What is a Blockchain Bridge and How does it Work?

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9 Sept 2023

What is a Blockchain Bridge and How does it Work?

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.
Table of Contents

What is a Blockchain Bridge?

Interoperability between blockchains is one of the biggest challenges to fully optimizing the utilities of the groundbreaking tech that blockchain is. Each blockchain is constrained by the boundaries of its area, despite being flexible and relatively effective as a standalone entity.
A blockchain bridge acts like a bridge between two blockchains to enable communication/interaction. It is also known as a cross-chain bridge.
Let’s understand this with a non-crypto example first. Suppose you are to travel to England. You have the Indian currency – the rupee, but you need pounds in England for daily transactions. To get this done, you go to a foreign currency exchange.
Similarly, a blockchain bridge will come to your rescue if you possess Solana but want to spend it like Ether on the Ethereum blockchain. A blockchain bridge converts your crypto coins into tokens for use on the other blockchain.

Importance of Blockchain Bridges

Blockchain bridges assist in bridging the gaps between different blockchain networks and connecting the disparate crypto ecosystems. Bridges allow vital data, assets, smart contracts, and even instructions and feedback to be shared between the various layers of a blockchain and between multiple blockchains.
Blockchain bridges offer further advantages like access to new protocols on other chains, and the possibility for developers from other blockchain communities to work together. In other words, blockchain bridges will be essential if the blockchain ecosystem has to become interoperable in the future. The main benefit of interoperability between blockchains is that it accelerates the rate of widespread adoption of the industry by wrapping a token like Bitcoin, bridging it to Ethereum, and then transferring that newly created token over to any DeFi protocol.
Transferring assets from one blockchain to another has a wide range of advantages. First, the blockchain onto which you migrate assets may be less expensive and quicker. Investors could use these bridges to take full advantage of marketplaces restricted to a different blockchain.

Are Blockchain Bridges Safe?

Now we know what a blockchain bridge is, but are they safe? Blockchain bridging is considered safe as it uses smart contracts to ensure the integrity and security of the transfer of assets between different blockchain networks. These blockchain or crypto bridges usually use a multi-signature system, which requires multiple parties to approve and verify the transfer of assets. This helps to prevent fraud and unauthorized access. Additionally, most blockchain bridges are built on decentralized networks, which means that there is no central point of failure, and the network is more resistant to hacking and other types of attacks.
However, as with any technology, there is always a risk of security breaches, and it is important to use caution and conduct due diligence when using blockchain bridges. Overall, bridging in crypto, or blockchain bridges are considered safe and secure for the transfer of assets between different blockchain networks.

How do Blockchain Bridges Work?

Source: MakerDAO| Working of a blockchain bridge
If you were to interoperate between different blockchains regularly, your situation will appear something like this – Suppose you had Bitcoin but you wanted to play a game on the Ethereum network you would need to trade Bitcoin for ETH on a trading platform, withdraw the money to a wallet, and then deposit it once more on an exchange. By the time it arrives, you would have to probably pay more fees than you had originally intended.
To understand how a blockchain bridge works, let’s take an example. If a Bitcoin holder wants to transfer some of their BTC to the ETH network, the blockchain bridge will hold the coins and make ETH equivalents of the same. The coins can then be used on the ETH network. 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. When you want the ETH tokens converted back to BTC, the ETH tokens will be burned and the BTC locked in the smart contract will be released into your wallet.

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Types of Blockchain Bridges

Source: Medium | That’s what is a blockchain bridge ecosystem
All blockchain bridges have the same objective – to enable communication between various blockchains. But, they all approach it in different ways. Bridges may generally be classified according to their functions and mechanisms.

1. Custodial vs Non-custodial Bridges

Bridges are either custodial or non-custodial, depending on who controls the tokens used to construct the bridging assets.
Custodial bridges, popularly called trusted bridges, have a central operation authority. In blockchain terminology, custodial bridges are centralized. On the contrary, non-custodial bridges work decentralized, i.e. without a central authority. These work with smart contracts controlling the crypto locking and minting procedures.

