Explainer: What is a blockchain bridge? How does it work & why do we need them?

In 2022, Chainalysis, a Singapore-based research and analysis firm estimated that over $2 billion worth of digital assets has been stolen from blockchain bridges. This figure accounts for approximately 69 percent of all stolen crypto funds in the year. Bridges on the blockchain operate in the same way as the ones we are familiar with. A blockchain bridge links two blockchain ecosystems similarly to how a physical bridge connects two places in the real world. Through the exchange of data and assets, bridges facilitate connectivity across blockchains. But what are blockchain bridges and how it works? Let’s take a tour of them.

What are blockchain bridges?

A tool created to address the issue of interoperability between blockchains is a blockchain bridge, sometimes referred to as a network bridge or a cross-chain bridge. Bridges are now an essential part of the blockchain industry since, as things stand, blockchains cannot communicate with one another and operate in silos.

Users cannot, for instance, utilise ether (ETH) on the Ethereum blockchain or Bitcoin (BTC) on the Ethereum blockchain. Therefore, if user X wishes to pay another user Y for something but Ethel only accepts ETH, X runs into a problem. Y cannot receive BTC from him directly. BTC cannot be transmitted straight to Ethel, but he can take further measures to purchase ETH or exchange some of his BTC for ETH. In contrast to fiat currencies and credit cards, which can be used with a variety of providers, this might be considered as a significant drawback.

Why do we need bridges?

Every blockchain has its restrictions. Ethereum needs rollups in order to scale and meet demand. Avalanche and Solana L1s, on the other hand, are built differently to permit better throughput at the expense of decentralisation.

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.

According to Ethereum’s official blog on bridges, it enables the cross-chain transfer of assets and information and dApps (decentralised applications) to access the strengths of various blockchains thus enhancing their capabilities (as protocols now have more design space for innovation). 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.

Types of bridges

Trusted Bridges

Trustless Bridges

Trusted bridges rely on a centralised system or entity to function.

Algorithms and smart contracts are used to operate trustless bridges.

They have trust presumptions on the handling of money and the bridge’s security. Most users rely on the operator of the bridge’s reputation.

They are trustless, meaning that the bridge’s security and that of the underlying blockchain are identical.

Users need to give up control of their crypto assets.

Trustless bridges give customers the ability to maintain control over their money through smart contracts.

How safe are these bridges?

There may be fundamental or technical flaws in both trusted and trustless techniques. To be more exact, a trusted bridge’s centralised feature has a fundamental weakness, while trustless bridges are susceptible to vulnerabilities that come from the programme and the underlying code. Simply put, if the smart contract has a fault, it is almost guaranteed that those with ulterior motives will try to exploit it.

Both trustworthy and trustless platforms have design faults that jeopardise the blockchain bridge’s security in different ways.

Additionally, hackers are becoming more skilled as the industry’s value and user base continue to rise. Traditional hacks like phishing and social engineering have been modified to target both centralised and decentralised protocols in the Web3 narrative.

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