Understanding Cross-Chain Bridges: What is a Bridge and Why Is It Necessary?

Bridges are a very important solution for blockchains to enable seamless exchange of assets and information Cross chain bridge development boundaries.

And knowing how the bridge actually works is also important in terms of safety choices. We recommend that you read this article as a beginner’s guide first to understand its structure and problems.

What is a blockchain bridge and why is it necessary?

A blockchain bridge is a system that allows the transfer of assets and data between different blockchain networks, such as Ethereum and Polkadot, Polygon and Avalanche.

By default, each blockchain cannot “speak” directly to each other. Think of them as humans who speak languages that they do not understand each other. Also, different networks have different consensus algorithms, smart contract architectures, address formats, and so on. This may be thought of as a difference in thinking and culture.

So, for example, you can’t send TRX to an Ethereum address that starts with 0x. In some cases, the wallet will be careful to refuse, and in the worst case, it will be executed and you will lose money.

In more technical terms, the usual blockchain is a silo, a storage place for data and assets that is only available to a specific group of users. Traditional corporate databases were also known as an example of data silos, but it was hoped that blockchain technology would solve that problem and allow data to move freely, but now distributed networks are silos. It has become itself.

From the end user’s point of view

Lack of interoperability isn’t a big deal as long as you’re interacting with just one blockchain. In the past, most people used Bitcoin, Ethereum, Tron, etc. However, in 2021, the number of alternative chains such as Solana, BSC, Avalanche, Fantom, Cosmos and Polygon exploded, focusing on the issue of asset transfer between chains.

These L1 (level 1) chains are not only faster and cheaper than Ethereum. Each chain also offers attractive yield opportunities on DeFi, easy-to-use decentralized exchanges (such as Trader Joe’s on Avalanche), and Play2Earn games (such as DeFi Kingdoms on Harmony One).

If you try to use these dApps, you will run into the problem that your crypto assets cannot be used in other chains. For example, if you have ETH but want to use a dApp built with Solana, convert ETH to SOL at a centralized exchange such as Coinbase or Binance and send the obtained token to Solana’s wallet address. You have to.

Veteran crypto asset holders are often accustomed to such incompatibilities between chains and are insensitive to how inconvenient it is.

Cross-chain bridge function: project perspective

As a blockchain project developer, we want to attract as many users as possible and maximize indicators such as TVL (total value locked) for DeFidApp and the number of players for games.

However, the alternative blockchain has less users and less liquidity than Ethereum. For example, Terra ‘s TVL (the second largest chain by value as of January 2021) is about one-ninth of Ethereum’s TVL at the time of writing.

Cross-chain bridges are a mechanism that makes it easy for users to switch to a new chain while retaining their assets. A bridge is like a pipe connecting two ships, allowing liquidity to flow from a full ship to an empty ship and fill a bucket of individual dApps. Build a cross chain bridge Therefore, it is in the best interests of crypto app authors to integrate the blockchain bridge.

Cross-chain bridge features: end-user perspective

The average blockchain bridge works as follows:

1) The user sends asset A to the deposit address of the origin chain (such as Ethereum) and pays the bridge fee.

2) Asset A is locked up to a randomly selected verifier (in the case of a trustless bridge) or custodian in a smart contract.

3) Equivalent amount of asset A1 is issued in the target chain (eg Avalanche)

4) Asset A1 is sent to the user’s address (Avalanche wallet) on the target chain

If the user decides to reclaim the original asset A, then asset A1 must be sent to the specified address and the smart contract or custodian will return the original asset A to the user’s wallet.

The lockup part of the token is an important element of bridging and is often misunderstood. You can’t actually move COMP, UNI, etc. to another blockchain, just as you would carry things from home to home. Instead, the original asset is deposited in a safe place and its replica is created in another chain. The number of existing tokens will increase, but the number of tokens in circulation will not change.

Those who watched Christopher Nolan’s 2006 movie The Prestige did something very similar to cross-chain bridging because of Hugh Jackman’s famous stage tricks. You may notice that.

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Types of cross-chain bridges

Most blockchain bridges are fall into one of the following categories:

1. One asset, two or more chains: This bridge sends only one cryptocurrency from one blockchain to another. For example, WBTC and tBTC are designed to transfer BTC from the Bitcoin network to Ethereum, and Kintsugi and Interlay can transfer BTC from the Bitcoin network to Kusama and Polkadot, respectively.

2. Many assets, two chains: This bridge allows you to transfer different crypto assets between the two blockchains. For example, Rainbow Bridge can send ETH and hundreds of ERC-20 tokens from Ethereum to the NEAR network, Gravity can do the same with Ethereum and Cosmos, ZeroSwap can do the same with Ethereum and BSC, and so on. Also, don’t forget the bridge that connects Ethereum with popular scaling solutions such as Arbitrum and Optimism Arbitrum.

3. Many assets, one chain connected to multiple chains: In this case, many different tokens can be transferred. Examples include Avalanche Bridge , PolkaBridge , Wormhole .

4. Multiple or multiple assets, multiple chains: This bridge allows you to integrate into different dApps and take in additional liquidity from multiple networks. A good example is Ren Bridge with Ren Protocol, which allows you to bridge BTC, BCH, DOGE , etc.

5. Many assets, multiple chains, a single application: This bridge can be connected to any blockchain as a module or adapter. However, it intended to be used for only one type of application, such as exchanges and lending services. Example: Multichain (formerly AnySwap)