With the growing number of blockchain protocols, it is nearly impossible not to transfer assets between them. However, blockchain is limited to the boundaries of its domain due to a lack of interoperability. This means Dogecoins cannot be used to make a transaction on the Bitcoin blockchain.
Undoubtedly, as blockchain technology continues to grow, there is a need to address the blockchain protocol’s interoperability issue and develop a solution –connecting mechanism– to enable the quick transfer of assets within the blockchain and the general cryptocurrency ecosystem.
However, a bridge mechanism is required to enable smart contracts and data exchange, asset transfers, and other feedback between different blockchains. Fortunately, Blockchain Bridges are the solution.
What Are Blockchain Bridges?
Blockchain bridges are systems that connect different blockchains and enable users to exchange one type of coin or token for another. Blockchain bridges function the same way physical bridges do –linking two places together. A blockchain bridge connects two blockchain ecosystems in the same way that a physical bridge connects two physical locations.
Essentially, blockchain bridges aid in transferring data and digital assets between two blockchain networks, thereby enabling communication. Of course, both blockchains could have different protocols, smart contract rules, and governance structures, but the bridge allows both networks to communicate and share data safely.
How Does it Work?
When you need to transfer assets from one blockchain to another, you must use a bridge. This means a bridge is essentially an information exchanger between blockchains. Therefore, a bridge is a cryptocurrency revolution that allows for trading fluidity between blockchains.
However, the receiving blockchains use a process known as “wrapping” to create compatible tokens to achieve this interoperability. The native cryptocurrency of the first blockchain is locked during this process, and a proportional amount of wrapped currency is minted on the second blockchain.
For instance, suppose you want to send Solana tokens to an Ethereum wallet. This is impossible to send directly because of the difference in the consensus protocol. However, with a bridge, the Ethereum wallet will receive a token “wrapped” by the blockchain bridge — converted to an Ethereum blockchain token. The Ethereum wallet will receive a “blockchain bridge” Solana token converted to an ERC-20 token.
Let’s summarize this process with these steps;
- You have an asset to transfer between two distinct blockchains (Blockchain A and Blockchain B). To create the basic structure for this task, you need a bridge between Blockchain A and B.
- You use the bridge to send a token from blockchain A to blockchain B, and you specify how many tokens you want to send. First, however, you must provide blockchain B’s receiving address.
- The bridge blocks that amount of coin in blockchain A to send this token from A to B. It then mints the exact amount to send to the receiving address on blockchain B.
- In the same way, the process is reversed to get your token back on blockchain A. Tokens from blockchain B are sent to the bridge, where they are burned and unlocked in blockchain A.
Categories of Blockchain Bridges
There are two types of blockchain bridges: trusted and trustless bridges.
Trust-based bridges, also known as federated bridges, are centralized bridges that must be managed by a single entity or federation of mediators. The federated bridge functions similarly to a private or enterprise blockchain. As a result, users rely heavily on the operator to ensure the bridge’s safety and their funds.
When transferring a large amount of cryptocurrency, trust-based bridges can be a quick and cost-effective option. However, it is critical to understand that the primary concern of the federation members is to keep transactions running.
Trustless bridges are decentralized bridges that rely on algorithms and smart contracts to operate. This bridge functions similarly to a real blockchain, with individual networks contributing to transaction validation. However, trustless bridges can provide users with a greater sense of security and greater flexibility when moving cryptocurrency. This means trustless bridges allow users to keep control of their funds by utilizing smart contracts.
Types of Blockchain Bridges
This bridge exists solely to provide access to a specific asset from a different network. These are frequently “wrapped” assets fully secured by the underlying assets held, whether custodian or non-custodian. Bitcoin is the most popular asset that is linked to other chains. Such bridges are the simplest to implement and serve as a flywheel for fluidity, though they have limited functionality and must be implemented in each target chain. wBTC is an example of an asset-specific bridge.
Chain-specific is a blockchain bridge that typically handles simple operations such as locking and unlocking tokens in the source chain and knocking out any wrapped digital assets in the target chain. They speed up operations because they are less complicated. However, scaling them to a larger ecosystem is more complicated. The Polygon PoS bridge is an example of a chain-specific bridge.
This bridge provides an application that gives you access to two or more blockchains. Instead of having separate instances of the entire application blockchain, application-specific bridges have lighter and modular “adapters” on each blockchain. However, there is a network effect because the blockchain on which the adapter is implemented has access to everything else it is connected to. The disadvantage is that extending this functionality to other apps is difficult. The compound Chain is an example of this bridge.
Generalized blockchain bridge protocols are explicitly created to transport data across multiple blockchains. Hence, because a single project integration grants access to the entire ecosystem within the bridge, this design will have a significant network effect. However, this bridge has the disadvantage of sacrificing decentralization and security in favor of scalability.
Blockchain bridges allow users to use and enjoy various blockchain technologies without switching platforms. Clearly, blockchain bridges offer significant market opportunities and a promising future for multi-chain interactions, with bridges becoming the safest, most interconnected, fastest, capital-efficient, cost-effective, and censorship-resistant.
However, because blockchain bridges are still in their early stages of development, there are some security concerns. As a result of these security concerns, security breaches on various blockchain bridges have occurred, resulting in the loss of assets.
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