Blockchain Bridge

Blockchain Bridge

Blockchain assets frequently don't work well together, bridges build artificial derivatives that mimic an asset from a different blockchain. An Ethereum wallet that receives a single Solana currency sent through will be given an asset it had been "wrapped" by the structure of the bridge, which means that the destination blockchain will now serve as its foundation. In this scenario, the "bridge" form of Solana which has been transformed into an ERC-20 token the standard token for fungible currencies on the Ethereum blockchain would be sent to the Ethereum wallet.

Bridges provide access to new markets and contribute to a more promising multi-chain future, but they also present security risks, as demonstrated by the massive $326 million exploit that occurred on the developing the wormhole bridge in the month of February 2022.

How do bridges built on blockchain technology operate?

Let's look at an example where Chain 1 and Chain 2 are two blockchain networks.
The bridge might be made to secure the token in Chain 1 while creating another one in Chain 2 when moving token between Chain 1 towards Chain 2. The entire quantity of tokens in circulation in this case is split equally between the two chains. The first chain remains with 15 tokens (with five secured), but Chain 2 might have five extra if Chain 1 transfer 5 token to Chain B, leaving Chain 1 with fifteen tokens.

The generated tokens can be redeemed at any moment by their owner, who may activate them via Chain 1 and destroy them via Chain 2. Every token has always had a locked copy in Chain 1 possession; therefore, its value is fixed at the present Chain Market's price. The "burn-and-release" and "lock-and-mint" processes make sure that the amount and price of tokens moved across the two chains don't change.

Blockchain bridge types:

Certain bridges, referred to as one-way or unidirectional bridges, only let you migrate assets to the target blockchain not the other way around. To transmit bitcoins to the Ethereum network, for example, and turn it into an ERC-20 stablecoin, you can use Wrapped Bitcoin. However, you cannot transmit Ethereum to the Bitcoin network's blockchain.

Bridges can be classified as Trustworthy and Trust less Bridges. Who manages those tokens that are utilized to construct the bridged assets is explained by the distinction. BitGo is a centralized bridge since it is the owner of all wrapper bitcoin (WBTC), which makes it a centralized bridge. On Wormhole, on the other hand, bridged assets are owned by the protocol, making it more decentralized.
Although ardent proponents of decentralization may argue that WBTC's custodial structure renders it less safe than decentralized alternatives, the Wormhole bridge hack illustrates that decentralized bridges that retain control over bridged assets aren't always safer.

Bridges are of two types:

1. Trustworthy bridges
2. Trust less bridges.

1 Trustworthy Bridges:

Reliable bridges rely on a central organization or infrastructure to function. They have presumptions about who is trustworthy to handle money and keep the bridge secure. Most users rely on the reputation of the bridge operator. Users need to surrender ownership of their cryptocurrency holdings.

Federated or custodial bridges, another name for trust-based bridges, serve as centralized bridges that need to be managed by a central organization or federation of mediators. Users are dependent on other federation members to validate transactions when converting coins into other cryptocurrencies. The primary motivation of the federation members is to maintain the flow of transactions; they are not preoccupied with detecting and stopping fraud. Trust-based bridges are a rapid and affordable option for large-scale cryptocurrency transfers. It's crucial to realize, nevertheless, that the organization's members are primarily motivated to maintain the integrity of transactions rather than to detect and stop fraud.

2. Trust Less Bridges:

Algorithms and smart contracts power trust less bridges. They are trust less, meaning that the underlying blockchain's security and the bridge's security are identical. Algorithms and smart contracts power trust less bridges. Trust less bridges let consumers keep control of their money using smart contracts.

Decentralized bridges known as "trust less bridges" rely on computer algorithms, or "smart contracts," to function. With each network contributing to the validation of transactions, this kind of bridge functions similarly to an actual blockchain. When transferring cryptocurrency, consumers may feel more flexible and more secure when using trust less bridges.

What kinds of cross-chain solutions exist?

Let's examine a few particular instances of blockchain bridges.

