What are they and how do they work?

What are they and how do they work?

Over the past few years, many new smart contract-enabled public blockchains have come online, creating the need for cross-chain interoperability in the crypto space. As it stands, developers in the space are working hard to build out cross-chain architecture that facilitates communication between different blockchains.

In this guide, we will explain what cross chain bridges are, how they work, and list the most popular ones.

What are Cross Chain Bridges?

Cross-chain bridges, also known as blockchain bridges, are infrastructure protocols that connect independent blockchain networks, allowing the seamless transfer of digital assets from one blockchain to another blockchain, thereby providing interoperability.

The blockchain ecosystem is increasingly becoming multi-chain, with dApps operating across a number of different blockchain networks, each with a unique approach to trust and security.

However, this development creates a problem for the overall ecosystem. Because native blockchains are not built for direct cross-chain communication, assets and liquidity are filtered and thus fragmented.

For example, you cannot use native Bitcoin (BTC) on the Ethereum network, and vice versa, you cannot use native Ether (ETH) on the Bitcoin network. Therefore, users of both ecosystems operate in isolation and cannot communicate with each other on the chain.

For the blockchain space to evolve into a multi-blockchain ecosystem, interoperability is key. In the past, many users were content to use Ethereum for dApps and Bitcoin for monetary transactions. But to this day, these pioneer networks are plagued with scalability issues that make them expensive and quite inefficient.

New protocols such as Layer-1 and Layer-2 chains were created to offer low transaction fees and higher network throughput. Although these new alternative blockchains or second-layer solutions are scalable and fast, they are still unable to communicate across chains, meaning that an asset cannot be easily transferred from one layer to another.

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Often, sending assets from a blockchain network like Ethereum to a layer-2 protocol like Polygon, Optimism, or Arbitrum involves many intricate steps and relies on crypto exchanges as intermediaries.

The solution to this conundrum has been cross-chain messaging protocols, which enable smart contracts to read, write and transfer data between blockchain networks.

Cross-chain interoperability solutions are integral in giving rise to an interconnected network of blockchains that can move data and tokens back and forth.

How do cross chain bridges work?

Cross-chain brodging typically involves locking or burning cryptoassets on the original chain through a smart contract and unlocking or minting cryptoassets on the new chain. The last part is also handled by smart contracts.

In other words, most cross-chain bridges operate by “wrapping” tokens in smart contracts and issuing them on other chains.

A good example would be Wrapped Bitcoin (WBTC), an ERC-20 token secured by bitcoin. In order for you to receive WBTC on the Ethereum network, bitcoin must first be locked on the Bitcoin network and then created on the Ethereum network using a cross-chain bridge. In the case of WBTC, this cross-chain bridge is operated by a centralized company, meaning that the BTC locked in the Bitcoin network is held by a custodian called BitGo.

Blockchain bridges come in three different types:

  • Burnt and mint – A user burns cryptoassets on the original chain, and the same assets are minted on the new chain.
  • Lock and coin – A user locks crypto assets in a smart contract on one chain, and at the same time wrapped tokens will be minted on the other chain as an IOU. Conversely, wrapped tokens are burned on the destination chain to unlock the original assets on the first chain.
  • Lock and unlock – A user locks cryptoassets in the first chain, but then unlocks the same assets in a liquidity pool on the new chain.
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Blockchain bridges may also have arbitrary data messaging capabilities to enable the sharing of information between blockchains. Referred to as programmable token bridges, they enable more complex cross-chain functionality such as exchanging, staking, lending, or depositing tokens into a smart contract on the new chain, while performing a bridging function.

List of popular blockchain bridges

Cross-chain bridges are critical to improving interoperability and overall liquidity in the crypto space. Some of the most popular cross chain bridges include:

Wormhole

Wormhole is a cross-chain messaging protocol that facilitates communication between multiple chains, including Solana (SOL), Ethereum (ETH), Terra (UST), Avalanche (AVAX), Polygon (MATIC), Binance Smart Chain (BSC) and many more. Wormholes enable the cross-chain transfer of information and assets from a source chain. This information is verified by a network of nodes before being forwarded to the destination blockchain.

The Polygon Bridge

The Polygon Bridge is a cross-chain protocol that enables the transfer of assets between Polygon and Ethereum. Users can transfer ERC-20 tokens and Ethereum NFTs to the Polygon layer-2 chains through the two cross-bridge solutions: Polygon (POS) bridge or Plasma bridge.

Both bridges can transfer crypto assets from the Ethereum network to Polygon, but differ in that the POS bridge uses proof-of-stake (PoS) to secure the network and supports the transfer of ETH and ERC tokens. On the other hand, Plasma Bridge uses Ethereum plasma scaling solution and supports the transfer of ether (ETH), ERC-20 tokens, ERC-721 tokens and Polygon (MATIC).

The Harmony Bridge

Harmony, a protocol for decentralized applications, has a cross-chain bridge known as a LayerZero bridge that enables the transfer of digital assets between the Ethereum, Binance Smart Chain, and Harmony networks. Users can migrate ETH and BNB tokens to the Harmony blockchain and get corresponding assets. The exchanged assets can be redeemed at any time.

The landslide bridge

The landslide bridge is a cross-chain protocol that facilitates the transfer of ERC-20 tokens to Avalanche’s C-chain and back. The bridge works by receiving ERC-20 tokens from the Ethereum network. The transaction is validated, and a wrapped ERC-20 token is minted on the Avalanche network. The process is reversed by unwrapping tokens on the smart contract to unlock the original ERC-20 tokens.

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Binance Bridge

Binance Bridge allows you to convert digital assets such as BTC, ETH, LTC, LINK and more by wrapping them as tokens on the BNB Smart Chain. This bridge is essential to bring cross-chain liquidity to the Binance ecosystem.

The risk of cross chain bridges

Cross-chain bridges have many advantages, but also have their risks, which can lead to the loss of users’ digital tokens.

For example, in the case of trusted and thus centralized bridges, a custodian may decide to abscond with user funds. Some cross-chain bridges try to prevent this by requiring custodians to provide a “bond” that is covered in case of malicious behavior.

In addition, trust-minimized blockchain bridges typically use oracles and smart contracts to manage asset bridging. However, this poses a challenge since flaws in the smart contract code can be exploited. The wormhole hack resulted in the theft of $300+ million and was caused by vulnerabilities in the smart contracts.

Finally, if validators or custodians fail to maintain cross-chain bridges, they will cease to function and user funds may be lost or simply not recoverable. Ultimately, the centralized aspect of trust bridges represents a fundamental risk evidenced by Ronin bridge protocol hack which saw the malicious use of private keys to initiate fraudulent withdrawals.

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