Ultimate Guide to Blockchain Bridges

Ultimate Guide to Blockchain Bridges

Summary

• This article serves as a complete guide to blockchain bridges
• Each section also comes with a list of other resources for you to explore more into the area
• Birthday Research will be launching Quantum, a bridge which has the following features:
  - Trusted and bi-directional
  - Seamless transfers between DeFiChain and Ethereum
  - Preliminary support for four ERC-20 tokens
  - Risk mitigation via a unique daily cap on transactions

Introduction

Bridges connect the world. From linking mainlands to once-inaccessible islands to establishing roads across difficult terrain, bridges have been an integral part of human civilization, closing the gaps that separate people for centuries.

The world of crypto is no exception. Blockchain bridges (also known as crypto bridges and cross-chain bridges) establish crucial connections between once-isolated blockchains, enabling a freer flow of assets across blockchain systems.

This guide will introduce blockchain bridges and explain how they connect blockchains to each other. It will then introduce Quantum, a trusted and bi-directional bridge built by Birthday Research to directly connect DeFiChain and Ethereum.

Below is an overview of what this guide will cover:

• What are blockchain bridges?
• Why are blockchain bridges needed?
• How do blockchain bridges work?
• Are blockchain bridges safe?
• How to safeguard blockchain bridges
• Introducing Quantum

You will find a list of essential readings and resources on blockchain bridges at the tailend of each of the sections mentioned above. These resources range from the basics of bridges and their importance to the crypto ecosystem to detailed analyses of their risks and best practices to safeguard them.

Through this guide, you will learn the fundamentals of blockchain bridges through a nuanced and objective overview of their significance to the wider crypto landscape.

Whether you are a retail investor or a corporate executive, you should come away with a firm grasp on what blockchain bridges are, their risks, and the measures taken to counteract these risks.

We hope that this guide helps you make a more informed decision on how to use blockchain bridges on your crypto journey.

What are blockchain bridges?

Blockchain bridges are protocols that connect two or more blockchain networks, enabling users to move their assets from one blockchain to another. In this regard, bridges facilitate interoperability and innovation across blockchains.

Traditionally, blockchains are siloed. Bridges bring these blockchains together, enabling users on one network to enter another and use their assets outside their native chains.

Blockchain bridges are also fundamental for cross–chain collaborative work, allowing them to work and communicate together regardless of network.

Think of the crypto ecosystem as a collection of islands. Each island represents a different blockchain network, coming complete with a unique set of inhabitants (community), laws (consensus algorithm), internal currency, and other island-specific specialties.

However, each of these islands are independently developed and managed with no means to interact with each other. This is where blockchain bridges enter the picture, providing the rails to connect these islands and enable them to share invaluable resources with each other.

Learn more about what blockchain bridges are through the following resources:

• Three Popular Crypto Bridges and How They Work: Penned by leading crypto exchange Binance, this piece introduces what crypto bridges are and the different types available. Solana Wormhole, Avalanche, and Polygon are used as examples here.
• What Are Blockchain Bridges and How Do They Work?: Published by crypto leader CoinDesk, this piece covers the basics of blockchain bridges and briefly analyzes the security of this technology.
• What Are Cross-Chain Bridges?: An authoritative repository of all things financial, Investopedia put together this detailed analysis of blockchain bridges, diving into the mechanics of how they work and what they are used for.
• Blockchain bridges: Leading blockchain network Ethereum is behind this piece, picking apart what blockchain bridges are before showcasing their use cases.
• What is Crypto Bridging?: Brought to you by BTC payment service provider BitPay, this educational piece covers the basics of blockchain bridges and how they work.

Types of blockchain bridges

There are four broad categories of blockchain bridges:

1. Trusted
2. Trustless
3. Uni-directional
4. Bi-directional

It must be noted that trusted and trustless bridges are not mutually exclusive from uni- and bi-directional bridges. In fact, the former is always paired with the latter. For example, a bridge can be trusted and uni-directional or trustless and bi-directional.

Below is a detailed summary of each bridge type:

1. Trusted bridges

These centralized bridges are created and managed by a central entity or system. Security is a top priority for these bridges, with external verifiers imposed to safely transfer data and value. Such bridges require you to entrust custody of your assets to the entity overseeing the bridge, and so you must do your due diligence to determine the trustworthiness of the operators.

Binance Bridge is one of the best known examples of trusted bridges, enabling the cross-transfer of assets between Binance Smart Chain and Ethereum. Similarly, Birthday Research’s Quantum is also a trusted bridge that facilitates the transfer of assets between DeFiChain and Ethereum via ERC20 tokens.

