrap Protocol is associated to switching ERC20 and ERC721 tokens among the Tezos network and Ethereum, Polygon, and BSC. The Tezos blockchain makes use of validating nodes called bakers to put into effect its proof-of-stake consensus algorithm.
Avalanche Bridge
The Avalanche Bridge (AB) may be used to switch assets between the Avalanche proof-of-stake blockchain and Ethereum. According to documentation, an Avalanche transaction on AB will take some seconds, whilst an Ethereum transaction may take about fifteen minutes.
Stargate Bridge
The Stargate Bridge is a LayerZero primary-based protocol that enables the exchange of native assets among blockchain networks. Users can send native tokens directly to non-native chains without the use of an intermediary. Stargate is designed to offer spontaneous cross-chain interoperability, and uniform liquidity.
Zeroswap
Zeroswap is a cross-chain decentralized protocol that tries to facilitate zero-rate and gasless transactions. Zeroswap additionally intends to offer seamless access to multichains like Ethereum, Polkadot, and BSC. Every transaction generates rewards from liquidity mining.
cBridge
cBridge is a cross-chain bridge that offers users a first-rate transaction experience with deep liquidity, in addition, it adds highly efficient and user-friendly liquidity control for cBridge node operators and liquidity providers. It also provides message bridging for instances including cross-chain DEX and NFTs. Other interesting capabilities encompass secured bridge node service, flexible security models, and native gas token unwrapping.
Blockchain Communication
Like every other mode of communication between two parties, Blockchain also communicates by being interoperable. Interoperability refers to blockchains, which share the same existing architecture and build up to communicate with one another in order to enhance information dissemination. It involves the capability to observe and access data stored in another blockchain. With the interoperability enhancement, a user on the other end can access information when it is delivered to another blockchain, as well as react effectively to it.
Moving on to Cross-chains, Cross-chain refers to innovative technology that enables the interoperability between two relatively independent blockchains. The Cross-chain era came with a new look and seeks to put off the want for intermediaries or third parties in connecting blockchain networks, thereby enhancing interoperability and helping the sustenance of blockchain decentralization.
With regards to cross-chain implementation, asset swapping and transfer are its most common forms. Both serve as crucial elements of blockchain, as well as a good study focus for PPIO (Peer to Peer Input Output).
Future of Blockchain bridges
The need for blockchain bridges will possibly be on this rise owing to the fact that the internet has kept a steady pace towards Web3. One promising streak is that future improvements may offer extra scalability and performance to users and developers. Also, there might be innovative solutions to address the security risks related to bridges as Blockchain bridges are necessary for building an interoperable, open, and decentralized blockchain space.
Building the future of an open, decentralized web (Web 3.0) calls for a spirit and sprint of open collaboration and interoperability, with teams across the blockchain space, working collectively to result in a brand new paradigm. Blockchain bridges offer a promising way to move past the division of blockchain networks in an effort to promote extra innovation, user adoption, and technological relevance. By permitting different blockchain protocols to work collectively, bridges can help in moving the entire ecosystem in the direction of the next-generation decentralized web, ending the relevance of powerful centralized mediators that don’t have users’ interests in mind.
With its ability to enhance a variety of information systems, the premise for its widespread adoption lies directly in the development of cross-chain technology.
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