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What is a Cross-Chain Bridge and How Does It Work

What is a Cross-Chain Bridge and How Does it Work?

Until a few years ago, people normally did not take blockchain seriously. Today, every person around the world has at least heard of what a blockchain is, and the crypto market has grown rapidly. It is all because of the decentralization, security, and investment opportunities that the blockchain provides. But what is the next step for this technology? 

Experts say that developers are trying to tackle the issue of interoperability. Moving forward in this direction, crypto cross-chain bridges have become a blessing for the crypto world. As the name suggests, it helps create a bridge between blockchains, surpassing their protocols, therefore letting the users operate on two chains simultaneously. What is a cross-chain bridge exactly? And how does it provide interoperability? These are the questions that we will be getting into now. 

What is a Cross-Chain Bridge?

Let us consider what operating assets on two blockchains look like without a cross-chain bridge. Suppose a user wants to convert asset A from the ETH chain and generate a new asset B on the BSC chain. They will first require a conversion platform to do so. The platform will lock in asset A from the ETH chain and generate a new token on the BSC chain. The process takes about ten to twenty minutes, and the gas required costs about $10 to $20. Now imagine the struggles for people who have to do such transactions daily. 

What is a cross-chain bridge, you ask? It is a blockchain bridge that helps transfer assets, tokens, and smart contracts between chains. It helps in the interoperability of two different chains by creating a secure network amidst the chains. Wanchain was the first crypto cross-chain bridge launched in 2018. Currently, there are lots of chain bridges that are going live every day. So, interoperability is an issue of the past, now that cross-chain bridges provide easier operations.

How Does a Cross-Chain Bridge Work? 

How Does a Cross-Chain Bridge Work
Source / What is a cross-chain bridge: working of the best cross-chain bridges

The best cross-chain bridge is the one that allows the users to lock and mint their tokens easily, and that too at low transaction costs. The whole function of a crypto cross-chain bridge relies on the lock and mint mechanism. In this mechanism, there is a requirement for a ‘guardian’ that will help with the whole transfer of tokens from one chain to another. It will be better to take an example to explain this part to you. 

Suppose you have 20 BTC on the native chain but want to operate on the ETH chain without purchasing new ETH-compatible tokens. Cross-chain bridges provide a path for the users to get wrapped tokens compatible with the other chain to operate on them. So, you will have to send these 20 BTC tokens to the bridge’s address, and after the tokens are deposited, a ‘guardian’ gets the information about the transfer. He then freezes the native token and generates wrapped BTC (wBTC) on the ETH chain, which is compatible with that chain. Users can operate using these wrapped tokens on the new chain, and when they want to get their original tokens back, they have to send the wBTC to the guardian’s ETH address. After paying a small transaction fee, you get the original BTC back. This way, the users can operate on multiple chains using a single asset, and that too, without worrying about the depletion of their investments due to converting to different assets. 

Wrapped tokens are gaining popularity along with cross-chain bridges because they favor blockchains’ interoperability.

Why Is a Cross-Chain Bridge Important?

A crypto cross-chain bridge is very important for the current scenario of blockchain technology. Blockchain has allowed people worldwide to earn passive income through careful investments. Earlier the majority of income came from holding assets. Now, options like staking, yield farming, lending pools, etc., make it easier for people to earn returns. The only problem that people have to face is that all of this cannot be done easily without the interoperability of blockchains. A token has to be blockchain compatible for users to stake, lend or even hold it.

Cross-chain bridges add productivity to cryptocurrency by making it possible to use different tokens on a blockchain. Users can even mint NFTs on different blockchains to use as collateral. A crypto cross-chain bridge also offers the chance to enhance the user experience. It does so by offering a chance to use the capabilities of multiple blockchains on each other. For example, the de-facto platform of the ETH chain that offers high security and opportunities to create DApps can now be used with chains like Polygon, Arbitrum, etc.

 Also, for a DApp to gain popularity and have more users, they need to have more liquidity. Often, new DApps lack this liquidity due to a lesser audience. Cross-chain bridges help such DApps to get more liquidity. The chains like BTC, ETH, Polygon, etc., have excess liquidity at times. DApp developers can use this liquidity to get a higher TVL. Best cross-chain bridges also offer a chance for developers to create decentralized apps through cross-chain functionalities. The developers can switch between networks whenever they face congestion or problems with UI. All such factors add to the importance of a crypto cross-chain bridge.

