What Are Blockchain Bridges and How Do They Work?

If you want to move tokens from one blockchain to another, you’ll likely need a blockchain bridge to allow those assets to travel.

Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.

A blockchain bridge is a tool that lets you port assets from one blockchain to another, solving one of the main pain points within blockchains – a lack of interoperability.

Since blockchain assets are often not compatible with one another, bridges create synthetic derivatives that represent an asset from another blockchain.

If you use a bridge to send one Solana coin to an Ethereum wallet, that wallet will receive a token that has been “wrapped” by the bridge – converted to a token based on the target blockchain. In this case, the Ethereum wallet would receive a "bridge" version of Solana that has been converted to an ERC-20 token – the generic token standard for fungible tokens on the Ethereum blockchain.

While bridges open up new markets and work toward a brighter multi-chain future, they come with their own security challenges, as proven by a huge $326 million exploit on the nascent Wormhole bridge in February 2022.

Types of blockchain bridges

Some bridges, known as unidirectional or one-way bridges, allow you to port assets only to the target blockchain and not the other way around. For instance, Wrapped Bitcoin allows you to send bitcoin to the Ethereum blockchain – to convert BTC to an ERC-20 stablecoin – but it doesn’t let you send ether to the Bitcoin blockchain.

Other bridges like Wormhole and Multichain are bidirectional, or two-way, meaning you can freely convert assets to and from blockchains. Just as you can send Solana to Ethereum’s blockchain, you can send ether to Solana.

Read more: What is Solana?

Bridges are either custodial (also known as centralized or trusted) or noncustodial (decentralized or trustless). The difference explains who controls the tokens that are used to create the bridged assets. All wrapped bitcoin (WBTC) is held in custody by BitGo, making it a centralized bridge. Conversely, bridged assets on Wormhole are held by the protocol, meaning it is more decentralized.

While hardline advocates of decentralization might venture that the custodial nature of WBTC makes it less secure than decentralized alternatives, bridges that decentralize custody over bridged assets aren't necessarily safer, as shown by the Wormhole bridge exploit.

Why use a blockchain bridge?

Porting assets from one blockchain to another blockchain comes with a myriad of benefits. First, the blockchain onto which you port assets might be cheaper and faster than its native blockchain. This is certainly true for Ethereum, where high transaction fees and slow throughput make it difficult for newcomers to get involved in decentralized finance (DeFi).

If investors ported assets to a layer 2 network – a faster blockchain that sits atop the Ethereum blockchain, like Arbitrum or Polygon – they could trade ERC-20 tokens for a fraction of the cost without sacrificing exposure to Ethereum tokens.

Other investors might use bridges to make the most of markets that exist only on another blockchain. For instance, the DeFi protocol Orca is available only on Solana, but supports a wrapped version of ETH.

Bridges are becoming easier to use. Many DeFi protocols have integrated bridges to let their users swap tokens from different protocols without having to leave the platform. This makes the process of converting tokens through bridges less cumbersome.

What are the biggest blockchain bridges?

According to DeFi Llama, there was $21.8 billion worth of crypto locked in bridges as of March 2022. The largest blockchain bridge is Wrapped Bitcoin, accounting for almost half of the bridge market, with $10.2 billion in total value locked (TVL). DeFi Llama pegs Multichain as the largest cross-chain bridge, with about $7 billion in TVL.

A dashboard on Dune Analytics shows that the Avalanche Bridge is the largest Ethereum bridge, with about $6 billion in TVL, followed by Polygon ($5 billion TVL) and the Fantom Anyswap Bridge ($4.2 billion TVL).

Are blockchain bridges safe?

Like with all of crypto, your capital is at risk. Some novel decentralized bridges are relatively untested and even those that have been tested are subject to exploits. The most notable recent example is Wormhole, but a week before that attack, a bridge called Qubit was exploited for $80 million.

According to analysis from blockchain analytic firm Elliptic, the Wormhole attack occurred because Wormhole allowed the attacker to mint 120,000 worth of wrapped ethereum without having to stake any ETH. The attacker then withdrew the free WETH. A high-frequency trading firm called Jump Trading covered the losses to bail out the protocol.

Trusted bridges have different risk profiles. Instead of the risk that an attacker exploits the protocol and drains it of funds, the risk is that the company that holds staked assets is corrupt or negligent or loses control over the assets because of incompetence or because of orders from a third party, such as if a government requests that the company freeze assets.

This article was originally published on Mar 7, 2022 at 4:56 p.m. UTC

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Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.

CoinDesk - Unknown

Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.


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