What are Blockchain Bridges?

Introduction

Since the creation of Bitcoin, many other blockchains were developed to provide different purposes and functionalities.  This development led to the requirement of a connection or bridge between these disparate blockchains to integrate applications and build innovative products.

Blockchain bridges also enable Decentralized Finance (DeFi) protocols to interact across various networks, magnifying their potential impact. This cross-chain communication fosters a more open, interconnected, and powerful DeFi ecosystem, where users can freely navigate between networks, unlocking enhanced liquidity, and enabling new financial possibilities.

In this article, we’ll dive into blockchain bridges and their importance for the crypto space.

What Are Blockchain Bridges?

Just as a bridge connects two land masses, a blockchain bridge links two separate blockchains. It’s essential due to the diverse ecosystems of blockchains.

Imagine having 1 ETH stored on the Ethereum blockchain, but you want to utilize it on a protocol operating on the Avalanche blockchain. That’s where a bridge comes in. You'll need to send your ETH to Avalanche via a bridge. Upon arrival, your ETH becomes operational on the Avalanche-based protocol.

Why do Blockchain Bridges Exist?

Going back to the basics of blockchain, we explained that different blockchains exist to serve different purposes. Some prioritize scalability, while others emphasize security or decentralization. Therefore, users often want to leverage the best from each blockchain. To do this, they bridge their assets to engage with various ecosystems, just like the earlier Ethereum to Avalanche example.

Blockchain Bridges facilitate the transfer of assets and data between blockchains. This interaction encourages collaboration among developers from different ecosystems, improving platforms and yielding superior products for users. All these benefits are obtained while overcoming the so-called interoperability problem among blockchains.

Classes of Blockchain Bridges

Blockchain Bridges fall into two categories: Trusted Bridges and Trustless Bridges:

• Trusted Bridges

These bridges involve entrusting your assets to a centralized entity. When interacting with trusted bridges, control over your assets shifts away from you. These applications usually provide a superior UX (user experience).

• Trustless Bridges:

These are algorithmically driven and operate using smart contracts. They provide complete transparency and leave the assets under user control. The bridge's security is tied to the underlying blockchain's security.

Examples of Blockchain Bridges

• Polygon Bridge

The Polygon Bridge is one of the most popular trustless blockchain bridges. The platform enables users to transfer assets between the Ethereum and Polygon blockchains in cross-chain transactions.

• Wormhole

Wormhole is an interoperability protocol facilitating the transfer of cryptocurrencies, NFTs, and even supporting dApps development. It enables the utilization of the best features of different blockchains.

Today the protocol allows cross-chain interaction between 20 different blockchains, including Ethereum, Polygon, BSC, Avalanche, Fantom, and others.

• Across Protocol

The Across Protocol was built to enhance Ethereum's user experience, which is well known for having expensive gas fees and low throughput to a world-scale level. It allows the transfer of assets between the main Layer 2 Protocols and Ethereum,  including Arbitrium, Optimism, and Polygon.

Since its creation, the protocol has dealt with more than U$1 Billion in Volume and 800k + transactions.

Risks and Historical Incidents

Blockchain Bridges are crucial for the evolution of the blockchain ecosystem, but understanding the risks and learning from history is essential!

The novelty of bridges exposes them to risks, including:

• Smart Contract risk: Coding bugs or errors could result in a permanent loss of user funds.

• Bridge Hack:  There's a risk of a bridge exploit, potentially causing a total or partial loss of a user’s assets. In 2022 alone, around U$2.5 Billion were lost in Bridge Hacks, which shows how early in development this sector still is. 

  
   

• User Risk: Users are fully responsible for their assets when interacting with a trustless bridge. A mistake could lead to significant losses.
• Trusted Bridges: They offer a better UX, which is the reason why many people choose to interact with them, but users' assets are completely controlled by a centralized entity, exposing them to theft, sudden bridge inactivity, or hacking risks.

Historical Hacks

As presented, only in 2022 more than U$2.5 Billion were stolen from Bridge Hacks, which serves as a step back to users who want to bridge their funds. Let’s take a look at some of the tragedies that have happened in the past:

• Poly Network

This event was the biggest heist in crypto for a long time, until the Ronin hack that we explain in our article about insurance.

The PolyNetwork hack was orchestrated in 2021. Because we only have information about three wallets that interacted with the exploit, it’s not possible to state if there was only one hacker or multiple ones.
    
A vulnerability in the PolyNetwork’s code made it possible for the hacker to steal around U$611 Million through the bridges that connect the Ethereum, BSC, and Polygon blockchains. The exploited amount is bigger than some small countries' GDPs!

This event is interesting because the hacker didn’t run away with the money, but instead, he opened a dialogue with PolyNetwork trying to make an agreement and return the funds. In the end, after a long time, all of the assets stolen were recovered and PolyNetwork offered U$500K and a job as “Chief Security Advisor” to anyone who could find any other gaps in the system.

• Wormhole

The hack occurred in February 2022, in the Wormhole bridge that connects the Solana and Ethereum Blockchain.

The exploiter took advantage of a vulnerability in a smart contract based on the Solana Blockchain, leading to an exploit of a massive amount of U$326 Million worth of wETH, SOL, and USDC, representing the 4th biggest bridge hack in history.

Conclusion

The concept of multi-chain, or the belief that the future of blockchain lies in interconnected and interactive multiple blockchains, is widely embraced. Blockchain bridges were conceived to bridge this gap and make interoperability among different ecosystems possible.

But bear in mind, this sector is still in its infancy, carrying numerous vulnerabilities that deter many potential users. This isn't uncommon, as new technologies usually face initial hurdles while being fine-tuned.

Blockchain bridges undoubtedly hold great promise and are expected to improve over time. But as of now, they're not in their optimal state, and numerous features are still waiting to be introduced. This should draw the attention of investors who wish to enter the sector early and witness its evolution.