Blockchain bridges play a crucial role in the world of cryptocurrencies, providing a solution to the lack of interoperability between decentralized networks.
Using a blockchain bridge, it’s possible to port assets from one blockchain, such as Solana, to a second network, like Ethereum. The way it works is that if a user sends a token from Solana to Ethereum, the recipient will end up with a “wrapped” version of that token that’s held by the bridge they use. So in this case, the Ethereum user will receive a wrapped version of SOL that’s compatible with the underlying blockchain.
Blockchain bridges therefore open up new markets and use cases and demonstrate the path towards an exciting, multichain future. However, despite being an incredibly useful innovation, blockchain bridges also bring new problems.
Kinds of Blockchain Bridges
One of the main types of blockchain bridge is the unidirectional, or one-way bridge, which only allows users to port assets in one direction – to the target blockchain, but not the other way round. So, the Wrapped Bitcoin bridge makes it possible to send Bitcoin to Ethereum. The user converts their BTC into WBTC, which is an ERC-20 stablecoin that’s pegged to the value of BTC. However, it’s not possible to use this bridge to send ETH to the Bitcoin blockchain.
We also have bidirectional blockchain bridges such as Multichain and Wormhole, which are two-way bridges. In other words, users can convert their assets back and forth between two different blockchains. It’s possible to send SOL to Ethereum, or alternatively send ETH to Solana, for example.
It’s also important to note that bridges can be either custodial or non-custodial. Custodial bridges are operated by a centralized authority, meaning they’re trusted, whereas non-custodial versions are decentralized and trustless. With custodial bridges, a centralized authority controls the native tokens that are deposited, and mints wrapped assets for use on the target blockchain in their place. In the case of WBTC, the BTC deposited on its bridge is held in custody by a company called BitGo, meaning that it is centralized. On the other hand, Wormhole is a decentralized bridge, where native tokens are deposited into smart contracts controlled by code rather than people.
Fans of decentralization argue that it’s risky for users to place their trust in a centralized entity, and it does indeed go against the decentralized ethos of cryptocurrency. But that doesn’t always mean that decentralized bridges are safer, as a spate of recent high-profile hacks has shown.
The Biggest Blockchain Bridges
There was $7.59 billion worth of cryptocurrency locked in the top 20 blockchain bridges as of December 2022, according to DeFi Llama. The largest bridge of all is the Wrapped Bitcoin bridge, which accounted for $3.11 billion in total value locked. The largest decentralized bridge is Multichain, with $1.25 billion in TVL.
According to Dune Analytics, the largest Ethereum-based bridge is Polygon, with $3.04 billion in TVL, followed by Arbitrum with $1.28 billion TVL.
So What’s Wrong With Blockchain Bridges?
The biggest problem with blockchain bridges is the lack of security. Despite their popularity, it’s clear that every single time someone uses a bridge, their capital is at risk of being stolen by hackers. While the risk may be obvious with some of the more novel, decentralized bridges, even those that have been heavily audited could still be at risk of vulnerabilities.
The very nature of blockchain bridges makes them a big target for malicious actors. In the case of decentralized bridges, their smart contracts represent some of the biggest prizes in the crypto industry. The danger is that if a hacker is able to discover an exploit or bug in the underlying smart contract, they might be able to access all of the funds held within it, leaving users holding worthless wrapped tokens that will no longer be backed by anything.
It’s a nightmare scenario that has already come true several times. One of the biggest successful attacks targeted the once-popular Ronin Bridge earlier this year. In that attack, hackers were able to access multiple validator’s accounts and approve transactions that saw more than $600 million worth of locked assets stolen from its smart contracts. Similarly, in March 2023, the Wormhole bridge lost over $326 million worth of crypto in another attack.
What Are The Alternatives?
The good news is that there are some emerging alternatives to the requirement for blockchain bridges. One of the most exciting is the open-source Polkadot blockchain project, which is taking network interoperability to the next level by making it an underlying feature of its platforms.
Polkadot is essentially a relay chain that supports a network of interconnected blockchains, known as parachains, providing connectivity and interoperability between them all. These independent parachains are all customized to support different applications and tokens, and can securely perform transactions or send messages to and from other parachains. In this way, Polkadot, which continues to add more parachains regularly, is creating a united, heterogeneous network of blockchains that can all safely interact with one another.
Another project that has gained lots of attention is Cosmos, a blockchain interoperability initiative that makes it possible for networks to transfer value to one another through via the Inter-Blockchain Communication Protocol and Peg-Zones, while retaining their sovereignty.
The way Cosmos works is that it creates independent blockchains known as “zones” that are connected to the main chain, known as the Cosmos Hub. The Cosmos Hub has the role of monitoring and maintaining the record of the state in each zone. In this way, it can facilitate transactions between any supported blockchain, allowing applications to scale to potentially millions of users.
Perhaps the most interesting solution of all is the smart contract hosting platform t3rn, which is built on Polkadot and enables trustless, cross-chain smart contract execution with guaranteed success for multichain transactions.
Thanks to its unique Gateway protocol, t3rn has the ability to integrate with any kind of blockchain, including non-smart contact networks, making it possible for any chain to embrace a cross-chain future. Security is guaranteed via its protocol design. When a user submits a transaction, it’s accepted by an Executor who locks the requested amount into an escrow contract first, before providing inclusion proof. Once the Circuit verifies the inclusion proof and checks that the output matches the ordered input, the funds can be transferred from the escrow account to the destination chain. Due to this mechanism, the protocol does not necessarily need to wrap assets to bridge them to the destination chain, because it only requests the amount from the target chain.
The ultimate goal of t3rn is to enable trust-free collaboration between blockchains, creating an ecosystem where anyone is able to deploy or utilize interoperable smart contracts.