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04 July 2022

Updated: 19 October 2022

Cross-Chain Bridges: What They Are & Why They’re Important

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Cross-Chain Bridges: What They Are & Why They’re Important

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A cross-chain bridge facilitates the exchange of information and crypto from one blockchain network to another. It enables interoperability across multiple blockchains.

There are thousands of cryptocurrencies and hundreds of blockchain networks available in the crypto space. While each cryptocurrency uses blockchain technology, many operate as standalone networks with their own communities and economies. Although these island networks are sometimes necessary, growing popularity in the Web3 space will see them become more interconnected.

Several cross-chain infrastructure solutions are gaining more recognition. However, there is still no way to move digital assets between blockchains with minimal friction. Over time, developers have created protocols to connect blockchains and allow for easy data flow between networks. These projects, called cross-chain bridges, directly increase the rate of cryptocurrency and blockchain adoption and usability because of their flexibility.

What Is a Cross-Chain Bridge?

A cross-chain bridge, like a physical bridge, links two points together. Cross-chain bridges enable seamless communication between blockchain networks by expediting asset and data exchanges across networks. Although blockchains have distinct protocols, rules, and governance structures, a cross-chain bridge provides a secure means for multiple networks to interoperate. Users employ cross-chain bridges to transfer tokens, smart contracts, and other types of information between otherwise unconnected blockchains.

Some of the benefits of cross-chain bridges include:

  • Fast and seamless crypto-asset transactions
  • Low operational difficulty
  • Improved productivity and efficiency of existing crypto assets
  • Improved security and better privacy
  • Enhanced developer experience

How Do Cross-Chain Bridges Work?

Blockchain bridges use intercommunication mechanisms to transfer tokens and other internal data between blockchain networks. These bridges typically use some form of a mint-and-burn protocol. The protocol’s principle of operation is as follows:

  1. When tokens get transferred between Blockchain A and Blockchain B through a blockchain bridge, they technically are not moved to a new chain.
  2. Instead, the tokens on Blockchain A are temporarily locked or burned, and an equivalent number of tokens get issued on Blockchain B.

One of the most popular examples is the Wrapped Bitcoin (WBTC), an ERC20 token that has a 1:1 backing with Bitcoin. With WBTC, users transfer the liquidity of Bitcoin to the Ethereum blockchain and significantly expand Bitcoin’s range of interactions, primarily with smart contracts.

Why Is Cross-Chain Bridging Essential in the Crypto World?

Interoperability between blockchains is critical to the long-term success of cryptocurrencies, NFTs, and other blockchain use cases. With blockchain bridges, users and developers do not need to overthink their choice of a platform when building apps or storing and trading crypto assets. Regardless of the preferred creation or storage network, the interoperability of blockchain networks creates more value for everyone.

Some of the improvements blockchain bridges bring to the crypto space include:

  • Increased DeFi Capabilities Many blockchains, like Bitcoin, hold significant value without an advanced DeFi ecosystem. However, this lack of access impedes the network’s ability to generate income from any holdings. Blockchain bridges help provide easy access to a broader DeFi ecosystem, more use cases, and increased opportunities.
  • Scalability — As the number of transactions on blockchains increases, scalability issues arise. Blockchain bridges considerably help mitigate these issues without the need to switch networks. For example, bridges may link Layer 1 to Layer 2 blockchain protocols.
  • Efficiency Crypto users want to conduct transactions on blockchains with lower fees. Cross-chain bridges help reduce congestion on parent blockchains and save users significant money on gas fees.
  • Web3 — The future of blockchain isn't tied to one ecosystem. Blockchain bridges add a critical factor required for developing and adopting multi-protocol decentralized applications.

Categories of Cross-Chain Bridges

Cross-chain bridges are either trusted or trustless. Each category has distinct characteristics that make it the preferred choice depending on the developer’s aim.

Trusted

Trust-based blockchain bridges, also known as federated bridges, are centralized bridges managed by a single entity or federation of mediators. The centralized bridge functions like a private or enterprise blockchain as users rely heavily on the operator to ensure bridge safety.

Trust-based bridges are a fast and cost-effective choice when performing transactions involving large quantities of crypto assets. However, it is crucial to understand that mediators get incentivized to keep transactions running and not identify and prevent security issues.

Trustless

Trustless bridges are decentralized blockchain bridges that rely on smart contracts or atomic swaps to operate. This type functions like known blockchains with individual networks contributing to transaction validation.

Trustless bridges give users a greater sense of security and flexibility when moving crypto assets. The use of non-custodial wallets in trustless bridges allows users to maintain complete control over their digital assets.

Examples of the Best Cross-Chain Bridges in 2022

Some of the best cross-chain bridges in 2022 include:

  • Binance Bridge: The Binance Bridge enables users to exchange crypto assets between the BNB Chain and other blockchains like Ethereum using BEP-20 tokens. The BNB Chain is an Ethereum Virtual Machine (EVM)-compatible blockchain that facilitates low-cost smart contract transactions.
  • Avalanche Bridge - The Avalanche Bridge facilitates the exchange of ERC-20 tokens from Ethereum to Avalanche’s C-Chain and vice versa. Avalanche built the bridge precisely to scale financial transactions on the C-Chain.
  • Polygon Bridge: The Polygon Bridge enables trustless transfers from Ethereum to Polygon and back without third-party risks or market liquidity limitations.
  • Portal by Wormhole: Portal offers an unlimited volume of crypto-asset exchanges between various DeFi blockchains, such as Ethereum, BNB Chain, Avalanche, Oasis, and Polygon.
  • Multichain (AnySwap): AnySwap is a fully-decentralized cross-chain communication protocol with an automated pricing and liquidity system, catering to a wide range of blockchain networks.
  • Celer cBridge: Celer cBridge uses the Celer State Guardian Network to enable liquidity across different blockchains. Celer supports blockchain networks such as Ethereum, Astar, BNB Chain, Avalanche, Polygon, and Arbitrum.
  • Umbria Narni Bridge: The Umbria Narni Bridge facilitates crypto transfers using liquidity pools, where assets are held across multiple blockchains.

Risks of Blockchain Bridges

Like any innovation designed to enhance efficiency, blockchain bridges also come with some risks. Since cross-chain bridges are still in their infancy, developers have yet to create optimal network bridging systems. Consequently, the chance of a bug leading to failed transactions or loss of assets is possible.

Additionally, trusted blockchain bridges that use a centralized system can prevent users from performing crypto transactions, defeating the core purpose of blockchain technology.

Final Thoughts

Blockchain bridges allow users to utilize and enjoy different blockchain protocols fluidly. These protocols offer significant market opportunities and a promising future for multi-chain operations, with bridges facilitating safe, quick, and cost-effective cross-chain interactions.

The ever-growing number of blockchain-based projects has made interoperability more vital than ever. With an AtomicDEX wallet, users can bridge their cryptocurrencies across a wide range of blockchains, including Bitcoin and other UTXO chains, Ethereum, BNB Chain, Avalanche, Polygon, Fantom, Harmony, and more.