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Breaking Down Barriers in DeFi: The Power of Blockchain Bridges for Cross-Chain Transactions

Web3 Maya

Published in

Coinmonks

7 min readFeb 7, 2023

Introduction

There are over 100 public blockchain networks — Ethereum, Polygon, Binance, Solana, Cardano & so on. Many of these have their own unique applications, users, geographies, security models, and design trade-offs, & the number of these networks will likely continue to increase into the future.

This type of market structure necessitates the need for interoperability between these distinct networks. Many developers have realized this, and the past few years have seen an explosion in blockchain bridges that attempt to unify an increasingly fragmented landscape.

As an individual ecosystem grows, they develop their own unique strengths, such as greater security, faster throughput, cheaper transactions, better privacy, specific resource provisioning (e.g. storage, compute, bandwidth), and regional developer & user communities.

Bridges are important because they enable :

Users to access new platforms
Protocols to interoperate with each other
Developers to collaborate on building new products
Greater productivity & utility for crypto assets.

Need For Blockchain Bridges

The Web3 world has many blockchain networks. Each blockchain network can be thought of as a country — having its own native currency/coin & its own native Dapps too.

In the real world when we see better opportunities in another country, we take our assets with us & move there.

But in the crypto world, if we find better opportunities, better prices, better yields, better speed or better security in another blockchain network & wish to move there, we would have to leave all our current assets behind.

Our only option is to sell our assets on the current blockchain, take the funds & re-invest them on another blockchain. But this will compromise our yields because of highly volatile nature of crypto.

There is no way to move our coins or tokens from one blockchain network to another.

Bridges have taken up the challenge to solve this problem.

What is a Blockchain Bridge?

A Blockchain Bridge or a Cross-Chain Bridge connects two economically & technologically separate blockchains, allowing the transfer of digital assets & data between them.

There are several components to most bridge designs:

Monitoring: There is usually an actor, either an “oracle”, “validator”, or “relayer”, that monitors state on the source chain.
Message passing/Relaying: After an actor picks up an event, it needs to transmit information from the source chain to the destination chain.
Consensus: In some models, consensus is required between the actors monitoring the source chain in order to relay that information to the destination chain.
Signing: Actors need to cryptographically sign, either individually or as part of a threshold signature scheme, information sent to the destination chain.

How a Blockchain Bridge Works

Firstly, you’ll need to determine the chain you want to bridge and the respective amount.
Then, your particular cryptocurrency needs to be deposited to the bridge’s generated address.
The blockchain bridge will deliver you the wrapped token equal to the coin’s value once it has been received at the other end.

Let’s understand this better with the help of an example, if you need to exchange BTC for ETH, you’ll need to deposit the BTC into the bridge and choose to withdraw in ETH to convert your Bitcoin to Ethereum.

The bridge will create an identical quantity of ETH on the Ethereum blockchain while locking the BTC in a smart contract. The bridge would employ a mint-and-burn mechanism to limit the number of tokens available, the bridge would employ a mint-and-burn mechanism.

The amount will be deducted according to the minting fees of the bridging solution. Once bridged, you can withdraw your ETH.

Implementation of Blockchain Bridges

There are several protocols commonly used to implement blockchain bridges. These are:

Atomic Swaps

Atomic swaps are a type of protocol that enable the exchange of cryptocurrencies between different blockchain networks without the need for a centralized exchange.

Hash Time-Locked Contracts (HTLCs)

HTLCs are smart contracts that enable the transfer of assets between different blockchain networks, based on a specific set of conditions being met.

Relay Networks

Relay Networks are a type of protocol that enables the transfer of assets and data between different blockchain networks by acting as intermediaries between them.

Sidechains

Sidechains are separate blockchain networks that are connected to a main blockchain network, allowing for the transfer of assets & data between them.

