What Are Cross-Chain Bridges?
The multichain future is a present reality as newer blockchains continue to launch. Per stats, there are 125+ Layer 1 and Layer 2 blockchains, each offering unique tradeoffs, security guarantees, scalability, and so on. With the explosion in blockchains comes a need for better interoperability in the blockchain ecosystem.
Developers have worked hard to create cross-chain and multichain protocols, which facilitate communication between different blockchains. This guide explores the cross-chain ecosystem and details the importance and classification of cross-chain apps.
What is a cross-chain bridge?
A cross-chain bridge connects independent blockchains and enables the transfer of assets and information between them, allowing users to access other protocols easily.
Bridges are necessary because blockchains are like silos unable to communicate with each other. For example, you cannot use BTC on Ethereum or ETH on BTC. This contrasts with the legacy systems like banking, where your credit card can work for several providers.
Interest in blockchain bridges is a result of the expansion of the blockchain ecosystem. In the past, not many cared about using other blockchains; users would likely use Ethereum for dApps or Bitcoin for high-value transfers.
But the drawbacks of these popular blockchains, like Ethereum, encouraged the development of newer platforms. These new chains offered benefits like cheaper transaction fees, higher network throughput, and access to innovative yield-earning activities.
Still problems remained: users couldn't move assets seamlessly from older platforms to these newer blockchain networks.
Say you had funds on the Ethereum network (ETH) and needed to use a Layer 2 network like Polygon. Your best option would be to convert ETH to MATIC using a centralized exchange, like Coinbase or Binance.
Then you'd send the tokens to your wallet address on the Polygon chain to use the network. But what if you needed to move funds back to Ethereum? You'd need to repeat the same conversion process all over again.
A cross-chain bridge helped solve the problem by providing an easier way to move funds between different networks. One of the earliest cross-chain bridges, Wanchain, launched in 2018. Since then dozens of bridges have gone live, sporting unique tradeoffs, strengths, and use-cases.
In the next sections, we look at the mechanics of cross-chain bridges.That is, how exactly do bridges move assets between different blockchain networks? And why is that important?
How does a cross-chain bridge work?
Most cross-chain bridges use a lock-and-mint model for moving value between chains. Here's how that works in practice:
1. Alice sends units of Token A to a specific address on the source chain (e.g. Ethereum) and pays the transaction fee.
2. Alice's Token A is locked up in a smart contract by a trusted validator or held with a trusted custodian.
3. Equal units of Token B are minted on the destination blockchain (e.g. Polygon).
4. Alice receives Token B in her wallet address and can freely use it to execute transactions on the new blockchain.
But what if Alice is done with her business on the second chain and needs Token A? That's where the burning mechanism comes into the picture:
1. Alice sends leftover units of Token B to a specific address on the second chain. These tokens are "burned" in the sense that they are irrecoverable.
2. The validator or custodian triggers the release of Alice's Token A on the source chain. Alice then receives the released funds in her original wallet.
It is critical to understand how a cross-chain bridge really works. You can't actually send BTC to an address on the Ethereum network. Either your transaction fails, or you'll lose your funds.
Cross-chain bridges work by "wrapping" tokens in a smart contract and issuing native assets you can use on another chain. For instance, wrapped BTC (wBTC) is an ERC-20 token that uses BTC as collateral. Users must deposit BTC on the Bitcoin blockchain before receiving wBTC tokens on the Ethereum network.
Another popular wrapped asset is wrapped ETH (wETH). This is a tokenized version of ETH used on other platforms that support ERC-20 tokens, such as Avalanche or Arbitrum.
From the above explanation, it's obvious that cross-chain bridges involve considerable complexity. Nonetheless, bridges are growing popular every day—so they must have some benefits.
We explore the benefits of a cross-chain bridge, for users and developers, in the next section.
Why do we need a cross-chain bridge?
A cross-chain bridge is important because they allow for greater productivity of assets, better user experience, and maximum liquidity for dApps.
Greater productivity of assets
Much of the income generation in crypto was usually limited to HODLing assets, like BTC or ETH, and hope for dramatic increases in token prices. Due to the growth of decentralized finance (DeFi) projects, users can now access better means of generating passive income, such as yield farming, staking, and lending.
There's a caveat, though—you cannot use these platforms if your tokens aren't compatible with the underlying blockchain. It's impossible to use BTC for an Ethereum-based staking service or ETH for an Avalanche-based yield farm.
You can solve this problem by using a blockchain bridge to move your assets across different chains. For instance, you can use BTC as collateral for the wBTC, which can be used on the Ethereum blockchain. This ensures that cryptoassets produce extra value, instead of lying dormant on one blockchain.
Another excellent example is using non-fungible tokens (NFTs) on different chains. You could, for instance, use an NFT minted on Polygon as collateral for a loan on Ethereum via NFTfi.
Better user experience
Within the blockchain ecosystem, each platform has different benefits—better security, cheaper gas fees, faster transaction finality, and more. A cross-chain bridge provides access to alternative platforms, allowing users to harness features that the origin blockchain might lack.
We'll illustrate this point using Ethereum as an example.
For years, Ethereum was the de-facto platform for building and using decentralized applications (dApps). Ethereum also offered a high level of decentralization, which meant dApps were secure and censorship-resistant.
But Ethereum's decentralization and security came with tradeoffs—especially high gas fees and slow transactions. This made the user experience poor and impacted dApp usability.
In recent years, developers have created new blockchains to remedy Ethereum's failings—Polygon, Arbitrum, Flow, and zkSYNC are great examples. These new-generation chains have higher network throughput, better gas fees, and richer functionality.
