Crypto bridges: Enable blockchain interoperability

Key takeaways:

• A crypto bridge connects two blockchain ecosystems and allows communication or interoperability between them.

• Crypto bridges also give users access to new applications on other ecosystems and allow developers from different chains to collaborate.

• There are two main types of bridges: trust-based (involving custodians) and trustless (involving the use of smart contracts).

• Trust-based bridges are vulnerable to risk associated with a central point of failure, while trustless bridges experience smart contract risk.

Crypto bridges are an important element in the blockchain space since blockchains cannot communicate seamlessly. Like how a physical bridge connects two locations, facilitating the movement of people and goods, a crypto bridge connects two blockchains to transfer data and assets.

But what exactly are crypto bridges and how do they work? Are crypto bridges safe and how do you choose them? This article answers these questions and provides more insight into the crypto bridges.

What is a crypto bridge?

As the name implies, a crypto bridge connects two blockchain ecosystems and allows communication or interoperability. But to understand what a crypto bridge is, it’s important to go back to blockchain fundamentals. For starters, each blockchain has its own unique rules, token standards, protocols, and smart contracts.

Crypto bridges break up these ecosystem silos and join them together. An interconnected network of systems enables users to transfer data and assets seamlessly. In addition to facilitating cross-chain transfers, crypto bridges offer additional benefits, such as giving users access to new applications on other ecosystems and allowing developers from different chains to collaborate.

How do you bridge crypto?

Since digital assets designed to work on one ecosystem adhere to different standards than those required in other chains, true transfers of assets across chains are nearly impossible. So how do crypto bridges enable cross-chain transfers, like moving bitcoin to the Ethereum blockchain?

Basically, crypto bridges build artificial derivatives to mimic native assets on other chains. These synthetic versions are known as wrapped tokens. They act as exclusive elements that enable distinct token standards. This means you can use a crypto bridge via wrapped tokens to use BTC, for example in the Ethereum ecosystem. We can summarize the process in four basic steps:

• The crypto bridge is built between the Bitcoin blockchain and the Ethereum blockchain, creating the primary structure for its operations.

• If you have BTC on the Bitcoin blockchain but want to spend it in the Ethereum ecosystem, you visit the bridge, enter the number of bitcoins you want to port and provide the receiving address.

• The bridge will lock your BTC in a vault, mint an equivalent number of tokens as wrapped BTC, and send them to your address on Ethereum.

• The coins unlocked in the Bitcoin blockchain act as collateral for the wrapped BTC on Ethereum, and you can unlock them by reversing the process.

To elaborate on the above example, a crypto bridge creates multiple contracts (in Bitcoin and Ethereum) to enable the blockchains to communicate with a common language via an oracle. The oracle feeds the Bitcoin contracts with specific information about Ethereum activities and vice versa. This establishes a two-way communication channel between the chains. Now, to port your coins to Ethereum, you need to interact with the bridge on the Bitcoin side. It will ask you to:

• To provide a recipient address from the Ethereum chain.

• To lock your BTC in a vault controlled by a smart contract or custodian (depending on whether the bridge is decentralized or centralized).

After completing these two steps, the oracle detects the porting of your assets and signals the smart contracts on the Ethereum side. The signal contains the amount you want to port and the recipient address. After confirming that the collateral has been deposited, the Ethereum smart contract mints an equivalent amount of the collateral as wrapped tokens and deposits it into the receiving address.

The coins minted on the Ethereum side are equal to the amount of BTC you locked in the bridge and they track the value of Bitcoin. If you want to convert the wrapped Bitcoins (wBTC) to BTC, you visit the bridge and start the unpacking process. The bridge takes your wBTC, burns it/removes it from circulation and unlocks the security you have deposited, preventing double use of assets.

Types of crypto bridges

Crypto bridges fall into two broad categories: trust-based/custodial/centralized and trustless/non-custodial/decentralized bridges.

Are crypto bridges safe?

Both centralized and decentralized crypto bridges can experience problems. In fact, some of the biggest crypto heists have involved crypto bridges, such as the Ronin heist, when hackers gained access to the private keys held by validators for the network’s cross-chain bridge, making off with over $600 million.

