Blockchain bridges are protocols that connect one blockchain to another. Think of it as a bridge connecting one city to the next. The bridge enables interaction between the two blockchains that would ordinarily not have anything to do with each other.
To properly understand a blockchain bridge, we need to understand what a blockchain is first. A blockchain is a network where permanent transaction records are stored in a chain of blocks. Examples are Bitcoin, Ethereum, and Litecoin.
Each of the blockchains has a different consensus mechanism and many other attributes that differ widely. That means the coin or token that operates on one blockchain cannot work on the next blockchain because they are incompatible.
Blockchain bridges enable what is known as interoperability, by allowing these different blockchains work together despite their technologically different designs. The concept of operability has become a widely used one, driving many industries, so blockchain bridges are an important concept too.
How Blockchain Bridges Came About
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The crypto industry was working well with separate blockchains initially. However as the space continued to grow, the need for blockchains to cooperate arose, and developers needed to find a way to make this happen.
Even though every blockchain has its own rules, tokens, protocols, and smart contracts, a blockchain bridge effectively breaks these barriers and makes it possible for different blockchains to work together. This enables the exchange of tokens and data between otherwise incompatible blockchains.
Blockchain bridges also allow users to access new protocols on other chains and enable collaboration between developers from different blockchain communities.
How do Blockchain Bridges Work?
Let’s say you own Bitcoin, but then you wish to transfer the Bitcoin to the Ethereum blockchain. Because Bitcoin and Ethereum are two different blockchains, you can’t directly transfer your Bitcoin to Ethereum or it will be lost forever. You’ll have to trade Bitcoin for Ether which runs natively on Ethereum, but you’ll have to pay transaction fees.
You can also transfer the Bitcoin to Ethereum without having to sell the Bitcoin and buy Ether. This is where a blockchain bridge comes in. Using a bridge, you can bridge 1 BTC for instance to an Ethereum wallet and get the equivalent in Wrapped BTC (WBTC). WBTC is an ERC20 token compatible with the Ethereum blockchain.
Your Bitcoin then gets locked in a smart contract and held while you get the WBTC equivalent. The WBTC is a tokenized version of the BTC, and is pegged to the value of BTC. After accomplishing your aim on Ethereum, you can unwrap the BTC and get back your normal BTC on the Bitcoin blockchain. This is the most common use of blockchain bridges.
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Types of Blockchain Bridges
Blockchain bridges are broadly classified into two – custodial and non-custodial. Custodial bridges are also called centralized bridges and non-custodial bridges are also called decentralized.
For custodial bridges, the user is expected to trust a central entity to operate the bridge. This also entails trusting the operator with your funds, so they must be thoroughly investigated to ensure they are credible.
Non-custodial bridges are decentralized, so they operate without any central or trusted operator. Instead, smart contracts control the token locking and minting processes. The security of such a bridge depends on the integrity of the smart contract.
Limitations of Blockchain Bridges
Blockchain bridges make many things possible. However, they come with some risks that the user needs to be aware of. News of attackers exploiting blockchain bridge vulnerabilities litter the internet and billions have been lost through such exploits.
Custodial bridges are controlled by a centralized entity who can potentially run away with the locked assets. Secondly, scalability issues on one blockchain can cause transaction bottlenecks that prevent large-scale blockchain operability.
Blockchain bridges can also expose interoperating blockchains to risks due to the lower security of blockchains they work with. The low security of any blockchain places other blockchains at the same level of risk no matter how secure they are individually.
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