Understanding Blockchain Bridges: A Key to Interoperability in Web3

Today, there are dozens of blockchains with $1B+ market caps, and users understandably want to move their assets between these various chains and ecosystems. Most of these chains can’t talk to each other on their own, so to transfer data and assets between chains, you need bridges connecting them. But these bridges are fraught with peril: billions of dollars of user funds have been lost to security exploits on bridges. How do these bridges work, and how can you ensure you’re working with a secure bridge for your users?

Story details

Type

Deep dive

Topic(s)

‘

Blockchain

’

Published

August 7, 2023

Author(s)

Max Crawford

Explore the mechanics of blockchain bridges.

Contents

Blockchains are not designed to communicate with each other. They have each been built independently to serve a specific purpose–whether that’s for a particular app or use case or to serve as the foundation of a new internet ecosystem.

This is obviously a problem. It means users have little flexibility in moving between various blockchain ecosystems and taking their assets and data with them. But people want that. They want asset transfer. They want more liquidity. They want to take advantage of other protocols and their strengths and not be ‘locked in’ to just one ecosystem.

Blockchain bridges solve that problem.

What Are Blockchain Bridges?

A blockchain bridge is a protocol that serves as a connection between different blockchains, allowing for the transfer of tokens and data between them. Blockchain bridges serve two primary functions in the realm of blockchain interoperability, each addressing a distinct challenge:

Blockchain bridges enable the transfer of assets and data between completely separate blockchain ecosystems. For example, a bridge could be used to move assets from Ethereum to Stacks, two fundamentally distinct blockchains.
Blockchain bridges enable the transfer of assets and data between blockchain layers. For instance, a user utilizes a bridge to move assets between Ethereum (an L1 blockchain) and Polygon or Arbitrum (L2 solutions built on Ethereum).

The Importance of Blockchain Bridges in Web3

Blockchain bridges are integral to the evolution and functionality of Web3 as they underpin the principle of interoperability, a key pillar of the Web3 vision. By enabling the seamless transfer of data and assets between disparate blockchain networks, bridges break down the silos of the blockchain world and unlock the full potential of Web3.

More specifically, bridges:

Enable cross-chain communication: Blockchain bridges serve as mediators that bridge assets between two different blockchains. By enabling assets to move between chains, bridges help enable a modular blockchain architecture. Individual blockchains can specialize and don’t have to build out every single function when they can connect to other chains via bridges.
Increase transaction flexibility: By allowing users to transact across different chains via bridges, users gain more flexibility through deeper liquidity, more markets, better pricing, and better competition.
Reduce fees: Blockchain bridges can allow users to shift their transactions to less costly networks without completely leaving their original chain, making blockchain usage more affordable and accessible.
Improve scalability and network congestion: Blockchain bridges can ease network congestion by spreading transactions across chains, effectively increasing the overall transaction capacity of the network.

Types of Bridges

There are two implementations of blockchain bridges today, each with their own tradeoffs.

Trusted (Centralized) Bridges

These bridge systems are facilitated by a trusted third-party that holds custody of the assets being transferred between blockchains. An example of a trusted bridge is Binance Bridge. While this method can be faster and more efficient, it compromises the principle of decentralization and exposes users to counterparty risk, meaning the trusted entity could potentially act maliciously or incompetently (stealing or losing all user funds). There are two types of trusted bridges:

Custodial bridges: With custodial bridges, a single trusted custodian holds and manages the transfer of assets between blockchains, requiring users to trust that entity. An example of a custodial bridge is wrapped bitcoin, whose custodian is BitGo.
Federated bridges: Rather than a single custodian, federated bridges are operated by a group of trusted validators. Those validators can be elected or picked. These bridges are more decentralized than those run by a single custodian, but they still require trust. An example is Wormhole, which uses 19 “guardians” to act as oracles.

Trustless (Decentralized) Bridges

These bridges operate without an intermediary, using cryptographic proofs and smart contracts to automate the transfer process. This approach upholds the decentralization ethos of blockchain and reduces counterparty risk. However, they are technically more complex and regularly face attention from hackers looking to exploit bugs and drain the bridge of funds. There’s a valid argument that trustless bridges today are less safe than their trusted counterparts because of those exploits. An example of a trustless bridge is Celer cBridge.

The bridge ecosystem is expanding, and many bridges support multiple blockchains, so if you integrate with one bridge provider, you have access to all of the blockchains already integrated with that bridge provider. For instance, Wormhole supports 20 ecosystems, so if you integrate with Wormhole you can now bridge to all of them.

Understanding How Blockchain Bridges Work

Let's walk through the flow of a trustless bridge. Consider a scenario where a user wants to move Ethereum from the Ethereum network to another blockchain like Avalanche.

