What Is a Cryptocurrency Bridge?

For instance, when you send ETH to Solana on a bridge, you’ll receive the token “wrapped ETH.” Cross-chain bridges are programs that can send cryptocurrencies between at least two blockchains. The purpose of a token bridge is to make it possible for people to transfer assets from one blockchain to another, as different dApps may require users to interact with different blockchains. Crypto bridges were originally intended to make sending tokens between blockchains seamless and safe.

• The asset you start with is set aside into something like a digital vault, where it is nicely wrapped and put away.
• Additionally, it focuses on improving the asset-bridging experience of users through its emphasis on security, faster finality, and lower fees.
• They then use currency to get the other desired type of cryptocurrency, incurring more fees and taking time.
• CoinMarketCap takes a deep dive into De.Fi , a comprehensive web3 security toolkit that offers insight into different DeFi protocols.
• By bridging your ETH from the Mainnet to an Ethereum L2 rollup, you can enjoy lower transaction fees.

List of blockchain bridges focused on addressing unique user requirements. Here is an outline of the notable blockchain bridge variants you can use for transferring https://xcritical.com/ assets and information between blockchain networks. Just like physical bridges, the blockchain bridge connects two separate blockchain networks or applications.

What Are Blockchain Bridges, and Why are they Important for DeFi?

The exchange of data and tokens between blockchains is made possible by bridges that connect them. There’s a reason bridges are more important than an average stretch of road — and why holes in them are more dangerous. As the cryptocurrency world has grown more complex, more and more transactions have come to rely on so-called crypto bridges that enable transactions involving a wide range of tokens. In June, hackers looted about $100 million from crypto bridge Horizon. Even before that hack, money stolen from bridges had exceeded $1 billion, a stark reminder that just because something is useful, fast and cheap doesn’t mean it’s safe.

While bridges are essential for cross-chain communication, they’ve become a significant concern in Web3. In early 2020, hackers were able to drain billions of dollars from multiple cross-chain bridges. The blockchain research firm Chainalysis estimates that crypto bridge hacks now account for about 70% of the total cyberattacks in the blockchain industry. Attackers have exploited the vulnerabilities of some blockchain bridges’ smart contracts.

Trust-less bridges

While bridging in blockchain can provide many benefits, it also carries certain risks and challenges. One key issue is the need to ensure the security and integrity of the bridge itself, as it serves as a critical point of communication between the two networks. If the bridge is compromised, it could potentially allow malicious actors to gain access to sensitive information or assets. On top of it, the community of blockchain developers believes that the best design for a blockchain bridge has not been created yet.

Blockchain networks include a global community of nodes interacting with other in a shred environment for management, validation and storage of financial transactions and data exchanges. The distinct traits of the blockchain networks separate them from one another and create distinct communities. For example, each blockchain network features a consensus model, which is an integral component for ensuring that all nodes can agree on specific transactions.

Risks associated with Blockchain Bridges

The Umbria Narni Bridge enables blockchain asset transfer using liquidity pools, where assets are held across multiple chains. BNB Chain, also known as Binance Smart Chain, was the victim of an attack in October 2022 that resulted in losses estimated at $570 million. Blockchain bridge analysis vendor Chainalyis has estimated that 69% of cryptocurrency funds stolen in 2022 have been attributed to attacks on cross-chain bridges. Bridges have the potential to promote blockchain interoperability and increase liquidity in DeFi. However, creating secure cross-chain bridges remains a challenging task in the crypto industry. Crypto bridge hacks are far too common, and many Web3 users fear using bridges after hearing about million-dollar exploits.

Cross-chain bridges enable many innovative processes, but security concerns surround them, as these apps have experienced hacking losses. The cryptocurrency industry is populated by numerous blockchains that generate value and utility for investors, but these blockchains operate independently of one another. However, this would incur transaction fees and expose you to price volatility. Some novel decentralized bridges are relatively untested and even those that have been tested are subject to exploits. The most notable recent example is Wormhole, but a week before that attack, a bridge called Qubit was exploited for $80 million. Other investors might use bridges to make the most of markets that exist only on another blockchain.

Explaining cross-chain crypto bridges

Layer 2 networks help scale Layer 1 networks like Ethereum so more transactions can make it through the clogged network pipes. Layer 2s bundle and compress transactions before passing the tidy package off to the Layer 1 network, which then handles security. Trust-based bridges are run by people or organizations, while trustless bridges use computer programs to handle the cross-chain exchange.

The biggest draw to cryptocurrency bridges is the interoperability solutions they offer. Anyone using cryptocurrency is familiar with the scalability issues big projects like Bitcoin and Ethereum face. As these projects have grown, their processing speed has dropped while gas fees have soared, especially so for Ethereum. If the bridge approves the transactions, then your submitted tokens are locked up, and new tokens are minted on the smaller private chain. Unfortunately, it also takes permission to leave the private chain, leading to these bridges working slower than their trustless cousins.

Unidirectional and Bidirectional Bridges

The benefits include leveraging BTC holdings to earn staking rewards. Crypto bridges also enable users to access new applications on other ecosystems and allow developers from different chains to collaborate. Ren’s decentralized network of devices allows users to lock and mint assets on different blockchains, trustlessly.

LEDGER HARDWARE WALLETS

If you’re looking to move crypto from one blockchain to another, you’ll need to do what is known as crypto bridging. Learn the basics of crypto bridges, why they are useful and how what is a blockchain bridge they work. Rollups execute transactions in a new environment (i.e. off-chain) and bundle them together, before sending the updated state and transaction data back to Ethereum.