What is a blockchain bridge?

Blockchain bridges are services that connect different blockchain networks. 

Different blockchains operate on different technical standards. Every blockchain is a unique combination of decisions that set the design and architectural decisions for how the protocol operates.

These decisions can include specific factors such as how the cryptocurrency can operate as well as more general decisions such as what programming language the protocol uses. You can learn more about this with our article What is cryptocurrency tokenomics?

Bridges help to facilitate interoperability between different technical standards of different blockchain networks. 

They allow crypto assets, tokens and various types of data to be moved from one blockchain network to another.

Because this sort of interoperability may not be possible using only the native functionality of the different blockchain protocols, bridges have emerged as a way to help the wider crypto ecosystem cooperate.

There are a series of steps that blockchain bridges help execute in order to ensure assets are securely and reliably transferred from a source blockchain to a destination blockchain.

First, a cryptocurrency user starts by locking their assets on the blockchain. This involves the users first depositing their assets into a smart contract controlled by the blockchain bridge. 

Next, the blockchain bridge generates a proof which serves as a confirmation sent back to the source blockchain. This helps to verify that the assets have been locked within the bridge.

After that, the confirmation is broadcasted on the source blockchain. This helps to notify nodes on the network that the funds are ready to be transferred to the destination blockchain. The nodes on the bridge protocol help to validate the proof and confirm that the broadcasted transfer is honest.

Once the proof is verified, a corresponding amount of the asset is “minted” or created on the destination blockchain. These newly created tokens on the destination blockchain are a type of synthetic asset referred to as a wrapped token.

You can learn more about these tokens and how they are used in our Kraken Learn Center article, What are wrapped tokens?

While the original funds from the source blockchain remain locked in the smart contract of the bridge, new matching tokens are created for the destination blockchain.

From there, users can interact with these newly created assets within the destination blockchains ecosystem of decentralized applications. 

When the user is ready to transfer their wrapped tokens from the destination blockchain back to the source blockchain, they deposit their wrapped tokens back into the blockchain bridge and the process is reversed.

Blockchain bridges play a crucial role in the blockchain ecosystem by enabling cross-chain interoperability and connecting different blockchain networks. 

With the rise of decentralized finance (DeFi) and the growing adoption of blockchain technology, the need for secure and efficient exchange of data and assets between blockchain networks has become more important.

Blockchain bridges serve as a gateway, allowing users and developers to access new protocols, transfer assets and leverage the functionalities of separate blockchain networks. These bridges enable cross-chain transactions, which facilitate the movement of digital assets, such as tokens or cryptocurrencies, between different blockchain networks.

One of the primary reasons blockchain bridges are necessary is to overcome the limitations of scalability and network congestion. By connecting separate blockchain networks, cross-chain bridges fix the scaling problem, allowing for faster payments and lower transaction fees.

Moreover, blockchain bridges provide access to new opportunities and markets. 

They enable users to access decentralized applications (dApps) and utilize digital assets, such as non-fungible tokens (NFTs), across various blockchain ecosystems. This interoperability allows developers to build innovative solutions, leveraging the strengths of different blockchain networks.

1. Asset-Specific Bridges: These types of bridges are designed to facilitate the transfer of specific digital assets between different blockchain networks. They enable tokens, such as ERC-20 tokens, to be transferred across various chains, providing compatibility and liquidity across different platforms. Wrapped Bitcoin (wBTC) is a leading example of an asset-specific bridge.

2. Chain-Specific Bridges: These bridges connect specific blockchain networks, allowing for interoperability between chains. For example, Polygon Bridge exclusively enables the transfer of native tokens between the Polygon network and the Ethereum network.

3. Application-Specific Bridges: These bridges are built to serve specific decentralized applications (DApps) and their unique requirements. They provide a dedicated channel for cross-chain transactions, enabling seamless interactions between different DApps operating on different blockchains.

4. Generalized Bridges: These cross-chain bridges provide a more flexible and versatile solution by enabling transactions across a variety of blockchain networks. They are not specific to any asset or application, but rather offer a trustless bridge for any compatible blockchain network. Poly Network, for example, provides interoperability for over 35 different blockchains.

While blockchain bridges offer a promising solution for interoperability and seamless transfer of digital assets across different blockchain networks, they also come with inherent risks and potential security vulnerabilities.

One significant risk is the threat of security vulnerabilities and the potential for hackers to exploit these bridges.

Data manipulation

As bridges connect separate blockchain networks, they create a potential entry point for attackers to gain unauthorized access and manipulate transactions, resulting in the loss of digital assets. This risk is further exacerbated by the fact that bridges often handle sensitive user information and large amounts of assets.

Custodial risks

Additionally, blockchain bridges introduce the possibility of custodial risks. In some cases, the central entity or bridge operator may act as a custodian for the assets being transferred, creating a single point of failure. This introduces the risk of mismanagement, insider attacks, or even theft by the custodian, putting users' assets at risk.

Solana's Wormhole bridge, the Poly Network bridge and Polygon's Plasma bridge were all found to have had bugs or vulnerabilities in their code. Some of these resulted in significant losses, while others narrowly avoided a serious attack.

Congestion issues

Another limitation of blockchain bridges is the potential for transaction rate bottlenecks. As more users and assets flow through the bridge, network congestion can occur, leading to slower transaction processing times and higher gas fees. This can result in delays and increased costs for users, limiting the efficiency and scalability of cross-chain transfers.

Furthermore, the level of trust among interconnected networks can vary, leading to a disparity in the security and reliability of different blockchain bridges. Users must carefully evaluate and consider the reputation, track record and governance protocols of the bridges they choose to interact with.

Overall, while crypto bridges offer numerous benefits, users must be cautious and diligent in understanding and addressing the associated risks. This includes using secure crypto wallets, conducting thorough research, and staying informed about the latest vulnerabilities and best practices in securing digital assets when interacting with blockchain bridges.

For more information, check out our article how to keep your crypto safe.

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