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Bybit Learn
Intermediate
May 17, 2022

Bridges

The term blockchain bridges refers to channels that facilitate the transfer of cryptocurrencies or information from one blockchain to another by converting them to derivatives of the target blockchain through interoperation.

After Bitcoin announced blockchain technology in 2009, the number of blockchain networks began to grow rapidly, diverging not only in design, but also in functionality. Blockchain technology’s key objective is to decentralize financial governance for all stakeholders. Therefore, it’s important for blockchain networks to be able to connect, despite having different protocols and rules. This is so that they have the possibility to form a larger decentralized ecosystem, with broader adoption, and advance together through an exchange of innovation, intel and resources

A blockchain bridge effectively resolves this issue through interoperation, allowing a secure transfer of crypto assets or data between blockchains that may have different governance models. This creates fluidity for one blockchain to be able to tap another for the services they themselves do not have. For example, despite being the dominant cryptocurrency, Bitcoin cannot be used in the DeFi (decentralized finance) system — nor can you access non-fungible tokens (NFTs), since both are based on the Ethereum blockchain, which restricts the use of Bitcoin. With a blockchain bridge, the increased liquidity will enable different networks of services to interact and communicate with one another, thereby broadening the overall user base with more shared resources.

How Does a Blockchain Bridge Work?

Assets of blockchain networks are usually created by a specific protocol for use within that particular blockchain only. Therefore, they are unsuitable for use in another blockchain. With a blockchain bridge, a wrapped token — mimicking the characteristics and functions of the target token — is generated the moment it reaches the target blockchain network. 

Using the wrapped token, you can enjoy the services and platform access of another blockchain network. For example, Bitcoin becomes a wrapped Bitcoin upon being transferred to the Ethereum blockchain via a blockchain bridge. The amount of Bitcoin sent for the transfer will correlate with the amount of wrapped Bitcoin minted on the Ethereum network. The wrapped Bitcoin also functions as an ERC-20 token, which allows it to be used in the Ethereum ecosystem, including for NFTs as well as DeFi platforms. 

Types of Blockchain Bridges

There are generally two types of blockchain bridges: A centralized bridge that’s custodial, and a decentralized bridge that’s considered trustless. A centralized bridge requires a central system to control the bridging asset that’s used during the transfer, while the bridging asset on a decentralized bridge is managed by a mathematical protocol. For example, a wrapped Bitcoin is in the custody of BitGo (as the centralized bridge), while bridging assets on Wormhole are controlled by its protocol — which requires many computer nodes to reach a common agreement. Hence, a decentralized bridge helps to avoid issues of corruption from a centralized platform, providing the much-needed transparency to encourage more usage of the bridge. However, the infamous Wormhole exploit of Feb. 2022 shows that a decentralized bridge may have its own security risks as well.

In addition, bridges can also be unidirectional or bidirectional. A unidirectional bridge only allows assets to be transferred to the target blockchain, but not in return. An example is being able to send Bitcoin to the Ethereum blockchain and converting it to an ERC-20 stablecoin, but not vice versa. A bidirectional bridge, however, allows a two-way transfer to and from blockchains, which is possible with bridges like Wormhole, which can facilitate the transfer between the Solana and Ethereum blockchains.

Using a blockchain bridge to transfer tokens instead of swapping them is essentially less expensive and more convenient. The latter incurs high gas and exchange fees for each swap across different platforms to attain your target token, while a bridge only requires one transaction for the conversion. It’s also safer to transfer your crypto assets directly from your own digital wallet, rather than relying on exchange wallets, which may sustain more transaction fees.

In order to achieve decentralization — which is the key objective of blockchain technology — blockchain networks cannot function in silos. By only allowing users within a specific network to access its full suite of services, a centralized financial system is created which is now centered around that blockchain. Only through bridging can blockchain networks interact and advance together toward a decentralized future with a shared pool of users.