Types of Blockchain Bridges

Unidirectional

Unidirectional are one-way bridges, allowing you to port assets only to the target blockchain and not the other way around.
For example, Wrapped Bitcoin allows you to send bitcoin to the Ethereum blockchain — to convert BTC to an ERC-20 stablecoin — but it doesn’t let you send ether to the Bitcoin blockchain.

Bidirectional

Bidirectional or two-way bridges allow you to freely convert assets to and from blockchains. Just as you can send Solana to Ethereum’s blockchain, you can send ether to Solana.
Bridges like Wormhole and MultiChain are bidirectional bridges.

Trusted

Trusted bridges depend upon a central entity or system for their operations.
They have trust assumptions with respect to the custody of funds and the security of the bridge
Users mostly rely on the bridge operator’s reputation.
Users need to give up control of their crypto assets.

Trustless

Trustless bridges operate using smart contracts and algorithms.
They are trustless, i.e., the security of the bridge is the same as that of the underlying blockchain
They use oracles and smart contracts to manage the bridging of assets.

Popular Blockchain Bridges

Axelar

Built on delegated proof-of-stake, the battle-tested approach used by many of the chains it connects
Supports General Message Passing across chains.
Compose DeFi functions, move tokens and NFTs, and perform cross-chain calls of any kind that sync state securely between dApps on various ecosystems.
Allows any-to-any connectivity, new connections are automatically interoperable with newly integrated chains and products

Connext‍

The most secure cross-chain protocol (as secure as the blockchains it connects)
Low fees
Allows developers to build cross-chain applications on top of it

Synapse

Trustless cross-chain bridge for moving assets and swapping tokens
Users can earn passive income by staking and providing liquidity
Earn profits through by leveraging Synapse Network’s cross-chain automated market maker (AMM)

Wormhole

Decentralized bridge for moving assets between Solana and Ethereum, but also supports other chains (Terra, Avalanche, Oasis, BSC, Polygon)
Provides seamless access to Solana’s low-fee and high-throughput blockchain
Uses smart contracts to manage lock-and-mint process, increasing safety of token
Support both token and NFT transfers

Ren Bridge

Ren Bridge connects multiple blockchains (Bitcoin, Ethereum, BSC, Luna, etc.) and increases interoperability
One of the best bridges for bridging BTC to Ethereum network
Users enjoy full privacy on transactions (no KYC/AML)

Polygon PoS Bridge

Trustless bridge for transferring assets between Polygon sidechain and Ethereum Mainnet
Supports more than just tokens — users can also bridge NFTs from Polygon to Ethereum and vice-versa
Low gas fees
Decentralized bridging mechanism increases security of user assets

Binance Bridge

Trusted bridge for transferring assets between Binance Smart Chain and Ethereum
Fast processing times and cheap transaction fees
Users can redeem wrapped tokens for original assets anytime
Best way to access popular BSC DeFi dApps (PancakeSwap, Venus, BeefyFinance)

Risks & Challenges of Blockchain Bridges

Cyberattacks and hacking attempts

Attackers, many times, have stolen massive sums of cryptocurrency from cross-chain bridges by exploiting the deficiencies within the smart contracts.

Centralized thievery

Centralized/trusted bridges can hypothetically steal assets anytime they want due to having complete authority over the user assets.

Bottlenecks elated to transact ability

The processing capacity constraint of a single chain might stymie extensive blockchain interoperability

Trust and security misalignment

Blockchain bridges may reveal the risks associated with the fundamental mechanisms of the respective chains due to trust disparities. Since blockchain bridges link multiple blockchains, the robustness of the connected systems gets misaligned.

Smart Contract Bugs

The risk of a bug in the smart contract code of a bridge can cause the user’s funds to be lost.

Conclusion

As blockchain bridges continue to be developed and refined, the security of these systems will continue to improve. This will likely result in a growing number of new & innovative application and use cases that rely on these bridges to transfer sensitive information & assets between different blockchain networks.

I hope this was helpful & you learned something new.