Introduction to blockchain bridges

But, you need to do your due diligence when using any exchange or crypto bridge. You should also take charge of your own private keys by using your own cryptocurrency wallet. It’s always important to do your due diligence when using a blockchain bridge. It also means reading any whitepapers or information on the blockchain bridge that you can find. However, it’s important to note that your crypto isn’t technically “moving” when you use a blockchain bridge.

  • In actuality, the coins move nowhere, the BTC you want to want to transfer gets locked in a smart contract and you get access to ETH tokens of equivalent value.
  • This connection can be achieved through various methods, such as smart contracts, cryptographic algorithms, or specialized protocols.
  • Blockchain bridge analysis vendor Chainalyis has estimated that 69% of cryptocurrency funds stolen in 2022 have been attributed to attacks on cross-chain bridges.
  • They reduce network congestion, enhance transaction processing speeds, and aid in the cheap and fast transfer of tokens.
  • Users always remain in control of their data and don’t have to trust a third party with their private information.
  • One recent hack was Solana’s Wormhole bridge, where 120k wETH ($325 million USD) was stolen during the hack ↗.

There are several approaches to enabling transfers with a cross-chain bridge. One common approach is using a wrapped token issued by the cross-chain bridge provider platform. With a wrapped token, the value of one token from a specific blockchain network can be encapsulated inside another token. Wrapped tokens are typically based on the ERC-20 technical specification for an Ethereum network. For example, WBTC is a Bitcoin token wrapped with an ERC-20 Ethereum smart contract. There are many blockchain networks and cryptocurrencies that use different blockchain technologies, including Bitcoin, Ethereum, Avalanche, Polygon, Solana and Arbitrum.

What are Blockchain Bridges and How Do They Work?

Blockchain bridges do this by using wrapped tokens to mimic the characteristics of the target token in a different network. A blockchain bridge will wrap that Bitcoin and lock it in a smart contract. At the same time, the blockchain bridge generates the same amount of wrapped BTC in the Ethereum network. From that point, you can convert the wrapped BTC, and an equivalent number of BTC will be transferred to my wallet on the new network. Blockchain bridges work by creating a connection between different blockchain networks. This connection can be achieved through various methods, such as smart contracts, cryptographic algorithms, or specialized protocols.

Bridges are crucial to onboarding users onto Ethereum L2s, and even for users who want to explore different ecosystems. However, given the risks involved in interacting with bridges, users must understand the trade-offs the bridges are making. Developers from different blockchain ecosystems to collaborate and build new platforms for the users. We need a blockchain bridge to explore various blockchain ecosystems without any barriers easily and prevent crypto enthusiasts from being locked inside one ecosystem.

Risks of Blockchain Bridges

List of blockchain bridges focused on addressing unique user requirements. Here is an outline of the notable blockchain bridge variants you can use for transferring assets and information between blockchain networks. In contrast, trustless bridges are designed to operate autonomously using smart contracts. Activity on trustless bridges is typically managed in a similar way to the blockchain itself where a set of validators need to reach consensus over transactions.

What Are Blockchain Bridges And How Do They Work

To sell the $BTC for $ETH and then transfer it out, you must first transfer it into a CEX. This entire procedure is longer and more laborious than simply using a blockchain bridge. Blockchain bridges generally assist in the quick and inexpensive movement of tokens between blockchains. For higher throughput at the expense of decentralization, Avalanche and Solana L1s are constructed differently.

Bridge use cases

Those systems include financial institutions, banks and credit cards that handle foreign exchange. In the world of blockchains, a cross-chain bridge serves an analogous purpose. In this case, the New York-based company Ava Labs watches over crypto bridge transfers.

What Are Blockchain Bridges And How Do They Work

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Risks of Bitcoin Bridges

The working of a blockchain bridge can involve exchange of decentralized identities, off-chain information and smart contract calls. In blockchain bridge, another crypto’s tokenized version is often referred to as a wrapped token. It is originally linked to the digital assets it points to and can be unwrapped whenever you want.

What Are Blockchain Bridges And How Do They Work

A blockchain bridge is a platform that allows different blockchain networks to communicate and exchange information. These bridges facilitate cross-chain transactions and enable users to access decentralized applications on different blockchains. Decentralized blockchain bridges, also known as trustless bridges, rely on smart contracts to transfer tokens between blockchains. This means there’s no central entity like a crypto exchange or bank that helps move tokens around. With significant amounts of crypto locked in smart contracts, bridges make an incredibly attractive target for exploits. While there are many different types of bridges including both custodial and non-custodial bridges, no bridge is perfect.

EU Adopts Laws for Tracing Crypto-Asset Transfers and Supervision

Centrifuge collaborated with ChainSafe to develop a modular, asset-agnostic and multidirectional bridge between Substrate-based blockchains and Ethereum. The ChainBridge allows Centrifuge to move fungible and NFTs between chains. Being open source, ChainBridge also enables other teams within the ecosystem to build bridges to their projects. For example, a chain anchoring verifiable credentials on Polkadot could be used for KYC requirements by a gaming company built on Ethereum. Bridges allow applications to be even more decentralized, as they are no longer limited by their network of origin.

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Chain Debrief’s vision is to help everyone make sense of the blockchain technology. Repeat the second step but this time choose which blockchain you would like to receive the token. Currently, BTC cannot be sent directly from one user to another on the Ethereum blockchain. A bridge would allow this user what is a blockchain bridge to purchase ETH or exchange some BTC for ETH instead. Compared with its fiat/credit card counterpart, this added complexity is an impediment, and a bridge helps address it completely. Blockchain bridges can be classified into two broad categories – centralized bridges and decentralized bridges.