Explore Blockchain Bridges | Why & How Do They Work?

6 min readJul 19, 2023

Since 2008, when blockchain technologies were presented to broad masses, a huge amount of crypto networks have been designed with various functionality and opportunities. Despite quantity and quality growth, they remain to be cut off from one another.

In this article, we disclose and discuss a solution for blockchain interoperability — blockchain bridges that serve as links between different networks. There will be a detailed introduction about how it works alongside the value advantages it presents for blockchain users. You will also learn the risks of DeFi bridge projects.

Why Use a Blockchain Bridge? | Blockchain Limitation

A separation of blockchains goes against the principle of decentralization, as they can’t exchange information or value with the outside network. The lack of interaction between blockchains limits not only the idea of decentralization but the advancement and relevance of the technology by placing boundaries around innovation, economic growth, and free trade. For example, applications developed for a particular network will work within that network only. This limitation keeps down their potential for wider adoption. Thus crypto industry evolution has led to the demand to build a blockchain bridge and improve interoperability among different networks.

Crypto bridge protocols are created to connect two blockchains, enabling interactions between them. How? For example, If you own BTC (Bitcoin), but want to run the Ethereum network, a blockchain bridge allows you to do that without exchanging your BTC for ERC-20 token. Explore more!

What is a Blockchain Bridge?

A blockchain bridge is a protocol that links two economically and technologically different blockchains to ensure interactions between them.

Bitcoin, Ethereum, and BNB Smart Chain are some of the most popular blockchain ecosystems, all operating on different consensus protocols, programming languages, and system rules. But using blockchain bridges enables interoperability between them, which means that assets and data hosted on one blockchain can interact with another.

Blockchain bridge projects aim to achieve the following goals:

the cross-chain transfer of assets and data;
access for DApps to the strengths of various networks;
opportunity for users to use new platforms and leverage the benefits of different chains;
cooperation with developers from different chain ecosystems to build new features for users.

Thus the cross-blockchain bridge is essential to enabling exchanging data and value across the DeFi.

How Blockchain Bridge Works? | Review an Example

Cross-chain bridge is often used to transfer tokens. Let’s take BTC as an example. There are two options to transfer it to Ethereum.

First — to sell BTC and buy ETH instead. The problem is that this way leads to extra transaction fees and possible price volatility exposure.
Another way — use a blockchain bridge. In this case, there is no need to sell your crypto. When you bridge 1 BTC to an Ethereum wallet, a blockchain bridge contract will lock your BTC and create an equivalent amount of Wrapped BTC (WBTC), which is an ERC-20 token compatible with the Ethereum network. The amount of BTC you want to port gets locked in a smart contract, and the equivalent tokens on the destination blockchain network are issued or minted.

What is a wrapped token?

A wrapped token is a tokenized version of another cryptocurrency. It’s pegged to the value of the asset it represents and typically can be redeemed for it (unwrapped) at any point.

Benefits of Using Blockchain Bridges

The primary goal of blockchain bridges is the ability to enhance interoperability: the exchange of tokens, assets, and data across different networks, whether between layer 1 and layer 2 protocols or various sidechains. Here are additional benefits that bridge between blockchains entails.

Development Boost
Blockchain bridging is a way for DApps to adopt the strengths and opportunities of different blockchains and, as a result, boost their capabilities. Thus crypto bridges enable innovation in protocols, leading to innovative solutions.
Convenient DeFi Usage
Thanks to the cryptocurrency bridge, users can easily transfer their crypto from one network to another to experience different benefits. Moreover, most of the time, the conversion of funds on bridges takes lower transaction fees than other platforms.
Scalability
Another remarkable advantage of blockchain bridges is to boost scalability. Some blockchain bridges improve efficiency in handling a large number of transactions. With blockchain becoming more and more popular, different networks will need to support higher transaction volumes and provide faster processing. At this point, bridges can be used for the creation of scalability solutions where the transaction load is shared between interconnected chains thanks to cross-chain transfers. As a result, users can benefit from faster transactions and lower transaction costs
Enables DeFi progress
For DApps’ evolution, it’s vital to communicate and interact with one another. Thus blockchain bridges overcome the solid nature of blockchains to network barriers.

Types of Blockchain Bridges

Take a look at the blockchain bridges list according to categories due to their functions, mechanisms, and levels of decentralization.

Bridges by governance
There are two core opposite kinds of crypto bridges: centralized (custodial) and decentralized (non-custodial).
According to their centralized nature, custodial bridges require users to trust central entities that operate and manage the system.
Non-custodial bridges operate in decentralized principle through smart contracts, removing the need to trust a bridge operator.
Functional Distinguish
Another diversification is based on how a blockchain bridge operates. There are two popular options: wrapped asset bridges and sidechain bridges.
Wrapped asset bridges enable crypto interoperability, for example, porting bitcoins to the Ethereum network via wrapping the BTC to Wrapped BTC (WBTC), an ERC-20 token compatible with the Ethereum network.
While sidechain bridges link the parent blockchain to its sidechain, ensuring interaction between them. They are necessary because the parent and sidechain have different consensus mechanisms.
Blockchain bridges by Mechanisms
There are one-way (unidirectional) bridges and two-way (bidirectional) bridges. As you may already guess, a one-way bridge allows users to only bridge assets to one destination blockchain but not return to its native blockchain. Two-way bridges allow converting crypto in both directions.

Blockchain Bridges Possible Risks

We should be aware of blockchain bridge limitations. There have been cases when hackers have exploited the vulnerabilities of some bridges’ smart contracts. As a result, massive amounts of crypto have been stolen from cross-chain bridges.

Custodial crypto bridges may expose users to appropriate custodial risks. A centralized entity standing behind a custodial bridge could theoretically steal users’ funds. In the case of centralized bridges, control is in the hands of a single entity. If certain transactions are not in the interest of bridge operators or contradict them, they have the ability to prevent transfers. That’s why, before using custodial bridges, make sure that you select established brands with long-term track records.

Another potential risk is transaction rate bottlenecks. A single chain’s throughput capacity bottleneck could spoil large-scale blockchain interoperability.

Finally, it’s important to understand that blockchain bridges could expose the underlying protocols to risks related to the disparity in trust. Because blockchain bridges connect different blockchains, you should estimate the overall security of the interconnected networks by the weakest link.

According to the possible risk, the importance of smart contracts cannot be understated. This is particularly true for decentralized bridges, which rely on self-executing programs to power their core functionalities, such as the minting and burning of wrapped tokens. Badly written or poorly optimized smart contracts could create potential exploits or other vulnerabilities that could be targeted by bad actors.

Closing Words

Separate rules and specific technologies of each blockchain challenge the DeFi project’s interoperability. Blockchain bridges serve as a solution that allows cross-chain interaction and, furthermore, opens up opportunities for better scalability and efficiency.

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