What is a Blockchain Bridge?

It then mints the exact amount on the blockchain B to send to the destination address. If you want to use Bitcoin on Ethereum’s blockchain, for example, Wrapped Bitcoin is the way to do it. Your BTC would get locked up at the bridge and the same amount of Wrapped Bitcoin would be minted erc20 vs kcc on Ethereum’s network . It’s a huge deal in the world of decentralized finance because it introduces connections between previously isolated networks. So at first glance, interoperability is a straightforward question of being able to move between different blockchain systems.

In the case of Ethereum, the bridge simply turns the Bitcoin token into an ERC-20 token—the native fungible token of Ethereum—which allows it to be used as if it were an Ethereum native token. For example, say you want to bring Bitcoin to the Ethereum blockchain to spend it, the bridge wraps the Bitcoin in a blanket of code so that it is compatible with the target blockchain. Another example is the WBTC, an ERC20 token treated like wrapped BTC on the Ethereum network.

Wrapped assets on the destination chain to represent the original assets from the source chain. The tokens are blocked in A to serve as the guarantee of the value of these new tokens on blockchain B. To recover the blocked tokens in blockchain A, you have to carry out the reverse process. Send the token in B to the bridge; they get burnt and are unlocked in blockchain A. To send a token from blockchain A to B, you need to go to the bridge and indicate the number of tokens to send.

Popular Blockchain Bridge Examples

Hackers only needed to compromise two out of a total of five accounts to obtain the passwords necessary for withdrawing funds. “They usually hold tremendous amounts of money,” said Adrian Hetman, tech lead at crypto security firm Immunefi. “Those amounts of money, and how much traffic goes through bridges, are a very enticing point of attack.” The bridge exploits are occurring at a striking rate, considering it’s such a new phenomenon. According to Chainalysis data, the amount stolen in bridge heists accounts for 69% of funds stolen in crypto-related hacks so far in 2022. Token network fund with the thesis of embedding cryptoeconomic incentives into everything; transactions, computation, storage, prediction, power.

This is because WBTC is essentially an ERC20 token and operates seamlessly with Ethereum’s ecosystem. Your WBTC can buy any other Ethereum-based tokens, including NFTs and other cryptocurrencies that are built on the Ethereum network. The cryptocurrency industry is populated by numerous blockchains that generate value and utility for investors, but these blockchains operate independently of one another. Even when transaction volume drops, blockchain platforms like Ethereum struggle with transaction speeds and gas fees. To solve this problem, Ethereum supports Layer 2 solutions to swap some transactions off-chain temporarily. DApps specialized Bridges enable value to be exchanged across blockchains in the dApp ecosystem.

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Since layer 2 solutions offer cost-effective and faster transactions, blockchain bridges can also offer conclusive benefits for scalability while reducing transaction fees. Users normally have to pay transaction fees when they send crypto from one network to another. https://xcritical.com/ Blockchain bridges facilitate interaction between different blockchain technologies by using wrapped tokens and smart contracts. Blockchain bridges assist in bridging the gaps between different blockchain networks and connecting the disparate crypto ecosystems.

Georgia Weston is one of the most prolific thinkers in the blockchain space. In the past years, she came up with many clever ideas that brought scalability, anonymity and more features to the open blockchains. She has a keen interest in topics like Blockchain, NFTs, Defis, etc., and is currently working with 101 Blockchains as a content writer and customer relationship specialist. “One major question is whether bridges will become subject to regulation, since they act a lot like crypto exchanges, which are already regulated,” Carlisle said. Nomad is offering hackers a bounty of up to 10% to retrieve user funds and says it will abstain from pursuing legal action against any hackers who return 90% of the assets they took. Considering assets from one blockchain are generally not compatible with a foreign blockchain, a bridge actually acts as an asset from another blockchain.

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Venturing to the territory of less-known brands can increase risks, which makes it unattractive to smaller traders. This concept is a lot similar to Layer 2 solutions even though the two systems have different purposes. Layer 2 is built on top of an existing blockchain so while it does improve speed, the lack of interoperability remains. Cross-chain bridges are also independent entities that don’t belong to any blockchain. The following discussion offers a detailed introduction to a blockchain bridge and its working alongside the value advantages it presents for the blockchain community.

Offering rewards to users encourages loads of different users to confirm transactions, improving the decentralization of the bridge. Say you want to bridge your Ethereum from the native Ethereum blockchain over to the Avalanche blockchain. Once you wrap your ETH, you’d send the new WETH coins into a crypto bridge connecting Ethereum to Avalanche. A blockchain bridge acts like a bridge between two blockchains to enable communication/interaction.