2. Trustless bridges

The opposite of trusted bridges, trustless bridges eliminate third-party entities from the equation. Purely decentralized, these bridges use smart contracts to oversee cross-chain transfers. Users will need to do their due diligence to determine the trustworthiness of the smart contract.

Examples of trustless bridges include Syscoin Bridge (Syscoin Native and Syscoin NEVM blockchains) and Rainbow Bridge (Ethereum, NEAR, and Aurora blockchains).

3. Uni-directional bridges

Uni-directional bridges only allow for one-way transfers of crypto to another blockchain. The WBTC network is an example of a uni-directional bridge, allowing users to transfer Bitcoin to the Ethereum blockchain.

4. Bi-directional bridges

Unlike uni-directional bridges, bi-directional bridges enable multi-directional transfers of assets. These bridges provide you with seamless cross-chain functionality across multiple blockchain networks in all directions. As an example, Polygon Bridge enables the transfer of assets between Ethereum and Polygon.

For more detailed information on the different types of blockchain bridges, check out the following resources:

• Types of blockchain bridges explained: Published by CNBC TV18, this detailed guide covers the different types of blockchain bridges. This piece also explains some of the key advantages and disadvantages of blockchain bridges.
• What Are Blockchain Bridges And How Do They Work?: Published by blockchain and Web3 professional training platform 101 Blockchains, this comprehensive guide touches on the various types of blockchain bridges and illustrates these with real-world examples.
• All blockchain bridges aggregator: Cross-chain interoperability and liquidity transfer protocol DeBridge has compiled a comprehensive list of available blockchain bridges under one website. Each bridge is tagged with specific categories like “Cross Chain” and “Cross Swap” for easy navigability.
• Cross chain / multichain bridges development: Written by Fintech, blockchain, and cloud engineering expert Boosty, this article neatly presents information on each crypto bridge with a detailed description on how they work. It goes into further detail about the ways bridges handle user funds, with escrow, custodial, and non-custodial identified in the article.
• An introduction to the various types of cross-chain bridge solutions: Cointelegraph offers a different approach to blockchain bridges, covering three technical types such as the notary model, hash-time lock, and relay model.
• Blockchain Bridge: This glossary entry was written and published by cold wallet retailer Ledger, concisely explaining what blockchain bridges are and the types available.

Why are blockchain bridges needed?

Simply because blockchains are not interoperable. Although every blockchain network comes with its own set of advantages, each one has its own limitations. Ethereum, for one, is difficult to scale and has high transaction fees. As for Bitcoin, it lacks support for smart contracts.

By bridging these blockchains together, they can leverage each other’s advantages to innovate and scale.

To learn why blockchain bridges are necessary, read the following resources:

• What Are Blockchain Bridges and Why Do We Need Them?: Written by leading blockchain consultant LimeChain, this piece very specifically pinpoints the key reasons why bridges are necessary in the blockchain world.
• What Are Blockchain Bridges, and Why are they Important for DeFi?: Written by MakerDao, the creator of the world’s first stablecoin Dai, this piece goes beyond outlining the different types of blockchain bridges to discuss the benefits that they bring to the DeFi world.
• Cross-Chain Interoperability : Enabling The Future of DeFi: Written by PolyTrade’s lead blockchain developer Adam Boudjemaa for tech publication HackerNoon, this piece is an incisive deep dive into the ‘why’ behind the creation of blockchain bridges.
• Blockchain Bridges | Enabling Cross-Chain Interoperability: Written by Oodles Blockchain’s development team, this piece focuses on the specific advantages that bridge-enabled interoperability brings to the crypto ecosystem.
• Why interoperability is the key to blockchain technology’s mass adoption: Written by leading crypto and blockchain publication Cointelegraph, this piece focuses on why interoperability is important to the crypto ecosystem and how bridges serve as the vital conduits that connect disparate blockchains together.
• What’s Up with Blockchain Interoperability?: Written by crypto and blockchain publication Coindoo, this article covers the importance of interoperability in the blockchain ecosystem, highlighting how bridges are instrumental in forming these connections.

How do blockchain bridges work?