1. Binance Bridge:

By employing the Binance Smart Chain and its wrapped tokens, users can move assets among the Chain of Binance and various other chains, including Ethereum, via the Binance Bridge. A less expensive alternative to Ethereum, the Binance Smart Chain, also known as BSC, is a platform which enables smart contract functionality in the same manner. Standard BEP20 tokens are used by BSC.

2. Wormhole's Portal:

Asset transfers between Solana and a number of other DeFi blockchains, including the Ethereum platform, the smart chain of Binance, and Polygon, are unrestricted through Portal.

3. The Avalanche Bridge:

Asset transfers between Ethereum and the Avalanche-based proof-of-stake blockchain are possible via the Avalanche Bridge (AB). According to the literature, an Avalanche operation on AB will require just a few seconds, whereas an Ether transaction can take up to fifteen minutes, but an Avalanche action on AB should only take a few seconds, according to the documentation.

4. Stargate Bridge:

A Layer Zero-based protocol called the Stargate Bridge (AB) makes it easier for native assets to be exchanged between blockchain networks. Users do not need to use wrapped tokens or middlemen when sending native tokens to non-native chains. Immediate assured conclusion, cross-chain interoperability, and consistent liquidity are features built into Stargate.

5. Zero Trade:

A cross-chain autonomous protocol called Zero Trade (AB) aims to make gasless and zero-fee transactions easier. Additionally, Zero Trade aims to offer smooth access to multichain such as BSC, Polkadot, and Ethereum. Liquidity mining yields rewards for each transaction.

6. cBridge:

A cross-chain bridge called cBridge (AB) provides users with deep liquidity and a superior transaction experience. It also enables cBridge node controllers and liquidity providers to manage liquidity in a very effective and user-friendly manner. Additionally, it offers generalized message bridging for NFTs and cross-chain DEX scenarios. Token unwrapping for native gas, configurable security models, and protected bridge node service are further noteworthy characteristics.

What makes a blockchain bridge useful?

The benefits of migrating commodities between one type of blockchain to another are numerous. First, compared to its native blockchain, the blockchain into which you migrate assets may be speedier and less expensive. This is definitely the case for Ethereum, where novices find it challenging to participate in decentralized financial services (DeFi) because to hefty transaction fees and sluggish throughput.

Investors could exchange ERC-20 coins for a fraction of the price without losing possession of Ethereum tokens if they moved their holdings to a layer 2 network, or a quicker blockchain technology that sits above the Ethereum blockchain, such as Arbitrum or Polygon. 
Bridges could be used by other investors to take full advantage of marketplaces that are exclusive to a different blockchain. For example, the DeFi protocol used by Orca enables an encapsulated version of ETH and is exclusively available on Solana. The use of bridges is getting easier. Bridges that are embedded into several DeFi protocols allow users to switch tokens across different protocols without ever leaving the platform. This reduces the difficulty of transferring tokens via bridges.

How are blockchains able to connect with each other?

The capacity of the blockchains to interface with one another to facilitate information sharing is known as interoperability. And sharing because they have the same underlying architecture. It is the ability to view and retrieve data kept on a different blockchain. When data is sent to a different blockchain, interoperability enables a user on the receiving end to access it and respond appropriately.

The term "cross chain" describes the technology that makes it possible for two comparatively independent blockchains to work together. By removing the need for middlemen or other third parties to link two blockchain networks, cross-chain technology aims to increase interoperability and support the decentralization of blockchain technology.

In cross-chain implementation, asset interchange and transfer of assets are the most popular methods. Both are fundamental components of the blockchain ecosystem and an important area of research for peer-to-peer input/output, or PPIO.

Which blockchain bridges are the largest?

