How Do Crypto Bridges Work?
Crypto bridges allow disparate blockchain systems to communicate and interact with each other, enabling users to share data and transfer assets between blockchains with distinct technological and economic protocols. These bridges are crucial in fostering interoperability among multiple blockchains, providing a system of connectivity that was not previously available.
Crypto bridges can be divided into four groups: trusted, trustless, uni-directional, and bi-directional. Examples of these bridges, which facilitate asset transfers, include the Solana Wormhole Bridge, the Avalanche Bridge, and the Polygon Bridge, each offering distinct advantages.
Due to their lack of inherent compatibility, blockchains cannot instantly transfer data or assets from one to another. To solve this problem, many projects have developed crypto bridges, or methods for data or asset transfer, between particular blockchains. Unfortunately, these solutions cannot easily connect different blockchains and cannot be used for all interoperability needs.
For example, a bridge between ETH and BTC cannot be used to transfer assets from XRP to ETH, and only users with cryptocurrency wallets compatible with that specific bridge can utilize it.
A Crypto Bridge Is…
A crypto bridge functions as an intermediary between two or more blockchains, allowing them to communicate and share data. This bridge allows crypto users to access and participate in activities in different networks, enabling them to make use of their digital assets without needing to be restricted to one blockchain.
Blockchains vary in their tokens, consensus mechanisms, the communities that utilize them, and the models of governance they employ. A crypto bridge allows for interoperability between blockchains, enabling the movement of data and crypto assets between different blockchains.
Crypto bridges enable blockchains to take advantage of each other's strengths. For instance, since other networks can accommodate this requirement, Bitcoin does not need to rewrite its blockchain to support smart contracts.
Crypto bridges offer developers a way to coordinate and work together regardless of which network they're using. Through this feature, protocols can join forces and harness each other's capabilities and capabilities for various applications.
Crypto bridges typically facilitate the transfer of tokens across different networks through a process referred to as wrapping. This requires the bridge to lock the original token in a smart contract and then generate an equivalent amount of wrapped tokens, like WETH for ETH or WBNB for BNB.
Other technologies that focus on enhancing interoperability within the crypto ecosystem exist, such as Layer 0 protocols. Layer 0s allow blockchains to build on a common underlying layer, making bridging between blockchains unnecessary. Hence, any blockchain that builds on top of Layer 0 is already set up to interconnect with other networks from the outset.
Types of Bridges
Centralized bridges require users to relinquish control of their crypto assets, contrary to the ideology of self-custody strongly upheld by the crypto community. These bridges are nevertheless relied on to enable the safe transmission of information and assets and incorporate external verifiers to guarantee their efficacy.
Trustless bridges do not depend on third-party entities like trusted bridges do but instead use smart contracts to manage interoperability in a decentralized manner. It means that users can keep control of their crypto. With trusted bridges, users must put their trust in the bridge operators, but with trustless bridges, users can verify the code instead.
Bridges that only allow for a one-way flow of crypto enable users to send their funds to another network without the option of returning them through the same bridge. Consequently, these bridges are suitable only for one-way transactions.
Bi-directional bridges enable the two-way transfer of assets. As a result, users have a much smoother experience when sending and receiving cryptocurrencies between two networks. This is especially helpful for those who need to move between the two networks frequently.
Solana Wormhole Bridge
Wormhole, a bi-directional bridge, seeks to exploit Solana's distinct features of quickness and affordability to enable the transportation of tokenized assets across different blockchains.
Solana's Wormhole was created to tackle the pain points of DeFi, such as costly gas fees, price slippage, and network congestion. At the launch in 2020, Wormhole allowed ERC-20 and SPL tokens to be interchangeably transferred between Ethereum and Solana's blockchains. Currently, crypto transactions can happen among as many as 17 networks with the help of Solana's Wormhole.
Wormhole was created in partnership with Certus One, a firm that runs nodes for blockchains and offers infrastructure protection solutions for proof-of-stake (PoS) blockchains. By using Wormhole, developers are able to access the Solana network without having to redevelop their own codebases for Solana.
The bridge utilizes decentralized cross-chain oracles, known as "guardians," to facilitate the transfer of tokens between two different chains. This is accomplished by locking up or burning tokens on one chain and then minting and releasing them on the other.
Node operators like Solana validators and ecosystem stakeholders govern the "guardians." By having an aligned incentive structure with Solana, these guardians can ensure the bridge remains reliable.
In July 2021, Ava Labs launched Avalanche Bridge (AB), a bi-directional bridge designed especially for retail users. It is a replacement of the previously used Avalanche-Ethereum Bridge (AEB), and it offers fees that are roughly five times lower than those of AEB.
AB is dedicated to making the asset-bridging experience more secure, faster, and cheaper for users. It also connects Ethereum and Avalanche, enabling people to shift Ethereum ERC-20 tokens onto Avalanche's Mainnet.
Intel SGX is an application that uses a private codebase known as “Inter SGX” to create a highly secure computing environment. To ensure the system is impenetrable, Intel SGX uses "wardens" or relayers which form a bridge between the private enclaves and the outside world.
Whenever the Warden detects an ERC-20 token coming to the Avalanche Bridge's Ethereum, they register the transaction in the Intel SGX enclave, which is their primary task of monitoring the Avalanche and Ethereum blockchains.
When tokens are sent from Avalanche to Ethereum, the enclave first confirms that the corresponding ERC-20 tokens are burned to signify the transfer. When the transaction is verified, the token is then either locked and minted or burned and issued.
In 2020, the Polygon team put forward the idea of the trustless Polygon Bridge to bolster interoperability between the Polygon and Ethereum networks. By the end of the same year, the bridge had been successfully rolled out.
These days, users can easily facilitate the transfer of tokens and NFTs from Ethereum to Polygon and vice-versa. Doing this allows them to benefit from Ethereum's wide popularity and take advantage of Polygon's minimized fees and faster transaction times.
Polygon offers two bridges to transfer assets: the Proof-of-Stake and Plasma bridges. The PoS bridge utilizes the PoS consensus algorithm to secure the network, and deposits are generally completed quickly. However, withdrawals may occasionally take more time. This bridge supports the movement of ETH and other ERC-compliant tokens.
The Plasma bridge utilizes the Ethereum Plasma scaling solution to provide heightened levels of security. With the bridge, users can transfer the Polygon native token, MATIC, and also certain Ethereum tokens, including ETH, ERC-20, and ERC-721.
When bridging tokens with Polygon, the process follows the standard approach for bridging. Tokens that move from Ethereum are locked, and the same amount of tokens are minted instantly on Polygon at a 1-to-1 ratio. When bridging tokens to the Ethereum network, the tokens on Polygon are burned, and the corresponding Ethereum tokens are unlocked.
Carrying out research by yourself to identify the crypto bridges most suitable for you is essential to make the most of their interoperability in the crypto ecosystem.
It is important to note that using a bridge to transfer a cryptocurrency does not modify the number of tokens in circulation. Bridges just 'lock' up tokens on the original network and create a set of newly minted tokens on the destination network, termed “wrapped tokens.”
The wrapped tokens are sent back to the native chain, they are burned, and the original tokens are then released to the other side.