Many believe that the future of blockchain is “multi-chain,” meaning that numerous chains will host their own flourishing ecosystems. On occasion, users may want access to applications on many different networks. For this to be viable, bridges will play a major role in laying the foundation for cross-chain activity.
In this article, we explain how blockchain bridges work, examine their use cases, and showcase bridges that link to the Bitcoin ecosystem.
What is a Blockchain Bridge?
A blockchain bridge (or cross-chain bridge) is a mechanism that allows for the exchange of data and cryptocurrencies between two separate blockchains. Rather than having many siloed ecosystems, bridges allow for communication and interoperability between many different chains. Bridges are critical infrastructure for the future of decentralized finance, as they support the flow of liquidity in and out of ecosystems.
What Are Bridges Used For?
Bridges streamline the process of moving digital assets from one blockchain to another. Without cross-chain bridges, exchanging assets between two chains requires the use of a centralized exchange, which can be an inefficient and expensive alternative.
Here are some of the top use cases for blockchain bridges:
Interacting with dApps and infrastructure
Blockchain bridges can enable interoperability between different blockchains, which allows users to access and explore the features and capabilities of another network. This helps to create a more seamless and integrated ecosystem of blockchains, which can facilitate the development and adoption of the best decentralized applications (DApps) and other blockchain-based projects.
Owning native tokens
Rather than holding wrapped tokens, users can simply bridge with another chain to acquire the native token version. Cross-chain bridges grant access to a wider variety of cryptocurrencies, and can accelerate the adoption of a crypto asset.
Improving scalability
Beyond advantages for the end user, bridges can help to improve the scalability of different blockchains by allowing them to share resources and workloads with layered solutions. This can assist in reducing the strain on individual blockchain networks and make it easier for them to handle large amounts of transactions and data
How Does a Bridge Work?
A blockchain bridge does not actually move your BTC from the Bitcoin blockchain to another blockchain. Instead, the bridge will create equivalent tokens that represent your BTC, but are compatible with the other blockchain network. Most often, these assets will be pegged to BTC 1:1, and should therefore hold the same value as the original asset.
Here are the main types of bridges:
Trusted bridges include some element of centralization to complete a transfer from one blockchain to another on behalf of the user. Usually, a central entity or system is responsible for the security of the bridge.
Trustless bridges operate strictly off of smart contracts and algorithms. The security of the bridge is dependent on the smart contracts’ encoding and the underlying blockchain. Due to Bitcoin’s limited smart contract functionality, trustless bridges are more uncommon.
Unidirectional bridges are one-way bridges that allow you to only send assets off to another blockchain, but not back to the native network.
Bidirectional bridges are two-way bridges for freely exchanging assets back and forth between blockchains.
Risks of Bitcoin Bridges
While bridges have a great amount of utility, it's important to consider the potential risks that can arise from sending crypto assets between blockchains.
Custody risk/ smart contract risk
A disadvantage of using a trusted mechanism is that users must give up custody of their assets to a third party, which means you entrust the operators to responsibly manage the bridge and your funds while they are in escrow.
Even trustless, non-custodial bridges are not free from risk. Instead of active human error, there could be unknown bugs within the smart contracts’ code that malicious attackers could uncover and exploit.
Hacks, breaches, and other exploits
Every cross-chain bridge is created differently, with some being more vulnerable than others when it comes to security. Whether it is a trusted or trustless bridge, both can be infiltrated, resulting in the permanent loss of funds.
Bridge vs. Atomic Swap: What’s the Difference?
Bridges and atomic swaps are two well-known methods for sending assets across chains.
An atomic swap enables the secure exchange of assets between two different blockchains without the need for a trusted third party. It is implemented using smart contracts, which facilitate the swap of assets in a decentralized and trustless manner.
A key difference between a bridge and an atomic swap is the way in which they facilitate the transfer of assets between two different blockchains. A bridge can be implemented using a variety of approaches, whereas an atomic swap specifically uses smart contracts to facilitate the exchange of assets.
Another key difference is that atomic swaps are most commonly conducted between two transacting parties, while bridges are for users sending assets to themselves on another blockchain.
Blockchain bridges can also be used for a variety of purposes, such as increasing liquidity, utility, interoperability,and scalability. An atomic swap is specifically designed to enable the secure exchange of assets between two different blockchains.
Examples of Bitcoin Bridges
Currently, there are a few bridges that connect with the Bitcoin mainchain.
RSK (RBTC) - RSK is a sidechain that works in conjunction with the Bitcoin layer 1. RSK is basically a layer 2 scaling solution for Bitcoin, while these other bridges are independent blockchains that do not directly enhance the scalability of Bitcoin. The RSK bridge is
tBTC - tBTC is a tokenized version of BTC that serves as a trust-minimized bridge between Bitcoin and the Ethereum blockchain. By minting tBTC, users can use a Bitcoin-equivalent asset to interact with Ethereum dApps. This includes using Bitcoin’s value to borrow and lend, mint stablecoins, provide liquidity, and much more.
Avalanche Bridge - The Avalanche Bridge allows for transfers of BTC from Bitcoin to Avalanche's C-Chain. BTC bridging is accessible through Core, a non-custodial browser extension for Avalanche.
Polkadot Bridge - The Polkadot Bridge enables a two-way bridge between the Polkadot blockchain and the Bitcoin blockchain. Powered by Interlay, holders of BTC can send their BTC to Polkadot as iBTC. Conversely, holders of iBTC can burn their assets for BTC on Bitcoin.
The Future for Bitcoin Bridges
Bridges are a critical part of the future of blockchain and decentralized finance. Bridge blockchain technology is still in its infancy, with many platforms still in alpha or other testing versions.
One limiting factor of Bitcoin bridges is that the chain’s throughput capacity bottleneck could hinder large-scale blockchain interoperability. Additionally, Bitcoin’s limited programmability limits the number of ways bridges can be implemented with BTC.
A solution to this is utilizing Bitcoin layers, like Lightning, RSK, Stacks, or Liquid. These scaling solutions have extensive smart contract functionality, and can handle transactions at a much larger scale than the mainchain.
It is important to carefully consider the technical and security requirements of any blockchain bridge, and thoroughly understand the relevant technologies before attempting to bridge your own tokens.
All in all, bridges will continue to improve and become even more decentralized and secure, while connecting Bitcoin to even more of the larger blockchain space.
