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Blockchain Bridges: An Industry Overview

The enormous demand for blockchain solutions has led to an increase in blockchain protocols and the need for blockchain communication. Blockchain bridges represent a key piece of the puzzle when thinking about interoperability. On this article we’ll dig into the blockchain bridges solutions available on the market.

Index 

What are Blockchain Bridges

How Blockchain Bridges Work

Types of Blockchain Bridges

            Trusted Bridges (Centralized Bridges)

            Trustless Bridges (Decentralized Bridges)

            Trusted Bridges vs. Trustless Bridges

Asset Transfer Mechanisms

            Lock and Mint

            Burn and Mint

            Atomic Swap

Based on Their Functions

            Wrapped Assets Bridges

            Data Specific Bridges

            dApps Specific Bridges

            Chain-To-Chain Bridges

            MultiChain Bridges

            Specialized Bridges

Why Blockchain Bridges?

Are Blockchain Bridges the solution to the Bitcoin Interoperability Problem?

Security Concerns With Blockchain Bridges

            Wormhole Bridge Attack

            Poly Network Attack

Solutions to the Blockchain Bridge Problem

Blockchain Bridges Use Cases 

Building Bridges with Polkadot

Blockchain Bridges on Cosmos           

Interlay

Blockchain Bridge on the RSK Ecosystem

            PowPeg

            The RSK – ETH Token Bridge

What are Blockchain Bridges?

Blockchain bridges, also known as cross-chain bridges, are protocols designed to connect two blockchains and enable communication from one chain to the other. Like actual physical bridges that connect two physical locations, blockchain bridges facilitate the transfer of information and assets from one chain to another.

For example, let’s say you want to send some BTC from Ethereum to Polygon. It is impossible to send directly even though their wallet addresses are similar. That is because you cannot exchange value between blockchains due to the differences in their configuration (consensus protocol, programming, history). So, to send the bitcoins, you need a bridge that can communicate with both networks and take care of the process.

How Blockchain Bridges Work

In simple terms, a blockchain bridge can be considered a simple information exchanger between networks. Although blockchain bridges can be used for other things like converting smart contracts and data transfer, the most common use case is token transfer. However, that doesn’t imply that the token you transfer actually moves from one blockchain to another. Instead, the blockchain bridge holds the tokens and creates an equivalent amount in the other blockchain (wrapped tokens).

The tokens you want to send are locked on the bridge, and new tokens are minted on the destination blockchain. You can usually summarize the process of connecting blockchains with the simple steps below:

  1. The bridge is located between the two blockchains (A and B), creating the basic structure for the bridge’s operation.
  2. To send a token from blockchain A to B, you need to go to the bridge and indicate the number of tokens to send. Then you have to provide the destination address you want to send to at blockchain B.
  3. To send this token from A to B, the bridge blocks that amount of coin in blockchain A. It then mints the exact amount on the blockchain B to send to the destination address.
  4. To recover the blocked tokens in blockchain A, you have to carry out the reverse process. Send the token in B to the bridge; they get burnt and are unlocked in blockchain A.

A bridge works by creating a series of smart contracts that allow two blockchains to communicate with a common language through a blockchain oracle. The oracle gives the smart contracts precise information about what is happening on the other chain. The smart contracts also provide the oracle with accurate information about what is happening on-chain.

This opens a two-way communication channel between the two blockchains. The tokens are blocked in A to serve as the guarantee (collateral) of the value of these new tokens on blockchain B. Blocking also prevents minting other tokens without collateral (generated from thin air). It also maintains the security and economic stability between the bridge and the chain.

 

Types of Blockchain Bridges

The different types of blockchain bridges result from the interoperability trilemma. The interoperability trilemma states that interoperability protocols or bridges can have only two of the following:

  • Trustlessness: equivalent to the security of underlying domains.
  • Generalizability: ability to handle arbitrary cross-domain data.
  • Extensibility: ability to work on any domain.

