What Are Blockchain Bridges and How Do They Work?

One of the most popular Ethereum-Bitcoin bridges is Bitgo, which uses the centralised bridge approach. It acts as a single trusted Custodian bridging Bitcoin and Ethereum through a lock-mint/burn-release approach. Though complicated, the core feature of blockchains is verifying the data they hold without trust.

You can bridge any ERC20 token to Avalanche and back using the Avalanche Bridge. At the time of writing, there is almost 270,000 wBTC in circulation, mainly used in DEFI applications. WBTC complies with the ERC-20 token standard used by Ethereum, so it can be used across its ecosystem. Users are also responsible for their funds because there is no centralized system to do that for them.

• These two chains have their own protocols, rules, communities, and consensus mechanisms and thus, interoperability between them is not possible.
• Ethereum, Binance bridge, Avalanche, and Polygon PoS are some of the most famous bridges available.
• The difference explains who controls the tokens that are used to create the bridged assets.
• The growth of new blockchain networks focused on ensuring combined benefits of decentralization, scalability and security.

This approach satisfies the trustless element and can handle any data but cannot be generally applied; it requires a custom solution for each cross-chain bridge. A blockchain bridge facilitates the conversion of one native asset from one blockchain to its equivalent on another blockchain. Most of the time, the conversion of assets on bridges requires lower transaction fees than other platforms.

Blockchain bridges offer unique features and adaptations that contribute to the growth of blockchain technology. They allow fluid switching between blockchain networks, benefiting investors, developers, and users. Blockchain bridges provide opportunities for user growth, asset production, transfer, and scalability. They also lower transaction fees and enhance speed, especially with layer two solutions.

To be more precise, a trusted bridge’s centralized feature has a primary pain point, but trustless bridges are vulnerable to flaws in the application and the underlying code. But, if there is any issue with the smart contract, it is almost certain that someone will try to take advantage of it. There are architectural flaws in both trusted as well as trustless platforms that compromise the security of the blockchain bridge in various ways. Finally, blockchain bridges could expose the underlying protocols to risks related to the disparity in trust.

As a result, there are varying bridge designs with unique value propositions. Furthermore, the best bridges will be the most secure, interconnected, fast, capital-efficient, what is a blockchain bridge and how it works cost-effective, and censorship-resistant. These are the properties that need to be maximized if we want to realize the vision of an “internet of blockchains”.

A bridge may allow the free transfer of assets between two blockchains, or it may have specialized functionality. For example, Solana’s Wormhole bridge or the Avalanche bridge are bi-directional bridges allowing anyone to move Solana or Avalanche assets respectively to and from Ethereum. However, Wrapped Bitcoin specifically allows users to send BTC to and from Ethereum and does not support additional assets or blockchains. Wrapping assets makes non-native assets interoperable with almost every application on a target network.

For example, a chain anchoring verifiable credentials on Polkadot could be used for KYC (Know Your Customer) requirements by a gaming company built on Ethereum. Bridges allow applications to be even more decentralized, as they are no longer limited by their network of origin. Generally, applications designed for one network only work within that network, limiting their potential for broader adoption. Users don’t have to trust any central authority with the responsibility for their assets. Furthermore, a trustless bridge offers complete transparency by leveraging the advantages of mathematics, computer science and cryptography for security of transactions.

Given the problem of blockchain interoperability a significant proportion of the value within the crypto system is locked out of Ethereum-based DEFI applications. While a bridge can alleviate congestion on a busy network, moving assets away to another chain doesn’t solve the scalability issue as users won’t always have access to the same suite of dapps and services. For example, some Ethereum dapps are not available on the Polygon Bridge, which limits its scaling efficacy. The centralized entity behind a custodial bridge could theoretically steal users’ funds.

However, it eventually became evident that Ethereum couldn’t scale according to the pace of demand as the network suffered from congestion during peak usage. They are trustless, meaning that the bridge’s security and that of the underlying blockchain are identical. Users cannot, for instance, utilise ether (ETH) on the Ethereum blockchain or Bitcoin (BTC) on the Ethereum blockchain. Therefore, if user X wishes to pay another user Y for something but Ethel only accepts ETH, X runs into a problem.

The identity of the thief remains a mystery, even as the stolen assets continue to be moved and laundered for all to see on the blockchain. According to Holmes, crypto helps solve this dilemma, with some users wanting to be able to hold their funds digitally in U.S. dollars due to fluctuations https://www.xcritical.in/ in exchange rates or to hedge against inflation. With the non-custodial wallet, users can deposit cash and hold the funds as USDC before deciding when to transfer it into a different currency. You can begin by setting up a smart contract for the core of the blockchain bridge.

Some bridges, known as unidirectional or one-way bridges, allow you to port assets only to the target blockchain and not the other way around. For instance, Wrapped Bitcoin allows you to send bitcoin to the Ethereum blockchain – to convert BTC to an ERC-20 stablecoin – but it doesn’t let you send ether to the Bitcoin blockchain. A blockchain bridge is a tool that lets you port assets from one blockchain to another, solving one of the main pain points within blockchains – a lack of interoperability.

There are blockchains that employ APIs to start the token transfers, therefore, being extremely vulnerable to fraudulent transactions. Thus, it is important to remove all the APIs from the ecosystem of a decentralized bridge so that is safe and offers robust transaction security. You can follow the step-wise guide given below to initiate a decentralized BSC to ETH bridge. This is a disadvantage to the blockchain network compared to regular fiat transferring. You can interchangeably send fiat currency to whatever bank you want using credit cards. So, the lack of interoperability in blockchains renders the technology inefficient.