What is a Blockchain Bridge & How do They Work?

But essentially, the ideal cross-chain bridge would transfer any kind of data from any blockchain, where each of them has equivalent security to prevent weak links for this bridge. E.g. After you deposit, the first bridge sends your details to an oracle and once verified, it sends them to the second bridge and triggers smart contracts. But if there were a seamless bridge between both chains, it would speed up dApp development on the new chain, attracting more users, and also reduce congestion from networks like Ethereum. For example, users cannot use bitcoin (BTC) on the Ethereum blockchain or ether (ETH) on the Bitcoin blockchain. So if one user (let’s call him Billy) who holds all his funds in BTC wants to pay another user (let’s call her Ethel) for an item but Ethel only accepts ETH, Billy hits a wall.

  • A DApp or protocol can take advantage of each chain’s specific benefits by porting a token cross-chain.
  • With numerous attacks on cross-chain bridges, the search for a more secure and robust bridge design continues.
  • They have enabled some essential innovations, allowing users to exchange assets between many blockchain protocols.
  • As a result, contracts relying on the Replica for authentication of inbound messages suffered security failures.
  • Custodial bridges can be permissionless and may not require manual authorization for porting tokens.
  • ‍Security audits are of utmost importance regardless of whether the bridge is custodial or non custodial.

In August, another $200 million was lost from the Nomad Bridge as a consequence of an exploit of a vulnerability in its underlying technology — smart contracts. It is essential to recognize their need to understand how blockchain bridges work. Blockchain networks exist as separate communities with their economies, limiting their interactions. However, as blockchain projects and decentralized applications (dApps) grow, the demand for asset interoperability across networks increases. Blockchain is the most powerful tool that has revolutionized many sectors – finance, supply, healthcare, and law.

The risk associated with Blockchain Bridges

While most digital assets are tied to a specific blockchain, cross-chain bridges enable inter-network transactions powering a much broader digital ecosystem. Using cross-chain bridges, cryptocurrency owners can unlock the value held in their crypto portfolios for a wider range of real-life uses. 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. Once the bridge is established, users can transfer assets between blockchains. One of the most common use cases for the blockchain bridges or crypto bridges is to own native crypto assets.

For instance, you might want to send your Bitcoin (BTC) to the Ethereum network. However, you would be subject to price volatility and transaction costs while using a blockchain bridge cuts down on exorbitant fees. Bridges are more vulnerable because despite existing in a decentralized environment, they have a central point where they store all the collateral for bridged assets. This makes the bridge an easier target regardless of the method used to store the assets, be it a smart contract or with a central custodian. This resulted in the Token Hub paying out the transaction, leading to the drainage of two million BNB tokens worth around $570 million at the time of the attack.

Risks of Blockchain Bridges

The centralized authority is in charge of funds deposited on the bridge and ensures that tokens are minted at a 1-to-1 ratio on the requested chain. The ability to port tokens from a congested blockchain bridge or high-fee blockchain to a high-performance blockchain can be revolutionary. Low-fee and high-performance blockchains are especially beneficial to Web3 gaming projects and microtransactions.

However, bridges also present certain setbacks, which should be the priority of everyone in the blockchain landscape. Just like the web3 industry, blockchain bridges are still in the early stages of development. On top of it, the community of blockchain developers believes that the best design for a blockchain bridge has not been created yet. In addition, the risks with a blockchain bridge depend on the type and have a different impact on users and the blockchain community. Bridge security is arguably even more critical than security at a typical, single-chain DeFi application. If an attacker exploits a vulnerability in the code of a decentralized application, only its users may lose funds tied to its smart contracts.

Explore Blockchain Ecosystems

For the protocol to authorize a wrapped asset mint, users must submit the proof they received. The light client can then cross-reference it with its complete block header history, confirming or rejecting its validity. In the multichain future we’re rapidly moving toward, blockchain bridges play an increasingly important role. Without bridges, blockchains exist in isolation and can only process messages native to a particular network. A decentralized exchange built on Ethereum, for example, can only serve Ethereum users.

This allows Billy to use a bridge to send wrapped bitcoin (wBTC), which works on the Ethereum blockchain, to Ethel in a more seamless fashion. Hackers may still expose closed source code, but it has a smaller attack surface. The first time an attacker can start building an attack is after the code is deployed. Any fixes that expose previous flaws won’t get exposed before actual patching on production.‍While some in the crypto industry may dislike closed source code, it can significantly assist with security. Closed source code ensures that hackers will have a more challenging time when attempting to exploit a vulnerability. The token transfer is the most widespread and pivotal application for a blockchain bridge.

Most of the time, the conversion of assets on bridges requires lower transaction fees than other platforms. To use the Binance Bridge, for example, you will first select the chain you’d like to bridge from and specify the amount. You will then deposit the crypto to an address generated by Binance Bridge.

Meanwhile, a network like Solana compromises, somewhat, on its decentralization to enable fast, cheap transactions while supporting the deployment of decentralized applications. Different blockchain bridges have different goals and methods to secure these goals. These different goals and strategies can influence security to a certain extent. Before transferring tokens, it is recommended to look into a bridge and its security practices. Custodial bridges have higher security qualifications and are less likely to be hacked or exploited.

OKX Insights explored these risks in an in-depth analyzing the exploit of the Wormhole crosschain protocol in February 2022. Crosschain bridges rely on smart contracts deployed on both the source and target blockchains. Today’s most widespread bridge implementations use a simple “mint and burn” approach to bridge assets. Assets are locked in a smart contract on the source chain before the target blockchain smart contract mints a wrapped version of that asset.

First, the blockchain onto which you port assets might be cheaper and faster than its native blockchain. This is certainly true for Ethereum, where high transaction fees and slow throughput make it difficult for newcomers to get involved in decentralized finance (DeFi). All of the different bridging methods are straightforward and easy to understand. Innovators may develop new & even more secure bridging techniques in the future.

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If you search for the most expensive DeFi attacks of all time, bridges make most of the list. ChainPort roots these out by «not trusting our code.» Additionally, we have multiple passes over time trying to find these places. Multiple passes are done to make more checksums and explicit ones in every step of the logic flow. You have the Indian currency – the rupee, but you need pounds in England for daily transactions.

Both dApps are independent of each other and have slight differences because of the networks. The most seamless bridges among sub-chains (Ethereum-Arbitrum) or compatible chains (BnB Chain, Avalanche, Pulsechain, Polygon, Ethereum). For example, the EVM (Ethereum Virtual Machine) is a software environment that allows the easy deployment of dApps on other chains from this environment.

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