The user will “bridge” their asset to the new network, and the entry/exit points of that bridge are two corresponding smart contracts, one on each blockchain. To successfully transfer assets, the following has to happen:

Locking of assets: A user sends ETH to a smart contract on Ethereum, where that ETH is now locked to prevent double spending on both the Ethereum and Avalanche networks.
Generating proof: The bridge generates a cryptographic proof of the lock-in, which attests that the specified tokens have been successfully locked on the Ethereum network.
Verifying and minting on destination network: The bridge's corresponding smart contract on Avalanche validates the cryptographic proof. Upon successful verification, it mints the equivalent amount of wrapped ETH on Avalanche and sends it to the user’s Avalanche wallet address.

Voila! The user can now transact with wrapped ETH (WETH) in the Avalanche ecosystem. If the user wishes to transfer their assets back to the Ethereum network, they send the WETH back to the bridge’s smart contract on Avalanche (which then burns the wrapped tokens). After verifying that transaction, the bridge will unlock the corresponding amount of tokens on the Ethereum network and send them to the user’s Ethereum address.

This is a “lock and mint” scenario, and the most common form of bridge. There are variations, such as a “burn and mint” bridge where an asset is permanently destroyed on one chain and minted on a new chain (in other words, this is a one way bridge).

How does the destination network (Avalanche in this example) know what has happened on the original network (Ethereum)? That is the job of relayers (this role is sometimes called an oracle or validator in various bridge designs). The primary role of a relayer is to monitor and listen for events on one blockchain, and then propagate (relay) those events or information to another blockchain. This could involve transferring data, messages, or transactions between networks.

All of the above describes trustless bridges. For a trusted bridge design, the operation is similar, but streamlined. A user simply sends an asset to a custodian’s address on one chain, who then sends the user a wrapped asset back on another chain. No need for a set up with multiple contracts and relayers because a single party (the custodian) has all of the information needed to maintain a 1:1 ratio between deposited assets and their wrapped counterparts.

Considerations for Uitilizing Blockchain Bridges

Utilizing a blockchain bridge requires careful consideration and planning. Here are some crucial points to reflect upon:

Choosing the right bridge model: It's vital to decide whether you want to leverage a custodial (centralized) bridge or a trustless (decentralized) one. Each has its merits and drawbacks. While custodial bridges might offer more efficient transfers, they introduce potential counterparty risk and sacrifice decentralization. And for trustless bridges, you get the benefits of decentralization, but introduce technology risk (hacks and bugs). Your decision could significantly impact your users and their confidence in your security.
Bridge SDKs: Several bridge services provide Software Development Kits (SDKs), which can expedite the integration process. Conduct thorough research to assess if these pre-built tools align with your tech stack and standards.
Developing a custom bridge: If you choose to build a decentralized bridge from scratch, be prepared for the doubled learning curve. You must be familiar with the technical details of both the origin and destination blockchains. You'll need to design smart contracts for both sides, devise a reliable relayer mechanism, incorporate oracle services, and build other essential components. This process can be labor-intensive and complex. It's not an endeavor to be undertaken lightly or without ample technical expertise.

Utilizing a blockchain bridge involves balancing the trade-offs between security, decentralization, ease of integration, and user experience. It's crucial to research thoroughly, understand the risks, and make well-informed decisions that suit your expectations.

Ensuring Security and Trustworthiness in Your Blockchain Bridge

Security is critical for blockchain bridges because by their nature, they are honeypots: they are contracts or addresses with a lot of money held in them, making them ripe targets for bad actors. Historically, we have seen that play out. Multiple bridges have experienced hacks, and those exploits have been some of the biggest in Web3 history:

Sometimes, bridges recover from these hacks, but other times, they end up shutting down. For example, the Multichain bridge completely shut down earlier in 2023 after $130 million was stolen from the bridge.

There are a lot of security mechanisms being implemented by blockchain bridges to improve their security, such as multiple smart contract audits, bug bounties, source and destination chain evaluation, relayer validation, and messaging protocol infrastructure. Bridges will get more secure and stable over time as code vulnerabilities are discovered and patched, but today they are still a major source of exploits, and may users are wary of leveraging bridges.

The Future of Blockchain Bridges: Toward Greater Interoperability

The cross-chain ecosystem is expanding. We’re now seeing the introduction of cross-chain interoperability protocol by Chainlink, the inter-blockchain community by Cosmos, parachains by Polkadot, and Omnichain fungible-tokens by Layer Zero, and various blockchain bridges, all working to simplify token transfers further and make cross-chain communication easier.

Interoperability is critical for the growth of Web3 as a whole because it enables seamless cross-chain interactions, enhancing liquidity, and opening up opportunities for new decentralized applications and services. There are still issues being worked on around blockchain bridges, such as security, scalability limitations, and complex and resource-intensive validation processes. But new innovations and more research are making bridges more user-friendly every day.

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