A significant hurdle for blockchain technology is the need for more communication between applications and platforms. Developers are restricted to building on one platform, leading to excessive transaction fees and network congestion. Fortunately, blockchain bridges are the solution to this problem.
These bridges enable token transfers across networks, such as for digital contracts, data transfers, and other commands and notifications between two separate blockchains. To learn more about blockchain bridging, click here.
What is a Blockchain Bridge?
A blockchain bridge is a connection that allows the transfer of tokens and/or data from one blockchain to another, regardless of their protocols, rules, and governance models. Blockchain bridges enable interoperability and communication between different blockchain ecosystems.
Blockchain bridges can be either trust-based or trustless, depending on whether they rely on a central entity or federation to verify and confirm transactions or not. Blockchain bridges can offer benefits such as increased liquidity, scalability and innovation for blockchain users
A practical example is when a user wants to trade Bitcoin (BTC) for Ethereum (ETH). Currently, BTC cannot be sent directly from one user to another on the Ethereum blockchain. A bridge would allow this user to purchase ETH or exchange some BTC for ETH instead. Compared with its fiat/credit card counterpart, this added complexity is an impediment, and a bridge helps address it completely.
How do Blockchain Bridges Work?
Blockchain bridges allow for communication across various networks like Bitcoin and Ethereum as well as between a parent blockchain and a sidechain, which either operates under different consensus rules or inherits its security from the parent blockchain.Â
This interoperability includes the transfer of tokens, data, and even smart contract instructions between independent platforms, allowing users to:
- Deploy digital assets hosted on one blockchain to dapps on anotherÂ
- Conduct fast, low-cost transactions of tokens hosted on otherwise less scalable chains
- Execute dapps across more than one platform
While some blockchain bridges remain decentralized, to preserve the security and openness of DeFi protocols, others are centralised.
Classification of Bridges Based on How They Move Assets
At present, there are four different ways in which blockchain bridges operate. These approaches are well described and easy to comprehend. Going forward, technologists may discover better and more secure bridging options in the future.
- Lock & Mint Bridges
Lock and mint bridges provide a 1-to-1 exchange of tokens between chains. Users send their tokens to the bridge, which locks them on chain A and mints new tokens of equal value on chain B. At any time, the user can quickly redeem their original tickets back on chain A, and then the corresponding amount of tokens will be sent to a burn address on chain B.
- Burn & Mint Bridges
Burn-and-mint bridging is similar to Lock-and-mint bridging, except that it is a non-reversible process. In a Burn & Mint bridge, tokens from chain A are sent to a burn address, and new tokens are issued on chain B. If users wish to return the tokens to chain A, the same burn and mint process has to be repeated.
- Atomic Swaps
Atomic swaps enable trustless peer-to-peer cryptocurrency trades between two blockchains using only two transactions. This creates a unique opportunity for traders to swap cryptocurrencies directly without relying on third-party service providers.
- Wrapped Asset Bridges
Wrapped asset bridges are the go-to for moving non-native assets between blockchains. Creating a wrapped asset involves locking the corresponding asset on another chain and minting a new one of the same value on the other blockchain. Wrapped BTC, for example, is used to generate WBTC tokens for DeFi usage and trading on Ethereum.
Benefits of Blockchain Bridges
Blockchain bridges can provide numerous advantages for businesses, such as efficient communication across different blockchains, remarkable flexibility, streamlined efficiency, and scalability, allowing you to scale up quickly.
- Communication
Cross-chain bridges enable communication between blockchain ecosystems, including the leading and side chains. For example, Ethereum serves as the Layer 1 main chain, with Arbitrum as its official Layer 2 sidechain. By transferring tokens across a cross-chain bridge, a DApp or DeFi protocol may enjoy a higher level of exposure.
- Flexibility
Blockchains differ in productivity, scalability, and other characteristics. When creating a DApp or protocol, it can be beneficial to take advantage of the capabilities of multiple blockchains through a cross-chain token porting solution. Issuing only one token on a particular blockchain may not extend the full range of options available to users.
- FeesÂ
The ability to transfer tokens between congested, high-fee blockchains and a low-fee, high-performance blockchain opens up many possibilities. This is particularly advantageous for Web3 gaming projects and microtransactions, which can benefit from the lower fees and improved performance of such blockchains.
Bottomline
Blockchain bridges offer an effective means of transferring data and value between different blockchains. In addition, they also provide many opportunities for DeFi protocols, decentralized applications (DApps), and Web3 gaming projects. Blockchain bridges have various risks, which should be understood so your funds can be protected.
Also Read: Top 7 Blockchain Platforms to look out for in 2023
