What is a Blockchain Bridge?

Modern blockchain technology has its limitations, especially with how quickly the Web3 space moves. With that comes the need for more options for users and increased scalability for blockchain developers. That is why blockchain bridges play an important role in the development of blockchain technology.

A blockchain bridge, aka a cross-chain bridge, connects blockchains together so that users can send and receive digital assets and data between different blockchains.

With that comes many questions regarding the impact of blockchain bridges, their purpose, as well as their safety. In this article, we cover it all.

The main point of a blockchain bridge is to act as a way for different blockchains to interact with each other. Many blockchains lack interoperability, meaning that they can’t communicate well with each other on their own. Hence why a bridge has to be implemented.

Considering assets from one blockchain are generally not compatible with a foreign blockchain, a bridge actually acts as an asset from another blockchain.

For example, say you want to bring Bitcoin to the Ethereum blockchain to spend it, the bridge wraps the Bitcoin in a blanket of code so that it is compatible with the target blockchain.

In the case of Ethereum, the bridge simply turns the Bitcoin token into an ERC-20 token—the native fungible token of Ethereum—which allows it to be used as if it were an Ethereum native token.

There are a couple of variations of blockchain bridges. Below are the two types of blockchain bridges that currently exist.

• One-way bridge (unidirectional)
  A one-way bridge allows you to send assets only to the target blockchain, but not back to its native blockchain. For example, Wrapped Bitcoin allows you to transfer Bitcoin to Ethereum as an ERC-20 token, but you can’t send ETH back to the Bitcoin blockchain.

• Two-way bridge (unidirectional)
  A two-way bridge allows you to trade assets freely between blockchains. You can send ETH to the Solana blockchain, and likewise, you can transfer SOL to the Ethereum blockchain.

In addition to the freedom of which direction bridges allow you to send and receive assets, there is also a variation in the bridge’s custodian, or, who controls the assets used to create the bridged asset.

• Custodial (centralized or trusted)
  If a bridge is custodial, that means only one centralized entity is in control of the assets. Take Bitcoin for example. All wrapped Bitcoin is held by BitGo, a centralized digital asset trust company.

• Non-custodial (decentralized or trustless)
  A trustless or decentralized bridge operates on the blockchain using smart contracts and algorithms, as a result, users remain in control of their assets.

So what makes a blockchain bridge so significant then?

All blockchains have their limitations, that’s exactly why bridges have been created.

Blockchain bridges are important because they enable users to move and utilize their digital assets in more efficient and effective ways, as well as scale to support growth and change.

For Ethereum to keep up with demand, rollups have been implemented. Of course, mainnet blockchains like Avalanche have created a network to enable higher throughput, but at the cost of decentralization.

However, blockchain bridges allow networks that are limited to scale and communicate in ways they were not originally designed to do.

Blockchain bridges enable the following:

• Cross-chain transfer of digital assets and data.
• Dapps to access the benefits of various blockchains which enhances their capabilities.
• Collaboration between different blockchains allows more options for its users.
• Users to access new platforms and enjoy the benefits of different blockchains.

Blockchain bridges also come with many pros and are the reason why so many people choose to use a bridge, including:

• Lower transaction fees.
• Better interest rates for certain Dapps.
• Own native crypto-assets (you can own a Bitcoin NFT like Rare Pepe on the Ethereum blockchain).

Although there are many benefits to using bridges, you can expect there to be some cons as well. This leads many of us curious to know if blockchain bridges are safe to use.

Blockchain technology, especially bridges, is still in the very early stages of development so of course there are going to be some concerns. Below is a list of concerns that have been exposed when using blockchain bridges.

• Smart contract hacks
  Errors in a blockchain bridge’s smart contract put users at risk of the bridge being hacked and funds being stolen. Most recently, the popular blockchain game Axie Infinity—which utilizes the Ronin bridge—was hacked resulting in $600 million of stolen funds.
  
• Custodial risk
  Technically, operators of custodial blockchain bridges could seize the funds of all their users, and even shut down the bridge to stop users from transferring assets.

In general, users of blockchain bridges are at risk if:

• The smart contract has a bug.
• The user makes an error.
• The blockchain is hacked.
• The bridge gets hacked.
• The operators have bad intentions.

At this point in time, it doesn’t seem uncommon for bridges to be hacked. That’s why you should always educate yourself on the potential risks of using bridges, as well as the specific bridge you are contemplating using.

Obviously, blockchain bridges provide great opportunities for the market and a promising future for multi-chain interactions. But at what cost? Only time will tell.