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Blockchain bridges can be categorized according to their functions, mechanisms, and levels of centralization. However, this would incur transaction fees and expose you to price volatility. If you would do this regularly, you’d have to convert bitcoin to ETH on a trading platform, withdraw it to a wallet then deposit again to another exchange. By the time it gets there, you’d have incurred more fees than probably what you planned to do in the first place. Hackers only needed to convince five out of nine validators on the network to hand over their private keys to gain access to crypto locked inside the system. The hack on Harmony’s Horizon bridge, for example, was possible because of the limited number of validators that were required for approving transactions.

• Blockchain technology has covered quite an extensive journey since its introduction to the world in 2008 with the Bitcoin whitepaper.
• Similarly, a blockchain bridge will come to your rescue if you possess Solana but want to spend it like Ether on the Ethereum blockchain.
• Blockchain bridges offer a compatible way to interoperate securely across blockchains and offer a multitude of opportunities.
• Like most centralized operations, there are trust assumptions on the custody of the funds and the bridge’s security.
• Georgia Weston is one of the most prolific thinkers in the blockchain space.
• Additionally, a bridge makes the blockchains infinitely scalable by removing the consensus and different ecosystem-specific rules.

It also utilizes specific features of the Ethereum-compatible BNB Smart Chain for wrapping token assets. The Binance Bridge helps users utilize Ethereum-based assets on the BNB Smart Chain by wrapping tokens in the BEP-20 token standard. “These bridges have been breached by hackers in a variety of ways, suggesting that their level of security has not kept pace with the value of assets that they hold.”

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Instead, the blockchain bridge holds the tokens and creates an equivalent amount in the other blockchain . For example, some devs will use a blockchain bridge to explore other blockchain systems to try out native dApps or to take advantage of better interest rates on other networks. When a developer builds a decentralized application on a particular platform, they generally lock in to using that platform and enjoying all of its benefits. The only problem is that they lock the project out of the benefits of other blockchains – each one speaks its own language, so to speak, so data from one blockchain can’t be read by another.

Criminals have transferred at least $540 million worth of ill-gotten gains through a bridge called RenBridge since 2020, according to new research that Elliptic provided to CNBC. There was also the $320 million stolen from Wormhole, a crypto bridge backed by Wall Street high-frequency trading firm Jump Trading. And last week, almost $200 million was seized by hackers in a breach targeting Nomad. The biggest incident was the record $615 million haul snatched from Ronin, a bridge supporting the popular nonfungible token game Axie Infinity.

These are often bonded validators with a separate token as a security model. Of course, mainnet blockchains like Avalanche have created a network to enable higher throughput, but at the cost of decentralization. The main point of a blockchain bridge is to act as a way for different blockchains to interact with each other. Many blockchains lack interoperability, meaning that they can’t communicate well with each other on their own. The protocol is based on the XCLAIM design and will enable two-way communication between Polkadot and Bitcoin.

Blockchain is the most powerful tool that has revolutionized many sectors – finance, supply, healthcare, and law. Intending to make different blockchains accessible and interoperable, blockchain bridges fill in various gaps in the crypto ecosystem. Today, interoperability between blockchains is facilitated by many of the best blockchain bridges in the crypto space.

Benefits of blockchain bridges

For example, bitcoin and Ethereum are the two largest cryptocurrency networks and have vastly different rules and protocols. Through a blockchain bridge, bitcoin users can transfer their coins to Ethereum and do with them what they otherwise could not on the bitcoin blockchain. That can include purchasing various Ethereum tokens or making low-fee payments. Best blockchain bridges enables better usability of assets from main blockchain networks on layer 2 networks.

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The primary function of the blockchain bridge is to enable interoperability. Interoperability refers to the ability of the data and digital assets hosted on the Blockchain to interact. Interoperability is what the Internet needs to carry out the holistic working of the webspace. Thus, blockchain bridges are required to allow the smooth exchange of data and value between these protocols.

Manual checkpoints are similar to a trusted model as it depends upon a third party, i.e., the officials, for its operations. As a user, you trust the officials to make the right decisions and use your private information correctly. The vulnerability of bridges can be traced in part to sloppy engineering.

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On the other end of the spectrum, trustless bridges allow anyone to become a user of the crypto bridge. These bridges use smart contracts and similar automation to exchange submitted crypto into tokens on the connected blockchain. First, a blockchain bridge reduces network traffic by distributing token processing across other, less congested blockchain networks. Additionally, a bridge makes the blockchains infinitely scalable by removing the consensus and different ecosystem-specific rules. A trusted or federated bridge runs similar to a private or permissioned blockchain.