What are the Types of Cross Chain Bridge?

Source / What is a cross-chain bridge: Types of cross-chain bridges

1. Supported Chains

a)Transferring One Asset Between Two Chains

As the name suggests, such a crypto cross-chain bridge offers to transfer a single asset between two chains. For example, wBTC is a cryptocurrency that allows the transfer of BTC from the native chain to the ETH chain. Such a cross-chain bridge operates on simple functions and is frequently used.

b)Transferring Many Assets Between Two Chains

Now that we are talking about transferring assets between two chains, multiple bridges offer to transfer various assets between two chains. Let’s discuss an example of such a bridge: the Rainbow Bridge. It is a cross-chain bridge that can send ETH and other ERC-20 assets to the NEAR protocol.

c)Transferring Assets from One Chain to Multiple Chains

Moving forward, many users require the transfer of assets between multiple chains. This kind of crypto cross-chain bridge allows users to connect one chain to multiple other chains. Wormhole is one bridge that offers transferring assets from Solana to chains like Ethereum, Fantom, Avalanche, Terra, and Polygon.

d)Transferring Multiple Assets Between Different Chains

Taking another step into offering interoperability of blockchain networks, some bridges allow users to transfer multiple assets between chains. Such bridges can help developers create DApps that offer higher app liquidity. Ren Bridge is one such example that offers to transfer BTC, Dogecoin, and ZCash between ETH, Luna, Solana, and Polygon.

e)Transferring Assets Across Different Chains Under One Application

Now, DApps require higher liquidity to attract more users. Cross-chain apps like AnySwap DEX offer the option of transferring multiple assets on different chains under one platform itself. Such a crypto cross-chain bridge makes using a DApp easier and more functional.

f)Transferring NFTs Between Different Chains

Now that blockchains are offering a chance to transfer tokens between chains, transferring NFTs between blockchains is becoming popular as well. Users get the option of minting NFTs on a chain with a lesser transaction fee. It also offers higher liquidity to the users.

2. Trust Mechanism

According to the trust mechanism placed on the crypto cross-chain bridge, they can also be classified into this category. Trusted bridges make it mandatory for the users to allocate their assets to a custodian or a guardian that gets confirmation of transferring assets, locks in the native token, and mints the wrapped token. This whole type of cross-chain bridge relies on the compatibility and custodian trust factor. The custodians assigned to a user are chosen randomly, and the deposit proofs are created through smart contracts. Initially, there were problems that users raised about giving control to the custodians, but with the introduction of smart contracts, trust mechanism-based cross-chain bridges have become popular.

Benefits of Cross-Chain Bridges

Learning about what is a cross-chain bridge, you will come across multiple benefits that it offers to the users. Some of the major benefits that cross-chain bridges offer are:

  • As discussed earlier, a crypto cross-chain bridge also offers the chance to move crypto assets between chains efficiently. It is a benefit that opens up more opportunities for developers to create better-functioning DApps and take advantage of passive income options like yield farming, staking, lending pools, etc.
  • Cross-chain bridges offer a chance to get unique benefits with the option to switch between applications. Faster transactions, lower gas charges, etc., are some benefits that cross-chain bridge offers.
  • Execution of blockchain transactions also becomes easier with the help of cross-chain bridges. For example, users can switch from the layer 1 network to the layer 2 network to get higher throughput and cheaper gas.
  • An example to look upon the benefits provided by cross-chain bridges is taking a look at Aave. Sometimes you might be unable to use Aave at a layer 1 chain due to congestion. You can use the DApp at a layer 2 network for faster operations. You must transfer ETH and get Matic tokens minted to use Aave on the Polygon chain.

Risks of Using Cross-Chain Bridges

1. Centralization

Since you have gained knowledge about trusted mechanism bridges, you know that cross-chain bridges can seem to be centralized. This means that the need for a custodian or a guardian makes people doubt if these operators might gain power over the transfer of assets. Holding the frozen token, notifying the bridge about the transaction, verifying proofs of the transaction, minting and burning wrapped tokens, etc., are all the tasks that the custodians perform. All of such things may seem like centralization, which is moving away from the very principle of blockchain.

