Despite the undeniable advantages, blockchain technology has several notable drawbacks, and one of the main problems is its fragmentation: each blockchain functions on its own, with own set of rules and restrictions. The lack of interaction means that moving assets between different networks is a problem. So, crypto bridges were invented to overcome this limitation, these structures connect disparate blockchains, facilitating the smooth circulation of tokens and data. These bridges create more liquid markets, providing new possibilities for users, and uniting the crypto ecosystem. In this article, we explain what is bridging crypto, how do crypto bridges work, why they are so important, their types, as well as pros and cons.
Crypto bridges are made for transferring goods from one blockchain to another. They achieve this by “locking” some tokens up on the source chain and “minting” assets on the destination chain in return. These freshly minted tokens can substitute the original ones, enabling to interact on the new network as if the asset was native born. Bridges are essential for connection and communication in decentralized networks. And as the number of chains increases, the need for efficient and secure bridging solutions rises as well.
So, what is a blockchain bridge? This is software platforms that facilitate the sharing of data and tokens across disparate chains. They connect liquidity pools with smart algorithms to handle cross-chain transactions. These pools aggregate native assets across different chains so that swaps can be fast and low cost. Instead of transferring funds through an exchange, users can bridge an asset in a couple of clicks.
It stops transaction delays, feet expenses, and the need to trust a third party. Now when we have explained what is bridge in crypto, let’s consider its role in the industry.
Crypto bridges provide a number of advantages to both users and developers:
Bridges usually function by locking assets on one chain and minting wrapped versions on another. For example, Wormhole not only locks tokens on source chain but also generates wrapped tokens on destination chain, and then users can access multiple ecosystems within a decentralized platform.
A popular bridging scheme is the one where wrapped tokens are used, which is already employed by platforms such as ChainPort. Here's how it works:
This provides value to the wrapped token, as it retains the value of the original token, but also now has secure, cross chain functionality. It is completely autonomous, and usually takes less than two to five minutes, through the interface of ChainPort or through its contract address.
Liquidity pools are another idea used in DeFi bridging. These pools are WBTC markets of tokens deposited in smart contracts which enable decentralized trading, borrowing and lending.
Unlike traditional exchanges, where buyers and sellers are paired off, users engage them directly with the pool. Liquidity providers contribute assets to the pool, enabling greater liquidity and better price discovery, lower slippage, yield farming and passive income opportunities.
Liquidity pool-based bridges are critical for DEXs and lending protocols as they enable P2P operations without the need for centralized intermediaries.
Crypto bridges differ in the way they are implemented. Knowing the contrasts may help you how to select the best one according to your needs.
Here are some of the examples of trusted, trustless, unidirectional and bidirectional bridges:
| Type | Examples |
|---|---|
| Trusted |
|
| Trustless |
|
| Unidirectional | Wrapped Bitcoin (wBTC). |
| Bidirectional |
|
Blockchain bridges are gateways that link various blockchain networks, allowing to transfer information and digital property between these with ease. These cross-chain connectors can do so by wrapping a native asset from one network and converting it to its counterpart on another network, which would facilitate more transactions across the decentralized environment.
What is blockchain interoperability in the context of crypto bridges? Blockchain networks interacting with each other beyond doing simple token transfers in a multidimensional way. Crypto bridges are a key for reaching this improved interoperability.
What this means in practice:
Crypto bridges enable users to enter all kinds of DeFi platforms. You can simply bridge your tokens (USDC, ETH, DAI, etc) from Chain A (Ethereum, for example) to Chain B (Arbitrum, BNB Chain, Polygon) and then start using them in the DeFi apps on those chains.
What’s Next? Bridging to Layer 2 or sidechains (such as Optimism, Polygon) allows you to access DeFi applications with significantly reduced gas fees and quicker confirms than on Ethereum mainnet. Farms allow you to farm yields or add liquidity to contracts like: PancakeSwap (BNB Chain) and QuickSwap (Polygon).
The Polygon Bridge enables users to transfer tokens between the Polygon network and Ethereum, increasing access to larger liquidity pools. Users who move their assets to Ethereum will gain access to a broader ecosystem of DeFi services such as lending, staking, and sophisticated trading protocols that may not be so easily available on Polygon. This higher level of liquidity lowers the potential market’s price dramatic swings making it possible for decentralized financial operations to be available for future investment value.
