What Are Blockchain Bridges and How Do They Work?

Blockchain bridges are specialized protocols whose function is to connect two blockchains, creating the possibility of transferring assets from one network to another.

Introduction

If you understand how blockchain works, the next step is to understand what blockchain bridges are and how they work. Blockchain bridges are specialized protocols that establish an economic, technological and conceptual link between two separate blockchain networks.

It acts as a physical bridge, not only connecting networks, but also enabling faster and more efficient transfer of assets from one chain to another.

What are Blockchain Bridges?

Blockchain is built on a decentralized structure. Instead of a central server as in traditional systems, management and control of the network is shared by all participants. Since the emergence of Bitcoin in 2008, the blockchain ecosystem has expanded, leading to the creation of many different protocols. As these protocols proliferated, so did the need to move assets between chains, and blockchain bridges came into play to meet this need.

Each blockchain is based on a specific purpose and concept, using specific rules, protocols and even different programming languages. But no blockchain network is inclusive enough to solve all problems. Therefore, bridges are needed to interact with different blockchain environments.
Blockchain bridges provide a connection between Blockchain “A” and Blockchain “B”, allowing users to transfer assets between these networks. The Web3 ecosystem has developed several solutions to make asset exchanges and data sharing smarter and more efficient through blockchain bridges.

In addition, blockchain bridges are an important tool not only for moving users’ assets, but also for enabling developers from different chains to share protocols and collaborate.
Blockchain bridges work on the principle of interoperability.

This principle allows assets and data to be moved between two blockchain networks without any loss of information and to be adapted to the system of the new environment. This enables seamless interaction between different blockchain ecosystems.

Why are Blockchain Bridges Necessary?

Imagine you are traveling from one country to another and need to use a different currency. Before you can spend in the local currency, you need to convert your money. Blockchain networks are similar, but the process is more complex.

Cryptocurrencies are governed by the rules of their native blockchain. For example, to trade Bitcoin (BTC) for Ethereum (ETH), you would first need to sell BTC and then buy ETH.
This can lead to some problems:

• You may be exposed to price fluctuations.
• You may pay higher transaction (gas) fees than expected.
The Ethereum network in particular can lead to increased gas fees due to its high transaction volume, forcing users to make expensive transactions or endure long waiting times.

Blockchain bridges solves this problem. For example, by using a blockchain bridge, you can make your BTC compatible with the Ethereum network and convert it to ETH with lower fees and faster transactions, instead of depositing and withdrawing on a different exchange.

Advantages of Blockchain Bridges
• Transfers assets more securely
• Exploring different blockchain platforms and chains
• Enabling interaction between different blockchain ecosystems
• Developer collaborations that foster community growth
• Freedom to choose between centralized and decentralized bridges
Disadvantages of Blockchain Bridges
• Single points of failure and risk of centralization
• Insufficient liquidity (not enough tokens on some bridges)
• Technical vulnerabilities and risk of cyber attacks
• Censorship and regulatory restrictions
While blockchain bridges enable more efficient transactions between different networks, they come with some risks, such as security and liquidity. Therefore, it is important that users choose carefully and opt for the most reliable bridges.

How do Blockchain Bridges work?

During the transfer of tokens, none of them actually physically move from one place to another. You may have seen tokens starting with the letter “w” on different networks. This refers to a “wrapped” token. This token, which is covered by another blockchain’s protocol, can be identified, translated and managed by the target blockchain.

For example, when you want to move BTC to the Ethereum network, the blockchain bridge locks your BTC via a smart contract and creates an equivalent amount of wBTC. This wBTC is traded on the Ethereum network in accordance with ERC-20 standards. Thus, wBTC becomes available in the Ethereum ecosystem as a tokenized version of Bitcoin, allowing you to transact with BTC in Ethereum-based applications.

Blockchain Bridge Types

There are many types of blockchain bridges of varying complexity. However, they are basically divided into Centralized Bridges and Decentralized Bridges.

Central Bridges

Trusted bridges or centralized bridges are platforms that rely on third parties to verify transactions. Binance Bridge, Polygon POS Bridge and WBTC Bridge are examples of such bridges.

The most important point in such bridges is that the user must transfer control of their crypto assets to a third party. Centralized bridges lock assets on one chain, creating equivalent wrapped tokens on the other chain.
This system requires bridge providers to store assets securely. However, the risks associated with centralized bridges are similar to other centralized systems. These include risks such as security vulnerabilities of the platform, malicious administrators, vulnerabilities in smart contracts or regulatory freezes.

The Ronin attack is a good example. The Ronin bridge operated using a centralized structure and used a multisig wallet for asset custody. This system had a total of nine validators and required five different cryptographic signatures to confirm a transaction. However, four signatures were managed by a single team. A hacker took control of this team’s signatures and stole 173,600 ETH and more than 25 million USDC on March 23, 2022.

Decentralized Bridges

Decentralized bridges work without the need for a centralized intermediary. They verify transactions using smart contracts and algorithms, so users’ funds remain in their control and transactions are managed through blockchain logic.

Decentralized bridges have a different risk profile compared to centralized bridges. Human error, coding mistakes or vulnerabilities in smart contracts can cause security weaknesses in such bridges.

For example, an attack on the Solana Wormhole platform in February 2022 highlighted the vulnerabilities of decentralized bridges. By finding a bug in the Wormhole protocol, a hacker was able to create 120,000 ETH by transferring just 0.1 ETH. This vulnerability was replicated on other blockchain networks and a large amount of assets were stolen.

While decentralized bridges offer more control and trust to the user, they can carry a high risk due to smart contract vulnerabilities. Therefore, the security of the bridges used should be continuously audited and updated.

Conclusion

Blockchain bridges have become a critical technology in the crypto world today, enabling data, assets and other information to be shared across different networks. The ability to interconnect previously isolated blockchain systems has allowed ecosystems to become more integrated and has propelled blockchain technology into a future of greater interoperability.

Understanding the different designs of blockchain bridges and how they can be applied to different types of trades requires a certain technical knowledge. Before investing in a project related to blockchain bridges, you need to determine which type of bridge is safer for you and carefully consider how the team behind the bridge ensures security.