A better solution for blockchain interoperability is needed
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Blockchain bridges play a crucial role in the world of cryptocurrency, providing a solution to the lack of interoperability between decentralized networks.
By using a blockchain bridge, it is possible to port assets from one blockchain, such as Solana, to another network, such as Ethereum. The way it works is that if a user sends a token from Solana to Ethereum, the recipient will end up with a “wrapped” version of that token held by the bridge they are using. So in this case, the Ethereum user will receive a wrapped version of SOL that is compatible with the underlying blockchain.
Blockchain bridges therefore open up new markets and areas of application and demonstrate the way towards an exciting multi-chain future. Despite being an incredibly useful innovation, blockchain bridges also present new problems.
Types of Blockchain Bridges
One of the main types of blockchain bridges is the one-way bridge, or one-way bridge, which only allows users to port assets in one direction – to the target blockchain, but not the other way around. So, the Wrapped Bitcoin bridge makes it possible to send Bitcoin to Ethereum. The user converts their BTC to WBTC, which is an ERC-20 stablecoin that is pegged to the value of BTC. However, it is not possible to use this bridge to send ETH to the Bitcoin blockchain.
We also have two-way blockchain bridges such as Multichain and Wormhole, which are two-way bridges. In other words, users can convert their assets back and forth between two different blockchains. It is possible to send SOL to Ethereum, or alternatively send ETH to Solana, for example.
It is also important to note that bridges can be either custodial or non-custodial. Custodial bridges are run by a centralized authority, meaning they are trusted, while non-custodial versions are decentralized and trustless. With custodial bridges, a centralized authority controls the native tokens being deposited and creates wrapped assets for use on the target blockchain instead. In the case of WBTC, the BTC deposited on the bridge is held in the custody of a company called BitGo, meaning it is centralized. On the other hand, Wormhole is a decentralized bridge, where native tokens are deposited in smart contracts controlled by code instead of people.
Fans of decentralization argue that trusting a centralized entity is risky for users, and actually goes against the decentralized ethos of cryptocurrency. But that doesn’t always mean decentralized bridges are safer, as a wave of recent high-profile hacks has shown.
The largest blockchain bridges
There was $7.59 billion in cryptocurrency locked in the top 20 blockchain bridges as of December 2022, according to DeFi Lama. The largest bridge of all is the Wrapped Bitcoin bridge, which accounted for $3.11 billion in total value locked. The largest decentralized bridge is Multichain, with $1.25 billion in TVL.
In accordance Dune Analyticsthe largest Ethereum-based bridge is Polygon, with $3.04 billion in TVL, followed by Arbitrum with $1.28 billion in TVL.
So what’s wrong with Blockchain Bridges?
The biggest problem with blockchain bridges is the lack of security. Despite their popularity, it is clear that every time someone uses a bridge, their capital is at risk of being stolen by hackers. While the risk may be obvious with some of the newer, decentralized bridges, even those that have been heavily audited may still be at risk of vulnerabilities.
The very nature of blockchain bridges makes them a major target for malicious actors. When it comes to decentralized bridges, their smart contracts represent some of the biggest prizes in the crypto industry. The danger is that if a hacker is able to discover an exploit or flaw in the underlying smart contract, they may be able to gain access to all the funds held in it, leaving users holding worthless wrapped tokens that will no longer be backed by anything .
It’s a nightmare scenario that has already come true several times. One of the biggest successful attacks targeted the once popular Ronin Bridge earlier this year. In that attack, hackers were able to gain access to multiple validator accounts and approve transactions that saw more than 600 million dollars value of locked assets stolen from smart contracts. Similarly, in March 2023, the Wormhole Bridge lost over $326 million value of crypto in another attack.
What are the options?
The good news is that there are some new alternatives to the requirement for blockchain bridges. One of the most exciting is open source Polka dot the blockchain project, which takes network interoperability to the next level by making it an underlying feature of the platforms.
Polkadot is essentially a relay chain that supports a network of interconnected blockchains, known as parachains, providing connectivity and interoperability between them all. These independent parachains are all customized to support different applications and tokens, and can securely perform transactions or send messages to and from other parachains. In this way, Polkadot, which continues to add more parachains regularly, creates a unified, heterogeneous network of blockchains that can all securely interact with each other.
Another project that has received a lot of attention is Cosmosa blockchain interoperability initiative that enables networks to transfer value to each other via the Inter-Blockchain Communication Protocol and Peg-Zones, while retaining their sovereignty.
The way Cosmos works is that it creates independent blockchains known as “zones” that are connected to the main chain, known as the Cosmos Hub. The Cosmos Hub has the role of monitoring and maintaining the record of the state in each zone. In this way, it can facilitate transactions between all supported blockchains, allowing applications to scale to potentially millions of users.
Perhaps the most interesting solution of all is the smart contract hosting platform t3rnwhich is built on Polkadot and enables trustless, cross-chain smart contract execution with guaranteed success for multi-chain transactions.
Thanks to its unique Gateway protocol, t3rn has the ability to integrate with all kinds of blockchains, including non-smart contact networks, enabling any chain to embrace a cross-chain future. Safety is guaranteed via the protocol design. When a user submits a transaction, it is accepted by an executor who locks the requested amount into an escrow contract first, before proof of inclusion. Once the circuit verifies the proof of inclusion and verifies that the output matches the ordered input, the funds can be transferred from the escrow account to the destination chain. Due to this mechanism, the protocol does not necessarily need to wrap assets to connect them to the destination chain, because it only requests the amount from the target chain.
The ultimate goal of t3rn is to enable trustless collaboration between blockchains, creating an ecosystem where anyone is able to deploy or use interoperable smart contracts.