2. Blockchain Bridges by Functions

Chain-to-Chain Bridges are primarily made to facilitate the transfer of assets between two blockchains. Wormhole can be a good example of such bridges.
Multi-Chain Bridges are made to be deployable to any L1 or L2 blockchains. Multichain, formerly known as Fantom Anyswap, is the best blockchain bridge example of such kind.
Wrapped Asset Bridges produce wrapped assets on the destination chain that represent the original asset on the source chain.
dApps specialized Bridges enable value to be exchanged across blockchains in the dApp ecosystem.

3. Blockchain Bridges by Mechanisms

Blockchain bridges can be distinguished based on how they move assets across blockchains. There can be two such divisions:
One-way (unidirectional) BridgesTwo-way (bidirectional) BridgesOne-way bridge restricts users from returning tokens/assets to their original blockchain after bridging assets to another blockchain. Wrapped Bitcoin is the best blockchain bridge example of one-way bridges. Asset bridging is possible in both directions with two-way bridges. The Ethereum-Polygon bridge is the best blockchain bridge example for two-way bridges.

Why does Blockchain Technology need Bridges?

As the answer to ‘what is a blockchain bridge’ so far is clear, let’s understand – why does blockchain technology need bridges anyway?. Blockchain bridging is needed to facilitate communication and interoperability between different blockchain networks, allowing for the transfer of assets and developing decentralized applications (dApps) that can work across multiple platforms. They also improve scalability and reduce transaction fees, making blockchain technology more accessible. These are:

1. Interoperability in dApp Development:

The best blockchain bridges allow communication and interoperability between different blockchain networks, making it easier for developers to build decentralized applications (dApps) that can work across multiple platforms. This means that dApps can access the features, assets, and services of different blockchains and offer users a seamless experience across multiple chains.

2. Scalability and Fee Reduction:

The best blockchain bridges can help to reduce the load on a single network by allowing assets to be transferred to other networks, improving scalability, and reducing transaction fees. This means more users can use the network and perform transactions without paying high fees, making blockchain technology more accessible to the masses.

3. Enables DeFi progress:

Blockchain bridging is essential for the growth of the decentralized finance (DeFi) ecosystem, as they allow for the transfer of assets between different protocols and platforms, enabling a wider range of financial services and products to be built on the blockchain. This allows for more cross-chain transactions and the ability to access different DeFi services on different chains, leading to more innovation and growth in the DeFi space.

Benefits of Blockchain Bridges

Source: Freepik

Interoperability: Implementation of blockchain bridges can allow users to access DeFi or other services hosted only on a particular blockchain. Bridges enable the transfer of tokens, assets, and data between different sidechains, layer one and layer two protocols, and other blockchains. This makes the blockchain ecosystem closer knit, vital for an industry’s success.
Scalability: They enable the exchange of assets, tokens and data across various blockchains, between L1 and L2 protocols or sidechains. This allows scalable blockchains to share the load of heavily congested networks like Ethereum.
Enhanced developer experience: Due to the Ethereum network’s poor transaction processing speeds and high gas prices, especially during high traffic and congestion, developers building DApps have frequently had a negative experience. On the other hand, blockchain bridges make it possible for the same tokens to be processed on different blockchains more quickly and cheaply. Developers from various blockchains are still collaborating to develop new user platforms.

Risks of Blockchain Bridges

Source: Freepik
Blockchain bridge are still in their infancy. The best blockchain bridge that will stand against all threats and risks has not yet been made. Some risks that every blockchain bridge are coupled with:

Technology Risk: Malicious assaults, spam, faulty software, human error, and other factors may interfere with user operations.
Smart Contract Risk: There may be a possibility that a programming error could result in the loss of user funds.

Some added risks in the case of custodial bridges include:

Censorship Risk: Bridge operators might prevent users from moving their assets across the bridge.
Custodial Risk: It is possible that blockchain bridge owners might conspire to take users’ money.

What’s the Future of Blockchain Bridges?