Blockchain bridges come with challenges and potential pitfalls, despite all the advantages they offer. The primary issue is security at bridges, which hold the risk of hacks and exploits that could cause considerable losses of assets. Besides, we should mention reliance on smart contracts, which are subject to breaking bugs and exploits malicious actors. Users must also deal with various protocols and standards, which can make it difficult to bridge. As technology further develops, solving these issues is going to be instrumental in the safety and dependability of crypto bridges.
Crypto bridge risks also include hacker attacks. They are one of the biggest targets for criminals around the world — billions of tokens were lost in hacks. The following is the summary of the main security vulnerabilities when utilizing crypto bridges:
In the crypto bridge context, centralization issues describe instances in which control or authority are consolidated in few hands, or entities — actions that directly hinder the decentralization, transparency, and the security of the cryptocurrency space. Here are the main of them:
Regulatory risk is one of the top risks that users have to worry about when they are using bridge crypto. This can result in losing money, getting into legal trouble, or even being scammed. Key regulatory issues are as follows:
This works as follows: a user googles a bridge (e.g., the “Synapse Bridge”) and fetches a sponsored ad link. Users are redirected to a lookalike site with a spelling-mimicking domain (e.g., synapsebridge[dot]net rather than synapseprotocol.com). When they connect their wallet and click to approve a transaction, they’re unwittingly transferring funds directly to the scammer. The implications are permanent loss of money, loss of wallet, and ongoing phishing attack by signature theft and phony prompts.
Cross-chain bridges enable interoperability, the major criteria for blockchain technology development and innovation across blockchain networks. Cross-chain protocols are changing the way we transact, cooperate, and innovate in the digital world by making it possible to interact seamlessly between different blockchain networks.
Wrapped Bitcoin (WBTC) is an ERC20 token that represents Bitcoin (BTC) 1:1 and is backed by BTC through its issuance from partner custodians. The WBTC bridge is the system that permits users to wrap and unwrap native BTC as ERC-20 WBTC. The WBTC bridge is a custodial and semi-centralized bridging protocol ran by a consortium of custodians, merchants.
The Portal Bridge is a canonical token bridge for the Wormhole protocol to support asset and message moving cross-chain among many blockchains such as Ethereum, Solana, BNB Chain, Avalanche, etc. Portal Bridge is a distributed cross-chain bridge based on Wormhole and the Internet-of-Blockchains (IoB) layer for the Web3 stack. It enables users to transfer assets (tokens and NFTs, say) and to send arbitrary messages across disparate block chains.
Orbiter Finance has a unique model involving two main actor roles:
This means transactions are processed in a very short duration of time, often 10–20 seconds and with no need to mint additional tokens – in turn this keeps everything decentralized and is likely to be less expensive.
The Polygon Bridge is a trust-minimized, officially developed bridging solution for the Polygon (formerly Matic) network. It enables users to safely and efficiently move tokens and NFTs back and forth between Ethereum and Polygon. The Polygon Bridge connects Ethereum (Layer 1) to the Polygon PoS (Layer 2). It allows for ERC-20 tokens, ERC-721 NFTs, and any other asset to be transferred between the two chains. The bridge is trust-minimized and non-custodial which means Ethereum validators secure the bridge.
Avalanche Bridge (AB) is the official cross-chain bridge developed by Ava Labs to bring about instantaneous, secure, low-cost asset transfers for Avalanche and Ethereum, and further expanded support for Bitcoin and BNB Smart Chain, more chains in the future. Avalanche Bridge is a non-custodial bridge tool that lets users to move assets, wrap assets, and utilize cheaper gas fees and faster transaction.
Bridges for blockchains have promising future, as the industry's demand for cross-chain operability still increases. Given that developers and users are increasingly realizing the potential value of interconnecting once-separated networks, we are likely to see much more in bridging technology. Developments going forward are expected to be oriented towards:
As the blockchain industry matures, we believe that bridge between blockchains become essential in establishing a more connected and accessible decentralized community.
Now with crypto bridge explained you can see that this is a critical technology in implementation of asset and data transfer across heterogeneous blockchain networks. Blockchains bridges work much like direct flights between two cities — each one connects a particular pair of blockchains and allows assets to travel directly between them. But just as with flights, each bridge has its own rules, schedules and ways of engaging. Those travelers (assets) need to fit into the systems of the blockchains they are transferred to or from, so each new transfer is a special little snowflake of its own.
