What is a blockchain bridge?

A blockchain bridge, otherwise known as a cross-chain bridge, allows two blockchains to be connected so that users can send cryptocurrency from one chain to the other. They have become incredibly important to the industry because they solve one of the biggest problems that users have faced as cryptocurrency has become more and more popular over the years.

Blockchains by themselves operate pretty effectively, but with so many popular chains now in use, there are times when users have the need to send tokens, NFTs, and other digital assets between them. A cross-chain bridge allows inter-network communication and transactions to happen as effectively as currently possible, creating a much greater cryptocurrency ecosystem.

In this AAG Academy guide, we’ll look at how blockchain bridges operate, why they are needed, and some of the biggest benefits and risks they bring.

To understand a blockchain bridge, we first need to understand how a blockchain itself works. The AAG Academy has an in-depth guide on this for those who want a more detailed explanation, but in a nutshell, a blockchain is a distributed database that is shared among and maintained by a large network of nodes or computers, each of which plays an important role.

Independently, blockchains are self-contained ecosystems that aren’t typically designed to work with other blockchains out of the box. However, as the cryptocurrency industry has evolved and become more popular, it was obvious that had to change. In order to provide users with a better experience, there had to be a way for different blockchains to communicate with each other.

The solution is a blockchain bridge, or cross-chain bridge, that allows two completely different blockchains to interact when it comes to things like transferring tokens, executing smart contracts, exchanging data, and more. You can think of it like a real bridge that connects two independent islands, each of which has its own currency, rules, and functions.

Blockchain bridges should not be confused with Layer 2 blockchains, which operate alongside a Layer 1 blockchain to provide additional features or enhancements.

How does a blockchain bridge work?

Blockchain bridges turn what would be a rather limited ecosystem into a much broader one, so if you hold Bitcoin (BTC) but you want to buy an NFT on the Ethereum (ETH) network, which hosts most of the decentralized applications (DApps) in existence today, you can. So, how exactly does a blockchain bridge work?

Most blockchain bridges operate on what’s called a lock-and-mint model. To explain how this works, let’s use a simple example:

1. Tom, who owns Token A, wants to pay his friend Lucy, whose wallet is on the Ethereum blockchain. He starts the transaction in his wallet app by entering Lucy’s wallet address and paying the transaction fee.
2. Tom’s cryptocurrency gets locked up by a trusted custodian or trusted validator on his network.
3. A number of Token B, equal in value to the amount of Token A that Tom sent, is minted on Lucy’s network.
4. Lucy gets those coins deposited into her wallet and she can use them as she wants.

As you may have noticed, the tokens (Token A) Tom sent don’t actually leave the original blockchain and appear on another since that’s simply not possible — at least not today. They are instead locked up so that they cannot be used multiple times, and new tokens (Token B) are minted on Lucy’s network to complete the transaction.

If Lucy later decides that she is done with Token B and wants to exchange what’s left for Token A, then a process called “burning” comes into play. Lucy sends the leftover tokens to a wallet address on the Token A network. The leftover Token B is “burned” — which essentially destroys them so they are irrecoverable — and an equal amount of Token A is released on its own chain.

One of the most familiar examples of a blockchain bridge is that between Bitcoin and Ethereum — the biggest networks in the world in terms of both market cap and number of users. To send BTC to an ETH wallet, users would first exchange their BTC for Wrapped BTC (WBTC), which creates new WBTC tokens on the Ethereum chain.

Why are blockchain bridges needed?

There are many reasons why two blockchains may need to be linked. We’ve already mentioned some of these above — such as the ability to send tokens from a wallet on one network to another on a second blockchain — but there are lots of other reasons why bridges have become so important to the cryptocurrency industry today.

Bridges are also crucial for DApps because they allow them to communicate with and take advantage of the unique strengths of various blockchains. As we’ve established, blockchains by themselves have their own functions and limitations, so having the ability to access multiple chains reduces those limitations and gives users access to a wider range of functions.

On the development side of things, DApp creators can leverage the benefits of multiple chains when they need to, rather than being held back by just one. Furthermore, developers on different chains can collaborate and use cross-chain bridges to bring their software together.

What are the types of blockchain bridges?

There are two types of blockchain bridges to be aware of. These are:

Trust-based bridges

Trust-based bridges rely on a central entity to operate. In other words, they are not decentralized like much of the cryptocurrency industry, so users must put their trust in a third-party. It is important to only use trust-based bridges with a good reputation since you essentially put your valuable digital assets in their hands.

Trustless bridges

Trustless bridges are decentralized and operate using smart contracts and algorithms — the same as the underlying blockchain. This means that instead of having to trust an actual person or team of people, you simply have to trust that the bridge itself is effectively designed to do its job. When using a trustless bridge, your assets remain your own responsibility.

What are the benefits of a blockchain bridge?

Many of the benefits of blockchain bridges have been outlined above in the section on why they are needed in today’s cryptocurrency industry. Here’s a list that better highlights the advantages they bring:

• Better user experience: Users have the ability to interact with and take advantage of multiple blockchains, each of which may have their own benefits and functionalities.

• More useful assets: Blockchain bridges make our cryptocurrencies, NFTs, and other digital assets more useful by allowing us to do a much wider range of things with them.

• Maximum liquidity: A DApp that’s exclusive to one blockchain would not only be very restricted, but its liquidity would also be incredibly limited. Blockchain bridges ensure that DApps have maximum liquidity by opening them up to a wide range of chains.

What are the risks of a blockchain bridge?

Despite the many benefits blockchain bridges bring, they aren’t perfect. They have their own limitations, as well as their own risks, including:

• Bad actors: As we touched on above, using some blockchain bridges means putting your trust in a central entity. If that central entity is a bad actor posing as a reputable bridge, it could mean that any assets you send to that bridge will never be seen again.

• Bugs or exploits: You might think that sticking to trustless bridges is best, but they can come with their own risks. Some may have bugs that cause them to fail or operate in a way that wasn’t intended, or they could have vulnerabilities that bad actors can exploit. It’s also possible for bad actors to create malicious untrusted bridges.

• Reliability: While most of the major bridges are reliable, there is always the potential for custodians or validators to neglect their duties. This can cause bridges to stop working as intended, or prevent users from accessing funds that have been tied up.

• User error: Using bridges can be confusing for newcomers to the cryptocurrency industry, and it is possible to lose assets by simply making a mistake — like trying to send funds to an unsupported wallet address. It is therefore important that users familiarize themselves with any process before undertaking it themselves.

It’s difficult to avoid blockchain or cross-chain bridges in today’s cryptocurrency and web3 worlds. They are becoming more and more popular, and we simply have to rely on them to do many of the things we use digital assets for. However, we can minimize our risk by only using reputable bridges that are less susceptible to bugs, vulnerabilities, and bad actors.

References

• Blockchain cross chain bridge
• What-are cross chain bridges
• Bridges
• Cross chain bridges