Blockchain bridges are a vital component of the emerging Web3 internet, as they allow blockchains to transfer assets between each other and are essential for interoperability. Blockchains are blind to the outside world, and can only see their own blockchain smart contracts and cryptocurrencies. They cannot natively share tokens, NFTs, or data with other blockchains, and have to rely on ‘oracles’ to receive data from the outside world.
Blockchains also have different designs and specializations, making some better at certain tasks than others, and trying to use one blockchain to serve every niche will result in network congestion and unreasonable blockchain transaction (‘gas’) fees. Interoperability between blockchain networks has been a high priority for years now, as it would allow blockchains with different specializations to share assets between their respective smart contract ecosystems.
As CoinTelegraph explains, bridges allow blockchains to transfer cryptocurrencies and NFTs between each other. Bridges are a combination of smart contracts and Web2 scripts designed to lock tokens on one side and mint ‘wrapped’ tokens on the other side. Or, conversely, to burn wrapped tokens and release the locked tokens. Bridges help off-load traffic from congested blockchains like Ethereum onto less-congested and more scalable blockchains like Solana. The term “cross-chain” is frequently used when discussing apps that use blockchain bridges. Centralized (or “federated“) bridges run by exclusive organizations and companies have existed for some time and are the most secure, with the Wrapped BTC bridge between the Bitcoin and Ethereum blockchains being the most well-known. On the other hand, decentralized bridges operate purely on smart contracts and Web2 server scripts, and must rely on sophisticated cryptography to prove the sender on one side is also the receiver on the other side.
Bridges Are High-Priority Targets For Hackers
Bridges act as escrow accounts between blockchain networks, and often rely on a combination of Web3 blockchain and Web2 internet infrastructure to send messages between networks. Because of this, blockchain bridges commonly have hundreds of millions (if not billions) of dollars’ worth of digital assets locked inside their smart contracts, making them high priority targets for hackers. To date, there does not exist a universal standard architecture for blockchain bridges, and many mistakes have been made trying to figure out the best way to build them. It only takes one small typo before hundreds of millions of dollars’ worth of assets are stolen. Thus, blockchain bridges are still on the (extremely sharp) cutting edge of technology.
The most famous bridge hacks include the recent Nomad hack worth $190 million, where a simple typo following a smart contract upgrade allowed everyone to ‘loot’ the bridge’s assets in a massive frenzy, or the largest and most infamous Ronin bridge hack worth $600 million that was executed by the North Korean Lazarus Group in March 2022. Blockchain analytics firm Chainalysis shows blockchain bridge hacks account for nearly $2 billion of stolen assets, and states that effective bridge design is still an “unresolved technical challenge.” Fortunately, many venture capital firms are willing to compensate victims of bridge hacks, as the future economic potential for blockchain bridges far outweighs their early losses.
Blockchain bridges are a vital component of the emerging Web3 economic layer of the internet, as they allow blockchains with different specializations to transfer assets between each other. Bridges are high-priority targets for hackers, with losses in the billions owed to many high-profile bridge hacks. Because bridges are still highly experimental and have no standardized architecture, they are risky to use and shouldn’t be trusted with large sums of value without some kind of insurance in the event of a hack. However, blockchain bridges are also a vital component to the future of Web3, and developers will eventually find a secure and standardized way to design and manage them.