Summary

A blockchain bridge is a protocol that connects two blockchains, enabling interaction between them. For example, if a user wants to participate in DeFi activities on the Ethereum network but only holds Bitcoin, they can achieve this without selling their Bitcoin by using a blockchain bridge. Blockchain bridges are fundamental to achieving interoperability in the blockchain space.

Introduction

To understand blockchain bridges, one must first grasp the concept of blockchains. Mainstream blockchain ecosystems, such as Bitcoin, Ethereum, and BNB Smart Chain, each follow their own consensus protocols, programming languages, and system rules.

A blockchain bridge protocol connects two economically and technologically independent blockchains, allowing them to interact. The function of a bridge protocol is analogous to a physical bridge connecting islands, where the "islands" represent independent blockchain ecosystems.

Thus, blockchain bridges enable what is known as "interoperability," where digital assets and data hosted on one blockchain can interact with another blockchain. Interoperability is a cornerstone of the internet, allowing machines worldwide to communicate using the same set of open protocols. The blockchain space consists of numerous unique protocols, and blockchain bridges are essential to facilitate the seamless exchange of data and value, similar to the internet.

Why Do We Need Blockchain Bridges?

As the blockchain space grows, one of its major limitations is the lack of synergy between different blockchains. Each blockchain has its own rules, tokens, protocols, and smart contracts. Blockchain bridges help break down these silos, integrating isolated cryptocurrency ecosystems. Interconnected blockchain networks enable the smooth exchange of tokens and data across them.

Beyond enabling cross-chain transfers, blockchain bridges offer additional benefits. They allow users to access new protocols on other chains and enable developers from different blockchain communities to collaborate. In other words, blockchain bridges are a critical element for achieving interoperability in the blockchain industry's future.

How Do Blockchain Bridges Work?

The most common use case for blockchain bridges is token transfers. For instance, suppose you want to transfer Bitcoin (BTC) to the Ethereum network. One way is to sell BTC and buy Ethereum (ETH). However, this incurs transaction fees and exposes you to price volatility risks.

An alternative method avoids selling cryptocurrency by using a blockchain bridge. When you bridge 1 BTC to an Ethereum wallet, the bridge contract locks the BTC and creates an equivalent amount of Wrapped Bitcoin (WBTC), an ERC20 token compatible with the Ethereum network. The amount of BTC to be transferred is locked in a smart contract, while an equivalent token is minted or issued on the target blockchain. Wrapped tokens are tokenized versions of another cryptocurrency, pegged to the value of a specific asset and typically redeemable (unwrapped) for the underlying asset at any time.

What Are the Types of Blockchain Bridges?

Blockchain bridges can be categorized based on functionality, mechanism, and degree of centralization.

Custodial vs. Non-Custodial Bridges

Broadly, blockchain bridges fall into two categories: custodial (centralized) and non-custodial (decentralized).

Custodial bridges require users to trust a central entity to operate the system correctly and securely. Users should conduct thorough research to ensure the entity is trustworthy.

Non-custodial bridges operate in a decentralized manner, relying on smart contracts to manage the locking and minting of cryptocurrencies without requiring trust in the bridge operator. In this case, the system's security is as robust as the underlying code.

Functional Classification of Blockchain Bridges

Another classification is based on the bridge's functionality, such as wrapped asset bridges and sidechain bridges.

Wrapped asset bridges enable cryptocurrency interoperability. For example, by wrapping BTC into Wrapped Bitcoin (WBTC), an ERC20 token compatible with Ethereum, Bitcoin can be moved to the Ethereum network. Sidechain bridges connect a main blockchain with its child sidechain, enabling interoperability between them. This connection is necessary because the main chain and sidechain may use different consensus mechanisms. For example, the xDai bridge connects the Ethereum mainnet with Gnosis Chain (formerly xDai blockchain), an Ethereum-based stable payment sidechain. xDai is secured by a set of validators distinct from those maintaining the Ethereum network. The xDai bridge facilitates seamless value transfers between the two chains.

Mechanism-Based Classification of Blockchain Bridges

Bridges can also be classified as one-way or two-way. One-way bridges allow users to bridge assets only to the target blockchain but not back to the native chain. Two-way bridges enable asset transfers in both directions.

Advantages of Blockchain Bridges

The most notable advantage of blockchain bridges is improved interoperability.
With blockchain bridges, different blockchains—including Layer 1 and Layer 2 protocols and various sidechains—can exchange tokens, assets, and data. For instance, Bitcoin holders can use WBTC to access Ethereum's decentralized applications (DApps) and decentralized finance (DeFi) services. Interoperable blockchains are key to the industry's future success.

Another advantage is improved scalability. Some blockchain bridges can process large volumes of transactions, enhancing efficiency. For example, the Ethereum-Polygon decentralized two-way bridge serves as a scaling solution for the Ethereum network, allowing users to benefit from faster transactions and lower costs.

Risks Associated with Blockchain Bridges

Blockchain bridges also have limitations. Attackers have exploited vulnerabilities in some bridge smart contracts to steal large amounts of cryptocurrency.

Users of custodial bridges face custodial risks. In theory, the centralized entity behind a custodial bridge could steal user funds. When using custodial bridges, opt for established brands with a long track record.

Another potential technical limitation is transaction rate bottlenecks. The throughput limitations of a single chain can hinder large-scale blockchain interoperability.

While bridging can alleviate congestion on busy networks, moving assets to another chain does not solve scalability issues, as users may not always access the same DApps and services. For example, some Ethereum DApps are unavailable on the Polygon bridge, limiting scaling efficiency.

Lastly, blockchain bridges may introduce risks related to trust disparities. Since bridges connect various blockchains, the overall security strength of the interconnected network is only as strong as its weakest link.

What Is the Future of Blockchain Bridges?

The internet is a revolutionary system, partly due to its high interoperability. Blockchain bridges play a crucial role in enhancing interoperability and widespread adoption in the blockchain industry. This innovative technology allows users to exchange assets across multiple blockchain protocols. The number of bridges, users, and total transaction volume has grown significantly.

As the internet evolves toward Web3, the demand for blockchain bridges will increase. Future innovations will bring greater scalability and efficiency to users and developers. Innovative solutions may also emerge to address security risks associated with bridges. Blockchain bridges are indispensable for creating an open, decentralized, and interoperable blockchain space.

Conclusion

Continuous innovation drives the blockchain industry. Pioneering protocols like Bitcoin and Ethereum were followed by a proliferation of alternative Layer 1 and Layer 2 blockchains. The number of cryptocurrencies and tokens has also multiplied.

Due to independent rules and technical constraints, innovative products require blockchain bridges to interconnect. A blockchain ecosystem connected by bridges becomes more robust and interoperable, better positioned to improve scalability and efficiency. Cross-chain bridges have suffered numerous attacks, highlighting the ongoing challenge of enhancing bridge design security and robustness. The journey ahead remains long and arduous.