The Bifröst Protocol: Bridging Chains Safely
In THORChain’s quest to become the fastest decentralized exchange protocol, there is no mechanism more crucial than cross-ledger compatibility. This is why the Bifröst Protocol forms one cornerstone of THORChain — the world’s first truly decentralized exchange ecosystem that enables participants to securely trade any asset on any distributed ledger.
With the proliferation of blockchain protocols competing for market share and user adoption, developers, enterprises and investors are faced with the reality of a fragmented ecosystem, where irreconcilable platforms are unable to communicate with each other. This disconnect is the problem that THORChain aims to address with Bifröst.
The Bifröst Protocol enables multichain connectivity by building a bridge between blockchains. Cross-chain bridges address one of the decentralized community’s most vexing problems: interoperability.
Inspired by Norse lore, Bifröst was the name given by the Vikings to the mythic, incandescent rainbow bridge that connected Midgard (Earth) to Asgard (the Heavens). Thus, it is the protocol’s ability to mesh disparate decentralized realms into one liquid, rapid and cohesive asset exchange network that differentiates THORChain from other trustless exchange applications.
Merging multi-signature (multi-sig) account security, proof-of-stake (PoS) cryptoeconomic schemas and continuous liquidity pools (CLPs), Bifröst is an interoperable cross-chain bridge enabling compatibility with nearly all major unspent transaction outputs (UXTOs) and account-based assets, including code-forks and tokens. Put more simply, Bifröst is the glue that holds the entire THORChain ecosystem together, enabling the seamless trading of any digital asset across any distributed ledger.
Before delving further into the mechanics of the Bifröst Protocol, it’s helpful to explain some of these higher-level technical terms for less crypto-fluent audiences. Below, readers can find a quick overview of concepts:
- Multi-Signature — A security mechanism that applies an authentication scheme, whereby M of N, N of N, or N-1 of N signatures are needed to spend digital assets. Signatures are delegated to a disparate and predetermined set of counterparties that hold their own private keys.
- Proof of Stake — A cryptoeconomic model that entrusts network mining power to participants based on how many tokens they have staked in the network.
- Continuous Liquidity Pool (CLP)— The protocol deploys liquidity by incentivizing any THORChain participant to supply liquidity in exchange for fees. This means traders will exchange assets directly with the protocol, ensuring continuous liquidity. Since the protocol also tracks the ratio of RUNE (the THORChain protocol token) to the asset in the CLP, they also inherit a trustless on-chain price feed for digital assets
These three pillars of the Bifröst Protocol — multi-sig, PoS and CLPs — enable the secure and seamless integration between a vast universe of distributed ledgers, including Bitcoin, Ethereum, and Monero, to name a few.
Battle of the Blockchains
While Bifröst is not the first cross-chain solution, it could be the most evolved. In fact, THORChain’s protocol improves upon the weakness of preceding cross-chain architectures like Rootstock 2WP, Liquid Sidechain, POA Network Bridge and COSMOS Peg Zone.
The problem with these cross-chain technologies is that they sacrifice security by delegating trust to so-called “federated” users, or sacrifice useability by requiring far too many signatures. In cryptoeconomics, a federation is a deterministic set of participants who serve as notaries between the parent chain, or the layer-1 protocol, and the sidechain, a parallel ledger built on the parent chain.
However, the deterministic nature of federated design amounts to centralization, which undermines security and enhances the threat of network failure. Specifically, these federations amplify the risk of selfish network behavior, where malicious actors could be incentivized to launch a majority Sybil attack. In a Sybil attack, threat actors forge node identity to hijack consensus mechanisms and seize assets stored on bridges that link the layer-1 protocol to the sidechain.
THORChain addresses this problem by allowing users to create bridges dynamically by choosing multi-signature parties in any manner. Once a bridge is created, the protocol then begins to cycle random parties through the bridge’s multi-sigs, so that no 2 or more parties can ever collude to attack a bridge. Any number of bridges can be created, with all different security and performance characteristics. This allows participants to choose between low-security, but highly operable bridges, which could mandate a three-of-four multi-sig arrangement, or more secure bridges, such as that with 20-of-21 multi-sig schema.
The key concept here is that THORChain delegates the security/operability preference to the end-user, who would typically be traders, trading platforms or other financial market infrastructures (FMIs).
Transparent Risk Scoring
Another advantage that FMIs and traders will find in the Bifröst Protocol is the transparent risk-scoring of cross-chain bridges. Specifically, integrated on-chain price feeds from THORChain’s CLP allows the entire network to monitor the security profiles of each bridge.
Leveraging its PoS cryptoeconomic design, THORChain’s bridge security profiles are scored by the value of token assets they hold, compared to the assets that must be staked by validator nodes across bridges they operate. This feature enables THORChain users to make more informed decisions when it comes to bridge selection.
Additionally, the THORChain network has a self-correcting mechanism that autonomously detects diminishing bridge security and raises multi-sig thresholds to neutralize the risk of Sybil attacks or other adverse events.
Anti-Market Manipulation Safeguards
Another differentiated feature of Bifröst is the way it leverages its CLP against would-be market cheats. For example, a malicious validator could manipulate the price of an asset on THORChain and trick the system into registering a false value for the crypto assets held on a specific bridge.
But THORChain’s transparent, real-time CLP price feed would instantly broadcast this market anomaly across the network, enabling other participants to immediately capitalize from arbitrage opportunities on different exchanges. The elevated risk of other users profiting from the threat actor’s deception, before he or she can cash out of their position, makes price-spoofing an unsustainably costly bet for network adversaries, ultimately diminishing the value of their bridge.
Bridging THORChain to Ethereum
In order to build a Bifröst bridge to the Ethereum blockchain, THORChain’s validators must vote in the new connective structure via the mainnet’s governance protocol. Validators must achieve 67-percent majority consensus to proceed with the new bridge.
If the new bridge is voted in, this results in the creation of a tokenChain Genesis Account (GenACC), which contains THORChain’s CLP, broadcasting bridge value and liquidity data to the broader network. Because bridge infrastructures are subsidised by block rewards on THORChain, validators can operate these architectures, without having to incur additional fees. This process is explained in more granular detail in the THORChain Whitepaper.
How do Traders Interact With a New Bridge?
Stored on THORChain’s Ethereum tokenChain are all Ethereum Bifröst data, including all applicable multi-sig addresses. Traders need to know how to get from Ethereum to THORChain. This process works as follows:
- Via on-chain governance, Validators connect to Ethereum and generate the Ethereum tokenChain on THORChain.
- THORChain’s public ledger will emit the current location of all Ethereum bridges (multi-sig addresses).
- Any trader can then send across Ether to THORChain, by choosing a bridge that meets their requirements, or making their own private bridge. Bridges can be accessed inside of wallets, exchanges or directly via the ledger.
- The protocol credits their THORChain address with a corresponding amount of fungible Ether.
- The trader can then trade freely on THORChain using their assets.
Other bridges can be built in a very similar manner, requiring no change to protocols, such as Bitcoin, Monero and Litecoin.
In all case, validators on THORChain run new blockchain nodes and are party to multi-sig accounts for the bridges. As each validator is cycled through multi-sig accounts regularly, there is a low risk at all times of collusion and or lost access to bridges.
THORChain’s cross-chain compatibility is fundamental to being a true decentralised exchange protocol and is built to be compatible with all major chains from start.
THORChain combines multi-signature accounts, proof-of-stake security and continuous liquidity pools to allow bridges to function securely, but with no loss of usability.
Join the Distribution
For more information or to participate in the distribution, head on over to https://thorchain.org/token.
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