Blockchain bridges are essentially intercommunication mechanisms that enable token transfers between two blockchains. Such bridges often utilize the mint-and-burn protocol to execute blockchain transfers. Assuming a bridge between Bitcoin and Ethereum, below is a step-by-step outline of how the protocol generally works:

1. When BTC tokens are transferred from Bitcoin to Ethereum, they are temporarily locked.
2. After the lock is complete, an equivalent number of WBTC tokens are issued in Ethereum. These WBTC tokens are underwritten by a reserve of BTC coins placed on the bridge to ensure their legitimacy.
3. If the bridge is bi-directional, a reverse exchange is possible. In this scenario, BTC tokens are unlocked while WBTC tokens are burned on the bridge.

If a bridge is built between Ethererum and Bitcoin, it can only strictly facilitate fund transfers between these two blockchains. The bridge will not be able to move assets from Ripple to Ethereum, or from Dogecoin to Bitcoin. Users must also have crypto wallets that are compatible with the bridge in order to utilize it.

When non-native crypto tokens are “locked” on the bridge, they are in fact wrapped. What this means is that the bridge first “wraps” the original tokens in a smart contract (or the “wrapper”) before generating the equivalent amount of wrapped tokens for the user. To this end, WETH has been produced from wrapping ETH and WBNB from BNB.

Bridges are by no means the only enabler of interoperability between blockchains. Layer 0 protocols are one such alternative, serving as the foundation for other blockchains to build on top of them. United by a common underlying layer, these blockchains are seamlessly integrated without bridges.

Consider the typical process to rent a home as an analogy for using a crypto bridge connecting the Bitcoin and Ethereum blockchains.

To rent a home, you will first set down a deposit with the landlord. Assuming that your source blockchain is Ethereum, this is the equivalent of “locking” a set number of ETH (Eg: 20) on the bridge.

In exchange for locking this deposit, the landlord grants you the right to rent his home and live in it. This is akin to receiving the corresponding number of BTC in return for “locking” 20 ETH on the bridge.

During your stay in your rented home, you will have to pay a monthly rent to your landlord. In the crypto world, transaction fees are the “rent” you pay — in this case, the fees are not charged on a monthly basis, but are instead levied every time you transact.

Furthermore, unlike the rental process, there is no minimum period of stay in the Bitcoin blockchain. You may return to your source blockchain at any time of your choosing, but you will have to relinquish your right to rent to regain your deposit.

Find out more about how blockchain bridges work through the following resources:

• Cross-Chain Bridges: What Are They & How Do They Enable Blockchain Interoperability?: Written by Alex Lielacher for crypto news publication Crypto News, this piece clearly explains the crypto bridging process.
• Crypto Bridges: Enabling Blockchain Interoperability: Written by Josiah Makori for digital currency analyst CoinGecko, this article meticulously outlines the process behind blockchain bridges. An explainer video is also embedded in the piece to facilitate further clarity and understanding.
• Blockchain bridges: Guide to cross-chain data sharing: Written by Pascal Akunne for LogRocket, this comprehensive guide walks you through the ins and outs of blockchain bridges and how they work.
• What is a Blockchain Bridge and How does it Work?: Written by EVM-based smart contract platform Shardeum, this article details how blockchain bridges work. It also comes with an FAQ section to answer some commonly asked questions about the technology.
• Blockchain Bridges, Explained: Written by Jagdeep Sidhu for Cointelegraph, this piece covers the basics of blockchain bridges and how they work.

Are blockchain bridges safe?

Blockchain bridges can be unsafe, whether they are trusted (centralized) or trustless (decentralized).

Despite the benefits that bridges bring to the overall crypto ecosystem, they are not without their risks. Given the reserve of crypto assets that are stored on bridges, it is of little surprise that hackers would choose to target these systems.

In 2022 alone, Chainalysis estimated that over $2 billion worth of digital assets were stolen from blockchain bridges — this figure accounts for at least 69% of all stolen crypto assets in the year.

In the case of trusted bridges, the risk primarily lies with the fact that transaction approval and fraud management are exclusively ceded to a small group of entities. This danger was made especially apparent during the April 2022 Ronin breach, where five out of Ronin’s nine validators were compromised and their private keys stolen. With these private keys, hackers were able to validate transactions without oversight — in all, they stole $600 million worth of ETH and USDC.

On the other end of the spectrum, trustless bridges are not risk-free either. These bridges are also susceptible to exploits, especially if their systems and smart contracts are rife with bugs and vulnerabilities. The Solana Wormhole is one such example, where a bug in Solana’s custodian contracts enabled hackers to generate cross-chain validators that tricked the system into approving a 120,000 WETH (worth over $300 million) deposit.

