What Are Blockchain Bridges and How Do They Work?

If you already understand what blockchain is and how its environment works, the next step is to understand what blockchain bridges are. Blockchain bridges are specific protocols whose function is to connect two blockchains economically, technologically and conceptually separated into two isolated networks.

Precisely as a physical bridge, the function allows not only to connect, but also creates the possibility of transferring assets from one network to another more quickly and effectively.

What Are Blockchain Bridges?

The blockchain is based on the concept of decentralization. The ability of the network to be managed and commanded by everyone, rather than the governance model where one central server controls many others. Decentralization has made blockchain an expanding technology since the launch of Bitcoin in 2008. As the number of Blockchain protocols increases, so does the demand for moving assets through chains, and to meet this demand, we need bridges.

A quick recap on the concept of blockchains: each blockchain is based on a concept and has a purpose in favor of solving a problem or improving the current system. Every blockchain belongs to a specific environment and serves a specific purpose, with rules, protocols, and even programming languages unique to each.

However, no blockchain environment has everything. An environment has not yet been created that was complete for solving all the problems of the network with a single concept of solution. For this reason, we need to move between different environments in order to interact with them. That’s where the blockchain bridge comes in.

With that being said, the main function of Blockchain Bridge is to connect, thus allowing the user to make exchanges, as a technological “bridge” between Blockchain “A” and Blockchain “B”. Web3 has evolved its ecosystem thinking of smarter solutions to facilitate the exchange and allocation of this data. But in addition, blockchain bridges also allow protocol sharing and cooperation between developers from different chains.

Blockchain bridges work on the principle of interoperability: the possibility of navigating between two blockchain networks along with their assets and hosted data, so that they are translated into the language of the new environment, without any information being lost along the way.

Why Are Bridges Necessary?

Let’s say you want to travel between two countries with different currencies. To be able to spend on your final destination, you will need to exchange your money for the local currency. In blockchains, this would be a little more complex. Cryptocurrencies are governed by rules of their native chain. In order for you to exchange, for example, BTC for ETH, you would need to sell BTC, and then buy ETH.

The problem with this is that you are exposed to price fluctuations, as well as paying for the transactions more gas fees than you were expecting. Today, the Ethereum network needs exclusively the gas fee to handle the huge amount of transactions that are made on the network and this forces the user to pay more expensive fees or wait longer for transactions.

Currently, the most commonly used use for a blockchain bridge is token transfer. With blockchain bridges you can bring your BTC to an Ethereum network in a compatible way, and swap it for ETH, at cheaper rates and much faster than withdrawing and depositing in a different exchange.

Advantages of Blockchain Bridges

• Transferring your assets more securely

• Users utilizing new platforms and having benefits from different chains

• Different Blockchain ecosystems interacting

• More developers collaborating for community growth

• Freedom of choice between centralized and decentralized bridges

Disadvantages of Blockchain Bridges

• Single Points of Failure/Centralization

• Poor Liquidity

• Technical Vulnerabilities

• Risk of Censorship

How do Blockchain Bridges work?

In the case of transferring tokens, none of them really go anywhere. You may have already seen, in different networks, tokens with a “w”. This represents a “wrapped” token, that is, a cryptocurrency of a blockchain covered by a protocol of another blockchain, and can thus be identified, translated and governed by the target blockchain.

Using our previous BTC and ETH example, what happens is that the blockchain bridge generates a smart contract that locks your BTC, and issues an equivalent amount of wBTC. This, in turn, represents the transferred amount of BTC “wrapped” in an ERC-20 contract, allowing this token the uses and functionalities of an Ethereum token. This wBTC is a tokenized version of the locked BTC.

Types of Blockchain Bridges

There are many types of bridges of the most varied complexities, but they can be divided into Centralized Bridges and Decentralized Bridges.

Centralized bridges

Trusted bridges or centralized bridges are platforms that rely on third parties to validate transactions such as: Binance Bridge, Polygon POS Bridge, WBTC Bridge and others. The key point in this type of blockchain bridge is the fact that the user gives up control of their cryptocurrency and passes this control to a third party entity. The entity, on the other hand, is responsible for locking the coins on one side of the bridge and issuing the wrapped tokens on the blockchain of interest.

These platforms are important to act as custodians of bridging assets. However, trusted bridges run the same risk as any other centralized system. Among them, the incompetence or negligence of the platform that hosts the assets, corruption in the company responsible for the smart contracts and even the freezing of assets for legal purposes.

Taking the example of Ronin: this bridge operates through a centralized blockchain bridge and uses a multisig portfolio for asset custody. Ronin has a total of nine validators and needs five different cryptographic signatures to approve a transaction. Typically, these signatures are managed by different sources, but a single team managed four Ronin signatures. Taking advantage of the access point, a hacker took control of this team’s signatures and on March 23th, 2022 got the last needed subscription. The attack generated a loss of 173,600 ETH and more than 25 million USDC in custody contracts.

Decentralized bridges

A trustless (or decentralized) bridge has the advantage of operating through a decentralized network. It operates in the same way as a blockchain, by validating each transaction using smart algorithm contracts, allowing the user to remain under the control of their funds. Decentralized bridge transactions have a different risk profile. Bugs and other codification issues create a certain vulnerability in the contracts that allows the transactions. In February 2022, a hacker found and exploited a bug on the Solana Wormhole platform. By making a transfer of 0.1 ETH, he was able to create the validators needed to approve a deposit of 120,000 ETH. The attack was repeated in other blockchains and more assets were extracted.

Conclusion

Blockchain bridges have become a necessary technology today to enable crypto-era data, assets, and other information to be shared between different environments. The possibility of uniting entirely isolated systems has enabled a more interconnected network. This leaves us one step closer to a future with more interoperability within the blockchain world.

It takes some know-how to understand the different designs and how they apply to the different types of trades and traders. Your decision of investing in a project related to blockchain bridges should be mainly guided by which type of bridge you are more keen to trust, and especially what the team behind the bridge does to ensure its security.

Author: Gabriel
Translator: Binyu
Reviewer(s) : Ashley , Edward , Joyce

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