The future acceptance of blockchain bridges is directly proportional to the development of cross-chain technology. The number of bridges, users, and overall transaction volume being handled across blockchain bridges has increased dramatically. As the internet transitions to Web3, the demand for blockchain bridges will probably continue to increase.
The smooth transfer of assets between blockchain networks is made possible by cross-chain technology, which lowers traffic and gas costs. Additionally, it makes it easier for developers from different networks to work together to create new user platforms. Cross-chain technology encourages quicker transaction processing times and immediate token exchanges from the user’s perspective.
Future advancements in blockchain bridges might give users and developers more scalability and efficiency. And there might be found creative ways to deal with the security issues posed by bridges. Building an open, decentralized, and interoperable blockchain space requires using blockchain bridges, and thereon lies their relevance.

Blockchain Bridge Use Cases

1. Lower Transaction Fees

The token transfer is the most widespread and pivotal application for a blockchain bridge. For instance, you might want to send your Bitcoin (BTC) to the Ethereum network. One method is to sell your BTC and then buy Ether (ETH). However, you would be subject to price volatility and transaction costs while using a blockchain bridge cuts down on exorbitant fees.

2. Dapps on other Blockchains

Bridges can help dApps’ capabilities by giving them a mechanism to take advantage of the advantages and strengths of several blockchains. They permit protocol innovation, resulting in new and original solutions.

3. Explore Blockchain Ecosystems

Blockchain bridges enable users to explore various sources, services and applications on different networks. Consequently, when using a bridge to store assets on various chains, the limitations of your source chain do not truly limit you.

4. Own Native Crypto Assets

One of the most common use cases for the blockchain bridges or crypto bridges is to own native crypto assets. Using a blockchain bridge, users can transfer assets from one blockchain to another, allowing them to access different networks and use different services. For example, users may transfer their Ethereum-based assets to a different network, such as the Binance Smart Chain, to take advantage of lower transaction fees or access a specific decentralized application (dApp).
This allows them to own and use their native crypto assets on multiple networks, giving them greater flexibility and choice. Additionally, blockchain bridging enables users to move assets between blockchains without going through a centralized exchange, providing them with more security and control over their assets.

Popular Blockchain Bridge Examples

1. Binance Bridge:

Binance Bridge is a cross-chain bridge developed by Binance that allows users to transfer assets between different blockchain networks, such as Ethereum and Binance Smart Chain. It supports a wide range of assets and is designed to improve the interoperability and scalability of the Binance ecosystem.

2. Avalanche Bridge:

Avalanche Bridge is a cross-chain bridge that transfers assets between different blockchain networks. It is designed to improve the scalability and interoperability of the Avalanche ecosystem and supports a broad range of assets.

Conclusion

The communities surrounding each blockchain are expanding as blockchain industry is witnesses exponential growth However, these groups must become more open to one another if the blockchain world is to be genuinely decentralized and open. For bridges, a one-size-fits-all strategy is inapplicable. Each bridge has its pros and cons. There is no ideal solution; trade-offs are made for particular use cases. The amazing aspect of the blockchain community is that users and developers must work together for these communities to flourish and blockchain bridges are playing their part in bringing together various blockchain ecosystems, developers, and communities.

Frequently Asked Questions (FAQs)
1. How does Blockchain Bridging Work?

If you have Bitcoin and would like to move some of it to Ethereum, the blockchain bridge will retain your Bitcoin and convert it into similar amounts of ETH that you can use. Your Bitcoin is locked in a smart contract while you receive access to an equivalent amount of ETH.

2. What is a Cross-Chain Bridge?

A blockchain bridge is also known as a cross-chain bridge. A cross-chain bridge uses is a mechanism that enables asset porting between multiple blockchains.

3. What does Bridge Token mean?

A bridge token is the new wrapped coin developed on a different blockchain distinct from that on the coin’s source chain. For example, when a Bitcoin is to be used on the Ethereum Mainnet is wrapped into a bridge token for the Ethereum blockchain, we get a bridge token in the form of wrapped BTC.