Based on trustlessness, blockchain bridges are generally categorized into:

  • Trusted (centralized or custodial) bridges.
  • Trustless (decentralized or non-custodial) bridges.

Trusted (Centralized) Bridges

Centralized bridges are referred to as “trusted bridges” because they depend on a central entity or system. On trusted bridges, users mostly rely on the operator with respect to the security of the bridge and their funds.

Trustless (Decentralized) Bridges

Decentralized bridges are “trustless” because they remove the role of a trusted third party for token transfer. Instead, they rely on smart contracts and algorithms to operate. They are trustless, so the bridge’s security is the same as the underlying blockchain.

Through the use of smart contracts, decentralized bridges ensure that users remain in control of their funds. An example of a decentralized bridge is the RSK – ETH token bridge.

Trusted Bridges vs. Trustless Bridges

Trusted bridges have trust assumptions, and they move away from the security of the underlying blockchain by trusting external verifiers. This makes them less decentralized and secure.

Trustless bridges do not rely on a third party to control but on decentralized smart contracts. With a trustless bridge, users are in complete control of tokens and get full privacy when exchanging tokens.

Asset Transfer Mechanisms

Blockchain bridges can also be classified with the following options:

  • Lock and Mint
  • Burn and Mint
  • Atomic Swap

Lock and Mint

These blockchain bridges move tokens by locking the assets on the source chains and then minting new ones on the destination chain. Examples are wrappedBTC and Avalanche Bridge.

Burn and Mint

These blockchain bridges block assets on the source chain by burning them instead of locking them. 

Atomic Swaps

Atomic swap bridges transfer tokens by swapping the tokens on the source chain for tokens on the destination chain. They rely on smart contracts for assets swap and are generally more trustless (decentralized) and remove the need for a trusted party.

Classification of Bridges Based on Their Functions

Classification based on their functions attempts to classify bridges based on how they are used. Based on their functions, blockchain bridges can be classified into:

  • Wrapped Assets Bridges
  • Data Specific Bridges
  • Sidechain Bridges
  • dApps Specific Bridges
  • Chain-To-Chain Bridges
  • MultiChain Bridges
  • Specialized Bridges

Sidechain Bridges 

Sidechain bridges connect the parent blockchain to its sidechain. Although the main network and sidechain operate on the same blockchain, they operate under different consensus rules. Therefore, communication between the main network and the sidechain requires a bridge. 

An example of this is the PowPeg that connects the RSK network to the main Bitcoin network. The PowPeg is powered by the combination of HSMS (Hardware Security Modules) and SPVs (Simplified Payment Verification). 

Wrapped Assets Bridges 

Wrapped assets bridges are specifically designed to enable the transfer of an asset from one blockchain to a different blockchain. A wrapped asset bridge will create the wrapped assets on the destination chain to represent the original assets from the source chain. 

An example of that is the WRBTC, an ERC20 token that wraps RBTC. Another example is the WBTC, an ERC20 token treated like wrapped BTC on the Ethereum network. 

Data Specific Bridges

Data-specific bridges are interoperability protocols (blockchain bridges) designed to transfer arbitrary data across multiple chains. These protocols usually become the base layer for dApps, making it possible for them to reach cross-chain composability.  

dApp Specific Bridges 

dApps bridges are technically not bridges per se but rather dApps connected to different blockchains. Therefore, they have an ecosystem that can connect to these blockchains. Examples include Wanchain, Anyswap, and Thorchain. 

Chain-to-Chain Bridges

Chain-to-chain bridges are mainly designed to support the movement of assets between two blockchains. These bridges generally use the lock and mint mechanisms. 

Examples of the chain-to-chain bridge are the ETH – RSK token bridge, the Avalanche Bridge and the Binance – Ethereum bridge. 

Multichain Bridge 

Multichain bridges are designed to transfer assets across multiple blockchains. They are designed to work with any type of layer one or layer two blockchain.  Examples include Polkadot and Connext. 

