Blockchain interoperability incorporates transferring data from blockchain A to blockchain B without duplicating it in the end place. Besides the ability to transfer all kinds of digital assets, blockchain bridges can also transfer smart-contracts execution conditions. Interoperability has the potential to be the catalyst for Internet innovation. Improving blockchain networks’ interoperability and their widespread adoption depends on using blockchain bridges. The number of users, bridges, and overall transaction volume on these bridges have all increased exceptionally. As the Internet transitions to Web3, the blockchain bridge will also keep expanding in the future.

What is the Need for Blockchain Bridges

All blockchains, however, have unique rules and consensus methods and evolve in closed contexts. This prevents them from interacting naturally and prevents tokens from moving freely between blockchains. There are bridges that link blockchains, enabling the exchange of data and tokens between them.

An entirely new ecosystem unsurfaced, and people’s interest in programmable blockchains and cryptocurrency usage spiked high. Various newer blockchains based on different consensus protocols came into existence shortly afterward. Blockchain bridges help to minimize traffic on congested blockchains, such as the Ethereum ecosystem, and distribute it over other, less crowded blockchains, enhancing the Ethereum network’s scalability. As one of the most popular solutions to bridging blockchains is to require some level of trust this naturally brings the disadvantages of a single central point of control. A more sophisticated form of token bridge enables a user to perform exchanges between networks.

What is the Need for Blockchain Bridges

A single chain’s throughput capacity bottleneck could hinder large-scale blockchain interoperability. Custodial bridges require users to place their trust in a central entity to properly and safely operate the system. Users should do extensive research to ensure that this entity is trustworthy. Blockchain bridges can be categorized according to their functions, mechanisms, and levels of centralization. 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.

The simplest way to implement a bridge is to use some trusted authority to monitor the source blockchain for messages emitted by relevant smart contracts and relay them to the target blockchain. They get their value because they are backed one-to-one with assets on another blockchain or by the guarantee of an asset like USDT in the future. An exact one-to-one backing is crucial to ensure that a wrapped asset retains the value of its non-wrapped counterpart. Therefore, to redeem assets locked on the source blockchain, users must burn their wrapped assets on the target blockchain. Burning simply refers to the process of sending assets to an address to which no one holds the private key required to move received tokens. Generally, applications designed for one network only work within that network, limiting their potential for broader adoption.

  • The first bridge was created in 2004 as an interconnection between two virtual machines.
  • The receiving chain does not have to keep a complete record of headers, which greatly reduces storage needs.
  • Users should do extensive research to ensure that this entity is trustworthy.

A user might choose to deposit their collateral on a blockchain with stronger security assumptions and borrow assets on a chain that facilitates faster, cheaper transactions, for example. When talking about blockchain bridges, it’s handy to use some specific terminology. The blockchain on which the data originated is usually referred to as the source blockchain.

However, there are not as many reliable services available today, which could force users to trust smaller and less-known companies. One of the most popular trusted bridge initiatives is Wrapped Bitcoin (wBTC), which allows sBitcoin users to pursue the opportunities of Ethereum. Blockchain bridges utilize wrapped tokens to facilitate interactions between blockchains.

Alice sends units of Token A to a specific address on the source chain (e.g. Ethereum) and pays the transaction fee. 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. Bridges are necessary because blockchains are like silos unable to communicate with each other.

XDai is secured by a set of validators different from those who maintain the Ethereum network. Blockchain networks are decentralized and rely on their own governance rules and communities. While data stored on the chain is fully transparent, the infrastructure of the network is designed to serve a stand-alone ecosystem. Although blockchain technology has proven to be effective in some scenarios, it has a siloed nature, preventing the progress of DeFi and other decentralized applications. Rather than utilizing the functionalities of different dApps to facilitate growth, the technology is limited due to the lack of communication between separate chains.

What is the Need for Blockchain Bridges

Additionally, users can access new platforms and leverage the benefits of different chains. Moreover, developers from different blockchain ecosystems collaborate and build new platforms for users. Moving assets away from a congested blockchain network does not necessarily solve the scalability issue because users may not always have access to the same suite of dapps and services.

There is a requirement for some actor to “relay” the block headers and proofs. While it is possible for a user to “self-relay” transactions, there does exist a liveness assumption that relayers will continuously forward data. Users first deposit assets to a smart contract on the source blockchain to bridge their assets using a trust-minimized implementation.

A blockchain bridge serves as the ideal solution for interoperability among different types of blockchain networks. It opens up the scope for applications based on one blockchain network to use the resources of another blockchain network. Both reliable what is a blockchain bridge and how it works and trustless methods may have underlying technological faults. 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.

For example, the Ethereum-Polygon Bridge is a decentralized two-way bridge that works as a scaling solution to the Ethereum network. As a result, users can benefit from faster transactions and lower transaction costs. When it comes to bridge development, the importance of smart contracts cannot be understated. This is particularly true for decentralized bridges, which rely on self-executing programs to power their core functionalities, such as the minting and burning of wrapped tokens. Badly written or poorly optimized smart contracts could create potential exploits or other vulnerabilities that could be targeted by bad actors. One such example is the Wormhole hack in February, in which a hacker was able to steal 120,000 wETH by exploiting smart contract vulnerabilities.