Web 3.0 has transformed into its own ecosystem with various blockchains and scaling solutions. In order to meet the demands of asset transfers and additions on the blockchain, we require the help of bridges.
Bridges built on the blockchain function exactly like the bridges we see in our daily lives. A blockchain bridge connects two separate ecosystems, much like a real bridge joins two actual locations. Through the transfer of assets and data, bridges aid blockchains to communicate with one another.
What are Bridges?
To make this interesting, let’s take this situation for example. You are from the United States and are traveling to a European country. Although you have USD, you must spend EUR. You can utilize a currency exchange for a nominal cost to convert your USD to EUR. What should you do, though, if you wish to carry out a comparable exchange using a different blockchain?
Imagine you want to convert your Ethereum Mainnet funds to Ethereum Arbitrum funds. We require a method to transfer cryptocurrencies like Ethereum to Arbitrum, just as we did for the currency exchange we built for the EUR. A transaction like this is made possible through bridges. In this situation, ETH can be moved from Mainnet to Arbitrum via a native bridge that is available in Arbitrum.
Why do we need bridges?
Each blockchain has its own distinct consensus methods and rules. They also evolve and transform in closed circuits and contexts. This disallows blockchains from interacting freely and naturally and also prevents digital tokens from moving between blockchains. Avalanche and Solana L1s, however, are built differently to permit better throughput at the expense of decentralization.
Transferring data and assets between chains are made possible by bridges. Bridges provide decentralised applications (dApps) with access to the advantages of several blockchains and expand their capabilities. What’s more, it allows users to gain entry to new platforms, make use of the advantages of other chains, and work together with developers from various blockchain ecosystems to create new platforms and systems for users.
Bridge Use Cases
Bridges can be used in many situations. The first is its lower transaction fees. Let’s consider a scenario in which you have ETH on the Ethereum Mainnet but desire lower transaction costs to test out various Dapps. You can get lower transaction fees by bridging your ETH from the Mainnet to an Ethereum L2 rollup.
Next is Dapps on other blockchains. If you have been lending USDT using Aave on the Ethereum Mainnet, the interest rate for doing so on Polygon is greater.
It is also good to explore blockchain ecosystems. If you wish to investigate an alt L1 and try out their native dApps, you can do so if you have ETH on the Ethereum Mainnet. From the Ethereum Mainnet to the alternative L1, you can move your ETH using a bridge.
Lastly, is owning native crypto assets. Wrapped Bitcoin is an ERC-20 token that is native to the Ethereum network and not the original Bitcoin asset on the blockchain. You would need to use a bridge to transfer your assets from Ether to Bitcoin in order to possess native BTC. Your WBTC will be bridged and converted into native Bitcoin as a result.
Types of Bridge
Bridges come in many types. It can be divided into two groups– trusted bridges and trustless bridges. For trusted bridges, they use a centralized entity or system to operate. Regarding the processing of money and the safety of the bridge, they have trust and safety presumptions. The majority of the users depend on the operator or owner of the blockchain bridge’s reputation. Users must relinquish control of their cryptocurrency assets.
As for trustless bridges, algorithms and smart contracts are used to run them. They are trustless, therefore the security of the bridge and the foundational blockchain is comparable. They provide customers with the ability to maintain control over their money and assets through the help of smart contracts.
In a nutshell, we may state that while bridges that are trustless are trust-minimized, trustworthy bridges have trust assumptions.
Trustless refers to having security parity with the underlying domains. Trust assumptions could be removing the system’s reliance on the underlying domains’ security by introducing outside verifiers, which renders the system less crypto-economically secure.
Let’s look at an illustration to gain a better understanding of the fundamental distinctions between the two methods. Let’s first consider yourself at the security checkpoint at an airport. Checkpoints come in two varieties, first manual checkpoints. These are run by authorities who manually verify your identity and the information on your ticket before handing you your boarding pass. Next is Self Check-In, done by using a device that accepts your flight information and prints out your boarding pass if all goes according to plan.
Self-check-in is comparable to a trustless paradigm because it eliminates the operator and runs entirely on technology. Users don’t have to trust a third party with their personal information because they always have control over their data. With varying degrees of trustlessness, several bridge solutions employ models that lie in the middle of these two alternatives.
Risk Using Bridges
Bridge construction is still in its infancy. It’s possible that the best bridge design hasn’t yet been found. Any interaction with a bridge involves risk. There are four foreseen risks of Bridges.
The first one is Smart Contract Risk. It is the possibility that a programming error could result in the loss of user funds. Then, we have Technology Risk. Spam, malicious assaults, faulty software, human error, and other factors may interfere with user activities. Furthermore, because trustworthy bridges raise the bar for trust, they expose users to additional dangers like the Risk of Censorship which in theory, bridge operators might prevent users from moving their assets across the bridge. There is also this so-called Custodial Risk. Here, bridge owners might conspire to take consumers’ money.
With that, we’ve come to the end of this article. Bridges are essential for both consumers who desire to explore and use other ecosystems and for onboarding users onto Ethereum L2s. However, users must be aware of the compromises of blockchain bridges as well as the cybersecurity risks associated with using them.