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There are over 1,000 blockchains in the world, a number that is sure to increase well into the decade. Many of these platforms operate independently of all other blockchains, which brings the question: How do these different blockchains interact and transfer assets amongst themselves?
The answer to that question presents itself as a “Bridge.” In this article, we’ll cover everything you need to know about crypto bridging.
Crypto Bridging: What is it?
A blockchain bridge is a technology created to solve the problem of interoperability associated with crypto assets. It is a protocol that allows different blockchains to interact; it enables the transfer of assets or data without requiring intermediaries.
Think of the various blockchains as countries and the people living within them as assets. For a person to move from one country to another, they require a means of transport, a concept that applies to crypto assets.
Why do we need a Blockchain Bridge?
Before the creation of bridges, exchanging assets in blockchain was very limited and challenging. There were central crypto exchanges where you could deposit and trade your assets for any currency on the platform. This process involved high fees and long delays, which contrasted with the decentralized nature of crypto.
A bridge solves this problem. Now, you can seamlessly convert your digital money; this is especially useful if you have something you wish to buy in a different crypto.
A bridge also addresses the scalability problems that plague many crypto coins. Crypto transactions are like a line to a ride at an amusement park; everyone’s trying to get in, but the ride can only take a certain amount of people.
Now imagine a new ride opened up beside the first, and people then move over to that ride, thus decongesting the main line. This new ride represents a bridge that takes the role of a sidechain or a second layer that allows transactions to be processed faster and more efficiently.
This is seen in blockchains like Ethereum, where users can port assets to faster blockchains like Arbitrum and carry out their trade for a lower transaction fee than they initially would have to pay on the main chain.
Some specific types of bridges also offer a secure way to transfer assets between users. The transfer of assets can only be achieved when the receiver can give proof that they have received the information, thus bolstering security across blockchain platforms.
How do Bridges Work?
Each blockchain project has specific rules and protocols governing its operation, so using BTC on a different protocol like ETH isn’t easy. If you wish to use an Ethereum protocol while having Bitcoin, a bridge enables you to acquire the Bitcoin equivalent of your Ethereum coin.
In some forms of bridges, there isn’t actually any movement of assets; what the bridge does is replicate what the equivalent of your BTC token would be in the form of a special token called Wrapped Bitcoin on BNB, which can be used in the Ethereum ecosystem.
After this, smart contracts keep track of every transfer or usage of your tokens, ensuring that every token is allowed the right amount of Wrapped Bitcoin.
Types of Bridges
Crypto bridging comes in different forms, with each blockchain bridge having a different function or usage. The main types of bridges are:
- Trusted Bridges
- Trustless Bridges
- Sidechain Bridge
- Cross-chain bridge
Trusted Bridge
A trusted bridge is one of the main categories of bridges, and a central authority or validator controls the protocol. These validators act as middlemen that facilitate the transfer of assets.
A user would first deposit their assets as a smart contract to the validators, which is verified, and the equivalent in a different currency is issued. In this system, the system’s security depends on the integrity and trustworthiness of the central authority, hence the name “Trusted Bridge.”
Trustless Bridge
The decentralized nature of the system is the main talking point. Here, the transfer of your funds is determined by smart contracts and algorithms. This method employs security systems like signatures, cryptographic proofs, and others to ensure the integrity of transactions is not compromised.
Sidechain Bridge
Sidechain bridges are offshoot blockchain networks. These blockchain networks have their mechanisms by which they consent to your transactions. This means they take the burden of particular functions off the main chain. Their transactions are reflected on the main blockchain when they have achieved their purpose.
Cross-chain Bridge
A cross-chain bridge connects different blockchain networks, bypassing the issue of variation in protocols and rules and allowing interoperability across multiple blockchains.
What does bridging bring to the Crypto space ?
Bridging has solved multiple issues in the crypto space; its functionality breaks the borders that initially limited operations. Bridging offers many benefits that contribute to the growth of the blockchain ecosystem. They are:
Interoperability
Bridges makes it easy to move digital assets across disparate platforms. This means that blockchains have many more uses, giving you more access to various decentralized applications and services.
Expanded Market Access
With crypto bridges, you can buy and sell assets in more places. It’s like being able to shop at many stores instead of initially having to go to a singular store, giving you a range of options.
Solves Scalability
A common issue with crypto is the congestion of transactions, which usually causes long delays in transaction verifications. However, with bridges, transactions can be achieved faster and at a lesser operation cost.
Risk Diversification
By using crypto bridges, you can spread out the risks of your assets across multiple blockchains. What this means is that the risk associated with a single blockchain may not pertain to other blockchains, which means you can benefit from and manage the risks of your assets by choosing the advantages of different platforms.
Decentralization and Trustlessness
Most bridges, except trusted bridges, operate in a decentralized manner. This eliminates the need for middlemen, reduces the risk of third-party manipulation of assets, and enhances transaction security.
The risk associated with Bridges
While bridges offer exciting opportunities for cross-chain collaboration, they also present a unique set of risks that we must highlight. Here, we’ll look at the potential risks associated with crypto bridges. They are:
Loss of Funds
One risk associated with bridges is that something might go wrong with the bridge, and you could lose your assets. Like crossing a bridge in real life, there’s always a chance it could break, and you could lose what you’re carrying.
Security Issues
Because bridges involve moving assets between blockchains, there’s a risk that someone could hack into the bridge and steal your assets or manipulate your transactions.
Smart Contract Risks
Bridges often use smart contracts, which are like digital agreements. If there’s a mistake or a bug in the smart contract, it could lead to unexpected outcomes or loss of funds. It’s like signing a contract without reading the fine print and later realizing a problem.
Regulatory Risks
Bridges operate across different jurisdictions and may be subject to regulations and legal uncertainties. Changes in rules or government actions could impact the operation of bridges and affect your ability to access their funds.
Summary
Throughout this article, we’ve shown you the fundamental principles of crypto bridges and examined the various types and functionalities. Crypto bridge mechanisms serve as crucial connectors, facilitating interoperability and enabling seamless transfer of assets and data between disparate blockchain networks.