However, if cross-chain bridges didn't exist, using Ethereum alternatives would be difficult. Users would've to follow the token conversion process described earlier in the article—potentially discouraging them from trying at all.
Maximum Liquidity for dApps
Cross-chain bridges help developers since they enable building cross-chain applications and allow application users to interact with the same dApp on different chains. If a network is congested, users can switch to another chain to enjoy a better dApp user experience (UX).
There's an even bigger benefit to integrating dApps with bridges: maximizing liquidity. Total Locked Value (TVL) is a metric used to measure the liquidity (and the number of users) available on a blockchain platform.
As a developer, on-chain liquidity is critical to the growth and usage of your dApp project. The problem is that most new-generation alternatives to Bitcoin or Ethereum have lower usage and liquidity.
Cross-chain bridges, however, allow dApp developers to harness liquidity available on different chains. These applications enable users to move funds between separate blockchains, allowing value to flow between various platforms.
How are cross-chain bridges categorized?
Because of the different qualities of cross-chain bridges, we can easily split them into categories like the types of blockchains they support and the trust mechanisms they have in place. Here’s a broad classification of bridges according to their features:
We can also classify cross-chain bridges according to the type of blockchains they support. This classification covers the following scenarios:
Transferring one asset between two chains
There are bridges for transferring a specific cryptocurrency to another chain. Examples are wBTC (managed by BitGo) and tBTC (managed by Keep Network)--both allow you to transfer BTC from the Bitcoin blockchain to Ethereum.
Transferring many assets between two chains
Some bridges allow you to move more than one token but only between two chains. For instance, Rainbow Bridge can send ETH and multiple ERC-20 tokens from Ethereum to the NEAR protocol. Similarly, Gravity and ZeroSwap allow multi-asset transfers between Ethereum and Cosmos and Binance Smart Chain (BSC) respectively.
Transferring assets from one chain to multiple chains
Certain cross-chain bridges enable users to connect one chain to multiple blockchains. An example is Wormhole, which bridges assets from Solana to Ethereum, Fantom, Avalanche, Terra, and Polygon.
Transferring multiple assets between different chains
Some cross-chain bridges boost interoperability by facilitating the movement of tokens across independent blockchains. Developers can integrate such bridges into dApps to increase available liquidity.
Ren Bridge is a classic example of the bridge described above. This interoperability protocol ports assets, including Bitcoin, Dogecoin, and Zcash between Ethereum, Luna, Solana, and Polygon.
Transferring assets across different chains under one application
Cross-chain dApps often support more than one chain, so they can access more liquidity and users. They rely on bridges that let users move assets across various chains within the same dApp.
However, this type of blockchain bridge is restricted to one application. For instance, Anyswap DEX (now Multichain) had a bridge to allow users to move assets between different (supported) chains.
Transferring NFTs between different chains
Given the size of the NFT market, it’s no surprise there are services for bridging NFTs. NFT bridges are useful for the following reasons:
a. Users can take advantage of cheaper minting fees on other chains.
b. Users can take advantage of higher liquidity by moving NFTs with cross-chain bridges.
Popular NFT bridges include Wormhole, Multichain, Quigon, and Polygon Bridge.
Blockchain bridges can also be classified according to the trust mechanism in place. This broadly refers to the procedure guiding the validation of bridge transactions and custody of locked-up assets.
Trusted (centralized) bridges require users to keep funds on the source chain with pre-selected validators. In this case, custodians are required to confirm user deposits, lock up tokens, and mint tokens on the destination chain.
These bridges have lower trust assumptions, as they use randomly assigned validators to coordinate transactions. They also have lower reliance on trusted intermediaries since smart contract coordinate the lock-and-mint process
Typically, these bridges have a "relayer" mechanism that monitors the origin chain for deposits and creates proofs, which it sends to a smart contract on the destination chain. Thereafter, the smart contract will automatically mint tokens on the target chain
What are some potential risks of using cross-chain bridges?
A cross-chain bridge undoubtedly has many benefits, but it also has downsides that can include theft, failure to work properly, and hacking. Let’s break down some of the vulnerabilities inherent in a cross-chain bridge a bit further and give some examples:
Theft of user funds
In the case of trusted bridges, custodians can go rogue and steal user funds. Some bridges pre-empt this problem by forcing custodians to provide a “bond”, which can be slashed in the event of malicious behavior.
If validators or custodians neglect their duties, then a cross-chain bridge may stop working and affect users. This also introduces the risk of censorship, especially if trusted parties refuse to release funds.
Decentralized bridges aim to reduce trust assumptions and assure users of better safety. In most cases, trustless blockchain bridges use oracles and smart contracts to manage the bridging of assets.
The problem is obvious: smart contracts can always be exploited. Some of the biggest bridge hacks, including the $600m Poly Network exploit and $350m Wormhole attack, resulted from using vulnerable smart contracts.
What are some of the best cross-chain bridges?
Some of the best cross-chain bridges are:
- 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
- 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
- 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)
- 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 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
- Allows for quick and seamless cross-chain transfer of liquidity
- Users don’t have to pay high fees for bridging tokens
- Supports multiple chains including Ethereum, EVM-compatible chains (Avalanche, Fantom), and Layer 2 protocols (Optimism, Polygon, etc.)
- 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)
Cross-chain bridges are critical to a multichain future and can unlock massive value for the blockchain ecosystem. By promoting seamless interoperability between previously-siloed blockchain networks, bridges enable users to access greater liquidity and better UI while extracting more value from owned assets.
And although cross-chain bridges are useful, they pose several risks if improperly designed. Both users and developers must evaluate the security guarantees of any bridge before using it.
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