Intermediate
PublishedNov 30, 2022Updated on Feb 14, 20237m
Summary
Cryptocurrency bridges are essential to facilitate interoperability between different blockchains. They connect previously siled cryptocurrency ecosystems, allowing users to share data and transfer assets across blockchains that differ in technology and transaction rules.
Cryptocurrency bridges can be divided into trusted bridges, trustless bridges, one-way bridges and two-way bridges. Solana Wormhole Bridge, Avalanche Bridge, and Polygon Bridge are the three most popular cryptocurrency bridges for transferring assets and each has its advantages and disadvantages.
Generally speaking, the blockchain itself is not interoperable, that is, data and assets on one blockchain cannot be transmitted to other blockchains. Many projects address the lack of interoperability by building cryptographic bridges between different blockchains to facilitate the transfer of data and assets. However, each cryptocurrency bridge can only connect to a specific blockchain, so there is no "one size fits all" solution.
For example, if a team builds a bridge between ETH and BTC, the bridge cannot be used to transfer assets from XRP to ETH. Also, only users who have a cryptocurrency wallet compatible with a particular bridge will be able to use that bridge.
Cryptocurrency bridges are protocols that allow two or more blockchains to work together and share data. Because it connects different blockchains, users on related networks can participate in activities on other networks. This allows cryptocurrency users to spend their tokens outside of the native chain.
Blockchains vary in their tokens, consensus mechanisms, communities, and governance models. Cryptocurrency bridges facilitate interoperability between blockchains , enabling cross-chain transfers of data and crypto assets.
Cryptocurrency bridges also assist different blockchains to share their advantages. Bitcoin, for example, does not need to rebuild its blockchain to integrate smart contracts , because other networks can fill the gap.
What's more, the Crypto Bridge enables developers to communicate and collaborate no matter which network they work on. As a result, protocol connectivity is easier and can also benefit from the features and use cases of other protocols.
Usually, a cryptocurrency bridge transfers tokens from one network to another in the form of a wrapper. During this process, the bridge locks the original token through a smart contract and creates an equivalent amount of wrapped tokens, such as WETH for ETH or WETH for BNB WBNB.
In addition to bridges, there are many other technologies working to improve the interoperability of the cryptocurrency ecosystem. Layer 0 protocol is one example. Layer 0 provides a public bottom layer for the blockchain, allowing other blockchains to build on this bottom layer. Because of this, blockchains no longer need bridges, as each blockchain built on Layer 0 is already interoperable with other blockchains from the start.
A trusted bridge relies on a central entity or system. They include external validators that securely facilitate data and value transfers. However, this also means that they require users to relinquish control over their crypto assets, which is contrary to the ethos of self-custody of cryptocurrencies.
Unlike trusted bridges, trustless bridges do not rely on third-party entities. Instead, they operate in a decentralized fashion, utilizing smart contracts that govern the interoperability process. Thus, users retain ownership of their cryptocurrencies. Unlike trusted bridge users who must rely on the bridge operator's reputation, trustless bridge users rely on the underlying code.
One-way (or one-way) bridges allow users to transfer cryptocurrency to other networks, but not back. In other words, a one-way bridge can only be used for one-way transactions.
This is not the case with two-way bridges, which allow users to conduct two-way asset transfers. A two-way bridge enables the transfer of data and cryptocurrencies between two networks in a more seamless manner. Therefore, a two-way bridge may be more convenient for users who frequently send and receive cryptocurrencies between the two networks.
Wormhole is a two-way bridge, which takes advantage of Solana's high-speed and low-cost structure, and aims to facilitate fast and cheap cross-chain transfer of tokenized assets.
Solana Wormhole was originally intended to solve common problems in decentralized finance (DeFi) , such as high gas fees, price slippage spreads, and network congestion. Just launched in 2020, it supports ERC-20 and SPL connecting Ethereum and Solana in a decentralized manner. Today, Solana Wormhole supports transferring cryptocurrencies between 17 chains.
Wormhole was jointly developed with Certus One, a company that operates blockchain nodes and provides infrastructure security services for proof-of-stake (PoS) blockchains. Because developers can use wormholes to access the Solana network, cryptocurrency projects don't have to rewrite their code bases for Solana.
The bridge is based on a decentralized cross-chain oracle . These so-called “guardians” transfer tokens from one chain to the other by locking or burning tokens on one chain while simultaneously minting or releasing tokens on another chain.
“Guardians” are run by node operators such as Solana validators and ecosystem stakeholders. Their incentive structure aligns with Solana's, so it may help keep the bridge reliable.
Avalanche Bridge (AB) is another two-way bridge, launched by Ava Labs in July 2021, designed for retail investors. The bridge is a successor to its predecessor, the Avalanche-Ethereum Bridge (AEB), and costs less than a fifth of its predecessor.
In addition, AB has also upgraded security, increased confirmation speed and reduced fees, aiming to further improve the user's asset bridging experience. AB also supports users to transfer Ethereum ERC-20 tokens to the Avalanche main network, thus connecting Ethereum with Avalanche .
By design, AB consists of a private code base (also known as "Intel SGX") and a relay (also known as a guard, or warden). Intel SGX applications are private enclaves that create a more secure computing environment by facilitating operations in enclosed spaces and preventing tampering with the bridge.
The main duty of the guards is to monitor the Avalanche and Ethereum blockchain. Whenever guards see ERC-20 tokens entering Ethereum on the Avalanche bridge, they register transactions in the Intel SGX enclave.
However, when sending tokens from Avalanche to Ethereum, the enclave confirmed that it had destroyed the ERC-20 wrapped token first, thereby signaling to Ethereum to transfer an equivalent amount of tokens. Finally, after the transaction is confirmed, tokens are either locked and minted, or burned and released.
In early 2020, the Polygon team first proposed the concept of a trustless Polygon bridge , aiming to increase interoperability between the Polygon and Ethereum networks. Later that same year, the bridge was commissioned.
Today, it supports users to transfer various tokens and non-fungible tokens (NFTs) between Ethereum and Polygon . Now, users not only benefit from the popular network Ethereum, but also enjoy Polygon’s low fees and fast transaction times.
Polygon has two bridges through which users can transfer assets: Proof of Stake (PoS) bridge and Plasma bridge. The former adopts the PoS consensus algorithm to ensure network security. While deposits on PoS bridges are almost instantaneous, withdrawals can take a while to complete. This bridge supports the transfer of Ether and other common ERC tokens.
The Plasma Bridge improves security with the Ethereum Plasma scaling solution. Users can transfer Polygon's native token, MATIC, and certain Ethereum tokens (ETH, ERC-20, and ERC-721) over the bridge.
Typical bridge logic is followed when using Polygon bridge tokens. Tokens that leave Ethereum will be locked and minted and anchored to the same amount of the same tokens on the Polygon network at a ratio of 1:1. In the same way, when bridging tokens to Ethereum, the pegged tokens on Polygon will be destroyed and Ethereum tokens will be unlocked at the same time.
While cryptocurrency bridges make the cryptocurrency ecosystem more interoperable, you should always do your research to choose the bridge that works best for you.
Remember: bridging does not change the circulating supply of the cryptocurrency you want to transfer. The role of the bridge is simply to lock the tokens of the sending network and mint new tokens on the receiving network, thus creating wrapped tokens.
If the wrapped token is sent back to the origin chain, it will be destroyed before the original token is released by the network at the other end.