As of March 2022, a total of $21.8 billion amount of cryptocurrency was reportedly locked up in bridges, according to DeFi Llama. With more than $10 billion in total worth locked, Wrapped Bitcoin is the largest blockchain bridge, making up over half of the bridge market. With almost $7 billion in TVL, Multichain is deemed the biggest cross-chain bridge by DeFi Llama.
With over $6 billion in TVL, an Avalanche Bridge is the biggest Ethereum bridge, next to Polygon ($5 billions of dollars TVL) & the Fantom Anyswap Bridges ($4.2 billion TVL), according to an overview on Dune Analytics.

Are bridges built on blockchain secure?

As with all cryptocurrencies, there is a danger to your capital. There are unique decentralized bridges that have not been thoroughly tested, whereas those that have are vulnerable to vulnerabilities. Wormhole is the most well-known example from the recent past, however a bridge named Qubit was exposed for $80 million just one week before to that attack.
The Wormhole hack happened, according to analysis by blockchain analytics company Elliptic, because Wormhole made it possible for the attacker to generate $120,000 amount of wrapped ether without having to risk any ETH. Then the intruder took the free WETH away. Jump Trading, a high-frequency trading company, paid the losses to save the protocol.

There are many risk profiles for trusted bridges. The risk is not that an attacker will take advantage of the protocol and siphon off funds; rather, it is that the organization holding the staked assets will be dishonest or careless, or that it will lose control of the assets due to incapacity or orders from outside parties, like a government request that the organization freeze the assets.

Use cases for bridges:

A bridge can be used in the following situations:

1. Reduced fees for transactions:

Assume you have Ethereum Mainnet ETH and would like to investigate other dapps with lower transaction costs. Transaction fees can be reduced by bridging your Ethereum from the main network to an Ether L2 rollup.

2. Dapps on different networks:

If you've been borrowing USDT employing Aave on the Ethereum Mainnet, yet the interest rate is higher when using Aave on Polygon.

3. Examine blockchain environments:

If you wish to investigate an alternate L1 to test out its native dapps and you have Ethereum on the Ethereum Mainnet. To move your ETH from the main network of Ethereum to the alternative L1, you can utilize a bridge.

4. Hold cryptocurrency assets in your native tongue:

Suppose you only have money on the Ethereum Mainnet, but you wish to hold native Bitcoin (BTC). You can purchase Wrapped Bitcoin (WBTC) on Ethereum to expose yourself to BTC. WBTC is not an original asset on the Bitcoin blockchain, but rather an Ethereum version of the cryptocurrency since it is a token with the ERC-20 protocol native to the Ether network. You would need to use a bridge to convert your Ethereum assets to Bitcoin in order to possess native BTC. Your WBTC will be bridged and converted into native BTC as a result. On the other hand, you may wish to use Bitcoin in Ether DeFi protocols if you hold it. To do this, a bridge would need to be built between Bitcoin to WBTC, which may then be utilized as an investment on Ethereum.

Having risks when using bridges:

Bridge development is still in its infancy. It's conceivable that the ideal bridge layout hasn't been found yet. Any kind of bridge interaction is risky

1. Smart Contract Risk: The possibility that a coding error will result in the loss of user funds.

2. Technology-related Risk: It includes the potential for user operations to be interfered with by spam, malicious attacks, human error, software failure, and faulty programming. Furthermore, because trusted bridges include new trust presumptions, they come with extra hazards, like:

• Risk of Censorship: 
  Bridge owners may be able to prevent users from transferring assets via the bridge.
• Custodial Risk: 
  Bridge operators may band together to embezzle user money.

The user's money is in risk if:

• The smart contract has a problem, or the user commits a mistake.
• A hack occurs on the underlying blockchain.
• When a reliable bridge is compromised, the operators of the bridge have malicious intentions.

In summary:

Numerous information systems could be enhanced by blockchain technology. But the development of cross-chain technologies is the primary factor behind its broad acceptance. By facilitating the smooth exchange of commodities between blockchain networks, cross-chain technology lowers gas prices and traffic. It also facilitates the creation of new user platforms by developers from other networks collaborating with one another. From the user's perspective, cross-chain technology enables immediate token exchanges and quicker transaction processing.