Specialized Bridges 

These bridges are focused on specific ecosystems and are used to support the movement of assets across a focused region within the ecosystem. Specialized bridges are designed to facilitate faster and cheaper cross-chain transactions.  

Why Blockchain Bridges?

Here are some of the benefits of blockchain bridges: 

  • Easy cross-chain transfer of assets and arbitrary data between blockchains.
  • It allows users to access and leverage new protocols on other chains.
  • dApps can combine the strength of various blockchains to enhance their capabilities. 

Are Blockchain Bridges the solution to the Bitcoin Interoperability Problem?

A significant limitation of blockchain solutions is the interoperability problem. Each blockchain is designed differently with different consensus protocols, history and programming languages. Therefore, they can’t communicate natively and tokens can’t move freely between blockchains.

Blockchain bridges exist to solve that problem – allow the transfer of tokens and information between blockchains. Blockchain bridges also enable users to move quickly from layer 1 to layer 2 protocols. 

Furthermore, blockchain bridges can help improve the scalability of blockchains. Bridges designed to handle a high volume of transactions can improve scalability without forcing developers to compromise security or decentralization. It also increases the efficiency of the network; users can quickly make and receive micro-transfers without paying high transaction fees. 

Interoperability and scalability are vital to developing and adopting blockchain solutions like the decentralized web and the metaverse. 

Security Concerns With Blockchain Bridges

Because blockchain bridges are still in the early stage of development, there are still some security concerns. These security concerns have led to security breaches on different blockchain bridges causing loss of assets.

Interacting with blockchain bridges carries either smart contract or technology risk. Smart contract risk can occur due to a bug in the code. Malicious actors can take advantage of that bug and attack the network.

Technology risk can result from software failure, human error or malicious attacks and disrupt operations.

Furthermore, trusted bridges may also carry additional censorship and custodial risks since they depend on third parties. The bridge operators can theoretically decide to stop some users from transferring assets on their bridge (censorship). There is also the risk of the operator colliding to steal users’ funds.

Here is a rundown of recent malicious attacks on blockchain bridges:

Wormhole Bridge Attack

In the Solana’s Wormhole Bridge attack, the bridge was manipulated into generating 120k wETH ($325 million) on Solana without a deposit on EthereumThe attacker bypassed the “verify signature” with a malicious sysvar account that forged the message to mint the wETH on Solana. Therefore, the bridge minted wETH without an equivalent deposit on the Ethereum network. 

Poly Network Attack

Around $610 million worth of cryptocurrencies, including ETH, Dogecoin Shiba Inu, USDT and tokens backed by Bitcoin. Although the hacker returned all the stolen funds to the network, it was a major security breach. The hacker exploited a vulnerability (bug) in the way the bridge verified smart contracts. By changing a list of public keys to match their private keys, the hacker could reroute the funds to personal wallets.

Qubit Bridge Exploit

In the Qubit bridge attack, the hacker bypassed the verification process by evading the bridge’s smart contract. That way, they could essentially provide proof of non-existent tokens to the bridge thereby allowing the attacker to mint new tokens on the destination chain without depositing any assets.

Meter.io Bridge Exploit

The Meter.io bridge exploit resulted in an estimated loss of around $4.3 million – $4.2 million in ETH and $83k worth of wBTC. The attacker evaded the bridge by generating proof that allowed them to mint new tokens on a new chain without depositing any token. The hacker created a fake deposit event that was transmitted to the bridge without any legitimate deposit.

Solutions to the Blockchain Bridge Problem

Generally speaking, trusted protocols are riskier because of the trust assumption of external verifiers. To solve the blockchain bridge problem, developers aim to develop more decentralized and secure bridges. Several bridges also try to avoid attacks by creating a reward system for audits of their protocols (bug bounty).

