What is a Blockchain Bridge?
Each blockchain network has its own set of rules, protocols, smart contracts, and tokens. The blockchain network is fully functional, but it works as a single entity confined within the boundary of its own domain. This is a big problem for users, especially if the network forms the base of a larger ecosystem. One such example is Bitcoin; its functionality is limited to its own network and its protocol does not allow users to interact with other networks.
A blockchain bridge overcomes this obstacle to allow blockchain networks to transfer data and tokens with other outside networks. Blockchain bridges do this by using wrapped tokens to mimic the characteristics of the target token in a different network. Let’s say you want to convert Bitcoin (BTC) to the Ethereum network. A blockchain bridge will wrap that Bitcoin and lock it in a smart contract. At the same time, the blockchain bridge generates the same amount of wrapped BTC in the Ethereum network. From that point, you can convert the wrapped BTC, and an equivalent number of BTC will be transferred to my wallet on the new network.
Blockchain Bridges and Interoperability
Interoperability, and therefore blockchain bridges, are crucial for the decentralization of blockchain ecosystems. It helps facilitate the exchange of information and assets among the respective blockchain networks, without the need for a third-party interface. Blockchain bridges streamline decentralized applications (dApps) and allow hundreds of application-specific networks to communicate and cultivate innovation. They reduce network congestion, enhance transaction processing speeds, and aid in the cheap and fast transfer of tokens.
Types of Blockchain Bridges
Blockchain bridges can be classified into two broad categories – centralized (trusted) bridges and decentralized ( untrusted) bridges.
Centralized or Trusted Blockchain Bridge
Trusted bridges rely on members of a federation to confirm transactions or transfer of funds. They also depend on a central body or governing authority to control their operations. All members must oblige and hand over the control of their assets to this governing authority. Recently this has led to cyber-attacks that raise the reliability and security of centralized bridges, such as the Ronin bridge hack that resulted in a loss of $540 million.
Decentralized or Trustless Blockchain Bridge
Trustless or decentralized bridges operate on code-based algorithms. Contrary to their name, trustless bridges generally are considered a safer option. They are based on smart contracts rather than a centralized protocol, and users have full control of their funds. Decentralized bridges incentivize broad participation and achieve transparency by eliminating interference from any centralized authority. But despite layers of protection, these bridges are not infallible, and decentralized bridges have also become victims of cyberattacks.
These isolated incidents aside, blockchain bridges remain an incredible innovation to achieve decentralization and interoperability among different networks.