Explaining Blockchain Bridges to Beginners
Over the years, blockchain development for decentralization has gained significant acceptance across enterprises. Off-late, there are many layer-1 blockchain platforms trying to get closest to solving the blockchain trilemma. Among others, interoperability is an important gap confining the widespread adoption of blockchain.
Now the challenge is, every blockchain has its own smart contract rules, governance policies, protocols, and token standards. This makes it complicated to execute a fast and cost-effective exchange of assets between two blockchains.
To put it simply, blockchain bridges are the connectors that let you port assets from one blockchain to another surpassing the complexities of slow transactions and higher fees.
By enabling cross-chain transfers, they let the users’ access new protocols on other chains. They earn the leverage of multi-environment features. Here’s more about blockchain bridges.
Benefits of blockchain bridges
As mentioned, interoperability is a key benefit of bridging two different blockchain environments. So bet it among layer-1 blockchains, among layer-2 blockchains or even among layer-1 and layer-2 networks, bridging addresses many issues. It enables the exchange of assets including tokens, data and others.
For example, the WBTC allows bitcoin users to send/receive assets directly on the Ethereum blockchain. Such interoperability is important to scale the scope of d-apps and deliver high performing, user-centric applications.
Another significant purpose of building blockchain bridges is to enhance the scalability quotient of the blockchain networks. While we are at it, the Ethereum-Polygon Bridge is a classic example. The blockchain bridge does a two-way transfer of assets and works as a scaling solution to Ethereum. This empowers the users with lower costs, high speeds and ultimately delivers great customer experience at the front end.
Blockchain Bridges and Wrapped Tokens
To better understand this, let’s first understand the concept of wrapped token. A Wrapped token is a tokenized version of another crypto asset. This means, tokenizing an already existing currency or token.
Now, one simple example of bridges are token transfers that we do in our wallets. If a user has to sell a token ‘A’, s/he can directly do it by swapping with another token ‘B’. For example, selling BTC worth 10 USD into ETH is achievable in simple taps on the screen.
However, this adds transaction cost while causing uncertain price volatility.
Let’s understand how a blockchain bridge resolves the gap. If you want to send 1 BTC to the Ethereum network, the bridge would lock the BTC and create an equivalent token in ERC-20 standard known as wrapped BTC (WBTC). While the BTC is locked in the bridge smart contract, an equivalent amount is minted in the destination blockchain (Ethereum in this case).
This is just one use case of the bridges. We discuss more later in the post. Meanwhile, here’s a quick-run through the key benefits of blockchain bridges.
What types of blockchain bridges are there?
The different types of Blockchain bridges can be understood under the following 3 types of categories.
- Based on Custody — Custodial and Non-Custodial
- Based on Functionality — Wrapped and Sidechains
- Based on Mechanism — Unidirectional and Bidirectional
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.
Non-custodial bridges operate in a decentralized manner, relying on smart contracts to manage the crypto locking and minting processes, removing the need to trust a bridge operator. In this case, the system’s security is as good as the underlying code.
Based on functionality, blockchain bridges can be classified into wrapped asset bridges and sidechain bridges. The Wrapped asset bridges enable interoperability in cryptocurrencies by using wrapped tokens discussed above. So, porting wrapped BTC (WBTC) on the Ethereum network by tokenizing it into an ERC20-compatible standard.
On the other hand, Sidechains bring interoperability by connecting the parent blockchain with its child sidechain.
This is required because the parent chain and the side chain may have different consensus mechanisms. A very good example is XDai Bridge that connects the Ethereum network to the Gnosis chain.
On the basis of the mechanism, there are one-way and two-way blockchain bridges. The One-way, also known as the Unidirectional bridge, enables the users to bridge assets to the destination network only. Whereas, the Two-way bridge, also known as the Bidirectional bridge enables two-way asset porting.
Bridges Supported by Web3 Foundation
The following names provide good reference case studies for companies working on their web3 development strategy.
In the pursuit of building a democratic internet, the web3 foundation is extending support to the following bridge projects:
- Interlay: Users can mint 1:1 Bitcoin assets on the Polkadot as PolkadotBTC on this trustless bridge.
- Snowfork: The general-purpose bridge enables transferring ETH, ERC-20 assets and arbitrary data from Ethereum onto the Polkadot. It also supports cross-chain smart contract calls.
- Darwinia: The non-custodial protocol enables the decentralization of crops-chain tokens and NFTs.
- ChainX: The crypto asset gateway is popular for its BTC to Substrate Bridge.
- Bifrost: The EOS Bridge enables cross-chain transfer of assets. Also supports interoperability with EOS contracts.
- Centrifuge: It is an asset-agnostic, modular and multidirectional bridge between Ethereum and all Substrate based blockchain networks. It also supports transfer of fungible and non-fungible assets.
Blockchain Bridge Development
When multiple blockchain protocols work together, it is a giant leap towards decentralized web. This will fuel more innovations and address many of our world problems.
As a leading layer-1 blockchain development company, bridges are an integral part of our portfolio. To build web3 compliant applications, interoperability is going to be a key differentiator and we look forward to enabling more blockchain bridge development.