2. Theft of Funds

There may be cases where the power provided to the custodians can also be used to steal the users’ funds. Since the custodians get to freeze the user tokens, they may find a loophole to steal these funds and cause a major disruption in the bridge services. Although, cross-chain bridges try to tackle this issue by asking the custodians to sign some ‘bond.’

3. Poor Liquidity

Decentralized bridges are not very popular in terms of providing higher liquidity to the users. The users of such bridges do not have much incentive to keep their assets locked on a blockchain and therefore add to the liquidity of a cross-chain bridge. This will cause the users to feel like the bridges are not providing them enough benefits.

4. Risk of Censorship

While using a token on its native chain, the network provides censorship resistance to the users. But with the usage of cross-chain bridges, this censorship is usually lost, and the user funds might keep getting burnt or stay locked up even after the users demand options. This will cause a huge loss to the users, contributing to the disadvantages of using a crypto cross-chain bridge.

5. Technical Vulnerabilities

One of the biggest thefts occurred in the blockchain world when hackers stole around $320M from the Wormhole cross-bridge chain. This hack occurred only because of a small flaw in the smart contract used by the bridge to mint and burn the user funds. 

Another case of technical vulnerabilities posed by using a crypto cross-chain bridge is Qubit Finance’s ETH-BSC bridge hack, where the hackers stole $80M by minting 206809 BNB coins. Decentralized bridges rely on smart contracts, which may have flaws. In such hacking cases, the bridges even had to beg the hackers to return the funds. Hackers usually exploit the immutable nature of the blockchain to carry out such activities. Smart contracts are only as secure as the developers make them, so a flaw in their initial coding can make people lose all of their investments in just one minute.

6 Best Cross-Chain Bridges

1. Polygon PoS Bridge
2. Binance Bridge
3. Wormhole
4. Ren Bridge
5. Synapse
6. cBridge

1. Polygon PoS Bridge

If you wish to transfer assets between the Polygon and ETH chains, then the Polygon PoS Bridge is the right choice. It can be considered the best cross-chain bridge in terms of offering a chance at the secure transfer of assets on the decentralized bridge. Users can transfer NFTs and assets from the Polygon sidechain to the ETH mainnet.

2. Binance Bridge

Binance bridge is one of the best platforms to access popular BSC DeFi apps like PancakeSwap, Venus, BeefyFinance, etc. It offers the option of transferring assets from the Binance smart chain to the Ethereum chain. It takes less processing time and costs less to make the transfer of assets. Users also have the liberty to redeem their original tokens anytime.

3. Wormhole

It primarily offers the option to transfer assets between Solana and Ethereum chains. Although, it also has the feature to transfer assets from multiple chains. It helps the users access the low-costing and higher throughput Solana chain. It also supports the transfer of NFTs and uses smart contracts to mint and burn assets.

4. Ren Bridge

It is a multiple-chain supporting cross-chain bridge. It offers a great opportunity to transfer BTC to the ETH chain. The best feature of this bridge is that it offers complete privacy in transactions.

5. Synapse

Among the best cross-chain bridges, there is Synapse too. This bridge offers a chance to earn passive income through leveraging Synapse’s automated market maker. Users can also earn through staking and providing liquidity. It is a great platform to swap tokens and transfer assets.

6. cBridge

It is a cross-chain bridge that supports EVM chains, ETH, and layer 2 networks. It offers a quick transfer of liquidity amongst the blockchains. Also, the users do not have to pay a very high fee.

Conclusion 

Now that you have learned about what is a cross-chain bridge, you must understand how important it is in taking blockchain technology forward. The option of interoperability it offers to the users makes it a highly required asset for the crypto world. Working upon some of its disadvantages, the crypto cross-chain bridge can become the next big thing in the crypto market. It offers the chance to use different assets on multiple blockchains and get the benefits of those blockchains, such as low gas fees. With the implementation of cross-chain bridges, the possibility of having an interconnected blockchain system is not too far-stretched. So, it can be concluded that the best crypto cross-chain bridges are the future of blockchain technology.

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