As a user, the first step towards addressing the security risks of crypto bridges is to ensure that the protocol has passed rigorous smart contract audits before use. These smart contract revisions help detect errors in the source code and reduce the likelihood of hacks. Even then, remember to do your own research (DYOR) on the protocol before deciding whether to use a particular bridge or not.

How to choose a bridge

Bridges use different designs and trust conventions; therefore, make sure you DYOR your choices before interacting with them. The best way is to scrutinize the documentation and smart contract audits to look for red flags, while checking how long it has been operational and what the larger crypto community has to say about it. Below are some questions you should ask when choosing a bridge:

• Who runs the bridge? Is it centralized or decentralized? What trust conditions are required of the users?

• How are the transactions recorded by the bridge and when will these be reflected on the mainnet? After users lock their funds to use a bridge, how are their subsequent transactions recorded, should they dispute an invalid transaction?

• Does the bridge have any risk control measures? What happens if a bug or exploit is discovered in the system?

Six Crypto Bridges to Check Out

Celery

Celer is a crypto bridge that offers a one-click user experience, allowing users to access assets, decentralized finance (DeFi), Non-Fungible Tokens (NFT), governance and multiple applications across networks. It leverages smart contracts on every network connected to the State Guardian Network to offer seamless multi-chain interoperability. Moreover, developers can create native cross-chain applications using Celer Inter-Chain Message SDK and enjoy high liquidity, coherent app logic and mutual states.

Hop protocol

Hop Protocol enables token porting from rollups and their respective Layer 1 (L1) chains to Layer 2 (L2) solutions on other networks quickly and reliably. It consists of a scalable digest-to-digest asset bridge for Ethereum’s L2 solutions, enabling users to port assets across digests. Hop works by engaging market makers (Bonders) to provide liquidity in the receiving network in exchange for small incentives.

Stargate

Stargate is a fully composable cross-chain bridge that eliminates the use of wrapped tokens by maintaining the original assets being ported between blockchains. The biggest drawback of most bridges is their inability to port native assets across chains. They instead use wrapped tokens to achieve interoperability. Stargate leverages unified liquidity pools to achieve instant finality and allow users to bridge directly to non-native networks.

Only cryptos

Just Cryptos is a crypto bridge that connects premium TRON ecosystem projects to other ecosystems. All funds are kept and can be exchanged on Poloniex. JST is the governing token that powers the JUST ecosystem. The bridge is intended to bring token value to TRON and supports Bitcoin, Ethereum, Litecoin, Dogecoin and NFT.

The portal bridge

Portal Bridge, formerly Wormhole, is a cross-chain crypto bridge designed for efficient asset porting between multiple large blockchains. Previously developed on Solana as a two-way gateway for the Solana and Ethereum ecosystems, the Portal now facilitates token transfers between the Solana, Ethereum, BNB Smart Chain, Polygon, Terra, Avalanche and Gnosis Chain ecosystems.

Connect

Connext is an interoperability solution of L2 Ethereum. It facilitates the transfer of data and tokens across blockchains and rollups. Unlike most bridges, Connext blockchain offers interoperability without the involvement of external validators. It supports BNB Smart Chain, Ethereum, Polygon, Arbitrum, Avalanche, Moonriver, Optimism, Fantom and Gnosis Chain ecosystems.

Conclusion

Crypto bridges are a new way to solve the blockchain interoperability problem, where different chains can communicate and share value seamlessly. An open web3 ecosystem has significant potential to become more relevant and gain mainstream adoption faster. At their core, bridges enable:

• The shipment of tokens and data across chains.

• Decentralized applications to access the benefits of multiple chains, thus building their capacity.

• Users can access multiple apps and leverage the power of different networks.

• Developers from different ecosystems collaborate and create new applications for users.

In general, bridges are an essential element in the crypto space as they enable interoperability. However, considering the risks of interacting with bridges, be sure to study the trade-off for each bridge before using it.

Josiah Makori

Josiah is a tech evangelist who is passionate about helping the world understand Blockchain, Crypto, NFT, DeFi, Tokenization, Fintech and Web3 concepts. His hobbies are listening to music and playing football. Follow the author on Twitter @TechWriting001