Learn more about the security of blockchain bridges in the following resources:

• Crypto Bridge Hacks 101: Types and Causes: Written by upcoming global digital currency company Worldcoin, this piece focuses specifically on the risks of blockchain bridges and why they’re prime targets for hackers.
• Is there a secure future for cross-chain bridges?: Written by Lior Lamesh for Cointelegraph, this article acknowledges the vulnerabilities of blockchain bridges but also expresses optimism for their potential.
• Understanding Crypto Bridges and $1 Billion in Thefts: Written by Olga Kharif from Bloomberg and republished on The Washington Post, this analytical piece discusses the risks that are inherent to blockchain bridges.
• Pay Attention to Cross-Chain Bridge Security: Brought to you by blockchain development company AktaryTech, this article examines why blockchain bridges were attacked in 2022 and what to do moving forward.
• Vulnerabilities in Cross-chain Bridge Protocols Emerge as Top Security Risk: Prepared by blockchain data platform Chainalysis, this analytical piece highlights the risks faced by blockchain bridges and provides actionable steps that can be taken to mitigate them.

How to safeguard blockchain bridges

Although blockchain bridges are susceptible to attacks, they can still be secured. This begins from encoding robust security protocols into the bridge’s smart contracts, designed to protect funds from malicious attacks.

Another measure that can be deployed is a hard cap, which limits the maximum number of tokens that can be bridged and/or burned daily. In turn, large sums of funds cannot be stolen in a single hack. While this hard limit cannot fully counter attacks, it can still reduce their damage on user funds.

Below is a list of resources that dive into the security measures that are deployed to ramp up the defenses of blockchain bridges:

• 10 Strategies for Cross-Chain Security: Written by deBridge, this piece lists ten robust measures that can possibly be deployed to secure blockchain bridges.
• Blockchain Bridges Keep Getting Attacked. Here’s How to Prevent It: Written by Coby Moran for CoinDesk, this opinion piece offers some education and auditing advice on how to reinforce blockchain bridges.
• Are we helpless against attacks on blockchain bridges?: Written by blockchain media outlet Forkast News, this piece considers the risks of blockchain bridges and suggests some methods that can be deployed to mitigate them. One such method is the use of peer-to-peer (P2P) instead of the usual automated market maker (AMM) model.
• Thoughts on Token Bridge Safety: Written by Jonathan Claudius for Jump Crypto, this insightful opinion piece looks at the prevailing risks of blockchain bridges and offers actionable solutions to counter them.
• Your Crypto Needs A Secure Way To Travel. Here’s Why.: Written by Dominik Schmid, Patrick McCorry, Massimo LomuscioJuly for global blockchain company Consensys, this guide showcases the importance of securely bridging crypto before suggesting steps users can adopt to stay safe.

Introducing Quantum

Now that you have everything you need to know about blockchain bridges, this brings us very nicely to an upcoming product that the Birthday Research team has been building: Quantum!

Tapping into some ecosystems such as the DeFiChain ecosystem can be tricky business, as the current process is mired in many steps. First, you need to obtain DFI from a compatible exchange, which could mean onboarding and KYC if you are not already an active user of said exchange.

As KYC isn’t instant, you can expect the process to be long and drawn-out. Following this, you still need to swap your DFI into dTokens to kickstart your journey in the DFI world, and this eats up even more time.

That’s why Birthday Research built Quantum. Quantum is a trusted bi-directional blockchain bridge that streamlines the transition process for users keen to enter the DeFiChain ecosystem, minus the tedium of onboarding and KYC.

All you need are some ERC-20 tokens — specifically ETH, USDT, USDC or WBTC — to cross the bridge and walk into the world of DFI. To get started on DFI, the tokens you bridge will be swapped to dTokens of corresponding value.

Don’t have any ERC-20 tokens? No worries at all. Support for other tokens are in the works and will be gradually rolled out in the future. For now, our core focus is on Ethereum in answer to the prevailing concentration of DeFi liquidity within the ETH ecosystem.

We’d love to find out which tokens and chains you want to see integrated with Quantum!

Get in touch with the Birthday Research Product team to share your thoughts.

Read more about other projects by Birthday Research or join our community to get updates.

Visit Quantum today.

About Birthday Research

Birthday Research is the blockchain R&D arm of Cake DeFi that develops best-in-class blockchain innovations, with the mission of enabling the next bound of Web3 through open-source blockchain research and development.

Birthday Research’s work spans cryptographic research, deep blockchain consensus development, and smart contracts development — with a laser-sharp focus on pushing the industry frontier while tackling the most demanding DeFi challenges of today.