Use Cases of Bitcoin Bridges 

Building Bridges with Polkadot

The Polkadot network was designed as a “blockchain of blockchains” and is one of the largest projects dedicated to cross-chain bridges. The network consists of sovereign blockchains (parachains) and a central system known as the Relay Chain. Each of the parachains is designed separately with its own rules, tokens, use cases and consensus protocols but they rely on the Relay Chain’s security.  

Blockchain Bridges With Cosmos

Cosmos is referred to as the “internet of blockchains” with several sovereign blockchains (referred to as zones) and the “Hub” chain. The Cosmos IBC (Inter-Blockchain Communication) protocol ensures that all the sovereign blockchains (zones) on the Cosmos network can communicate with each other.

The Cosmos IBC also uses relayed SPVs (Simplified Payment Verifications) to maintain a trustless connection between the zones. Different zones are connected to the external chains to effectively act as a bridge between these external chains. The IBC helps communication between these zones on the network.

The Cosmos Gravity Bridge is the bridge between Cosmos and Ethereum, designed for the Cosmos Hub to pull data and transactions from Ethereum. The Gravity Bridge is a use case of how the Cosmos network can serve to help external chains’ interoperability and scalability.

The Gravity Bridge is built on the Cosmos chain and works alongside validators for minting tokens. The Bridge also uses relayers and transaction batching to reduce gas costs for token transfer.

Interlay Blockchain Bridge

Interlay is building a decentralized bridge from Bitcoin to Polkadot. The protocol is based on the XCLAIM design and will enable two-way communication between Polkadot and Bitcoin. The bridge is designed to allow Bitcoin users to send their BTC directly to the Polkadot network.

The Bitcoin bridge consists of two different components: 

  • The XCLAIM component. 
  • The BTC Relay.

The XCLAIM component maintains the accounts that hold PolkaBTC, while the BTC Relay is responsible for verifying the Bitcoin state when new transactions are submitted. 

Blockchain Bridges on the RSK Ecosystem

The RSK ecosystem currently runs two blockchain bridges with the two major blockchains. As a Bitcoin sidechain, the network is connected to the Bitcoin Network with a 2-way blockchain bridge (the PowPeg). 

The Ecosystem is also connected to the Ethereum network with a token bridge (The RSK – ETH token bridge). 

PowPeg

The PowPeg is a 2-way peg protocol that connects the BTC network to the RSK Ecosystem. The protocol is used for converting BTC to RBTC. The two-way peg allows the tokens of the two networks to be exchanged freely without any restriction or extra charge. 

The PowPeg is one of the most secured peg-based on the multi-signature (multi-sig) system. The bridge is decentralized and is secured by the underlying Bitcoin blockchain. The protocol uses a combination of HSMS and SPVs. This new security is layered on the previous federation to provide additional security and decentralization. Furthermore, The PoWPeg doesn’t have control or direct access over the private key. 

Private keys are stored and controlled by tamper-proof PowHSMs that run lightweight RSK nodes internally that obey commands from the RSK smart contract (the bridge). However, these commands won’t work unless confirmed by thousands of blocks. 

To use the PowPeg, you need a crypto wallet with a legacy address like Electrum and know the RSK Peg address. You can get the full details of PoWPeg here

The RSK – ETH Token Bridge

The RSK – ETH token bridge is a decentralized bridge that allows communication between the RSK network and the Ethereum mainnet. The bridge works with a locking and minting mechanism. The token bridge consists of a smart contract bridge on the two networks. It uses the Flyclient – Mountain Merkle Range root – to verify that the block is part of the blockchain.

Currently, it supports only some tokens – ETH, RBTC, DAI, USDC, USDT, FLIXX, and LINK. Users can send a minimum of 1 token and a maximum of 10,000 tokens. You need either Chrome, Brave, or Chromium web browser to use the token bridge. You also need crypto wallets web extensions like Nifty or Metamask.

Read more about how to use the RSK ETH token bridge here.