Blockchain bridges
A blockchain “bridge” connects two blockchains and allows users to send cryptocurrency from one blockchain to another.
Picture a set of closely situated islands connected by bridges, and each island represents a separate blockchain. Due to differences in a coding language or other reasons, the cryptocurrency on each of the islands cannot be used easily with other blockchains natively without using a bridge to “connect” the assets for trading.
The reason these bridges exist is due to a lack of inherent interoperability and exchange of information between blockchains. Without these bridges, cryptocurrency would remain as isolated tokens that are not usable on different blockchains, just like being stranded on an island. Bridges solve this problem by connecting 2 different blockchains to enable cryptocurrency transfers and data exchange from smart contracts.
How do Bridges Work?
- If you have Bitcoin on the Bitcoin network and you want to transfer this BTC to the Ethereum network, you would need to use a bridge. The blockchain bridge will hold your Bitcoin in a smart contract that you send through the bridge and will give you equivalent amounts in wrapped Bitcoin (wBTC) on the Ethereum network in order to give your wBTC Ethereum functionality for trading. If you would like to return your wBTC back to the Bitcoin network, you can bridge your funds back using the same bridge in the opposite direction. This way, your wBTC is locked up in a smart contract on the Ethereum network, and you are given back native Bitcoin. Do note there are fees to use bridges that are based on the blockchains you are transferring between.
There are two different types of bridges, trust-based and trustless blockchain bridges:
- Trust-Based Bridges
- Generally, these bridges are fast and have lower fees, but there is more centralization present. This means the users bridging must trust the entity operating the bridge.
- You are giving up control of your cryptocurrency in order to convert them to cryptocurrencies on another chain.
- Trustless Bridges
- Decentralized bridges do exist that are trustless, and you do not give up control of your coins at any point. These bridges operate like a blockchain with networks validating transactions.
- The issue with trustless bridges is that there is no liability for when issues occur since trustless bridges are validating and processing requested transactions. There is no central entity that is controlling how these transactions are being processed.
As blockchain technology innovates quickly, more cross-chain trustless bridges are created to help bridge assets from one blockchain to another. An example of a trustless cross-chain bridge is XDEFI Wallet’s cross-chain swap functionality using THORChain. For example, you can swap native Bitcoin on the Bitcoin network to native Ethereum on the Ethereum network without trusting a centralized bridge.
