Long gone are the years when Ethereum was the only viable network for developers. Modern blockchains are slowly but surely catching up, whether it’s BnB Chain, Solana, Avalanche, Cardano, or forks like PulseChain. Whether we want to unify or disperse these ecosystems, blockchain needs bridges.
Or at least, interoperable solutions. Out of all options, bridges might be the most controversial. If you search for the most expensive DeFi attacks of all time, bridges make most of the list.
Namely, Wormhole, Ronin, Harmony, and Nomad lost $1.3B worth of ETH, all in 2022. Is it a coincidence? For the Ethereum co-founder, bridges are far from risk-free, and bigger losses will follow as the next bull market starts and further motivates attackers.
So even if we can design around those risks, we might not discover them until millions of tokens are again stolen.
Should we even use bridges instead of other interoperability tools? Or will we discover the perfect bridge system before it’s too late?
Let’s start with the basics to find out.
Bridges are meant to give users the flexibility to transfer their assets to the most convenient blockchain at any given time. For developers, this is an opportunity to build decentralized applications (dApps) on other chains for a newer market. Even if those dApps are almost identical to existing ones on Ethereum, there still is product market fit.
Why? For the same reason crypto investors diversify their assets, it’s wise to diversify balances across different chains. Maybe Ethereum Mainnet becomes congested during the next Bitcoin halving, which could mean 10x more fees and transaction time.
Would you rather switch to another chain with the best cost-efficiency that doesn’t have as many dApps as Ethereum? Probably not.
But if there were a seamless bridge between both chains, it would speed up dApp development on the new chain, attracting more users, and also reduce congestion from networks like Ethereum.
By definition, blockchain bridges are that enable the transfer of data and/or digital assets between separate networks. It’s the seamless exchange between blockchains where the bridge ensures the trust (or trustlessness) and integrity of transactions.
At its core, the bridge is a dApp built on one blockchain (sender) that verifies and sends tokens to your other address in the second chain (receiver). When you build the same dApp on this second chain, you have a two-way bridge.
Both dApps are independent of each other and have slight differences because of the networks. The most seamless bridges among sub-chains (Ethereum-Arbitrum) or compatible chains (BnB Chain, Avalanche, Pulsechain, Polygon, Ethereum). For example, the EVM (Ethereum Virtual Machine) is a software environment that allows the easy deployment of dApps on other chains from this environment.
E.g. It’s easier to secure a bridge between Ethereum and Avalanche (EVM) than Solana (non-EVM).
From the blockchain bridge definition, we know that to transfer tokens across networks, we need:
Because both blockchains are different, there will be different smart contracts to manage tokens on each side. For example, the bridge on blockchain A might lock and unlock tokens when you deposit. The bridge on blockchain B could do the same or use another method, like generating or destroying tokens on deposits or withdrawals.
After you deposit tokens into the bridge, contracts have to find and verify that transaction. Once validated, they need a way to transfer this message to smart contracts on the other chain. This is a lot simpler to automate when both networks are compatible with the same virtual machine (e.g. EVM).
Assuming they’re not, there are two other ways to create this inter-chain layer. Either use a built-in peer-to-peer (P2P) validator network or a third-party decentralized oracle.
While not technically a bridge, Polkadot is one example of the former. It works as a central blockchain that connects to many others. These blockchains still have their own validators for on-chain operations, but to transfer data to other networks, they use the Polkadot validators.
Decentralized oracles are the simplest solution when done right. Tellor and Fetch are P2P networks of “data reporters” with the incentive to provide the most accurate and recent data for other blockchains to import. This could be market stats like prices, real-world data like weather, or transaction details from other blockchains.
E.g. After you deposit, the first bridge sends your details to an oracle and once verified, it sends them to the second bridge and triggers smart contracts.
This is called off-chain validation and isn’t secured by the blockchain. These oracles have to be decentralized to prevent manipulation.
Bridges are simple in practice but complex in their development. There’s no standard way of building one, among other reasons, because each network is a different ecosystem/ consensus model/ language. And bridge dApps can belong to different “types” simultaneously.
Without getting too technical, here are four valid classifications.
By bridge (de)centralization:
By bridge network utility:
By bridge exchange method:
By bridge verification type:
Other classifications are:
You may wonder: Why are there so many different bridges? It’s possible that they’re specializing in use cases, but for the most part, they’re just different ways of managing the risks of interoperability. It’s unlikely that we’ve yet discovered the best bridge type. Here, best means trustless, extendable, and generalizable.
Some call it the interoperability trilemma. It shares similarities with the blockchain trilemma, which compares centralization to security and scalability. But essentially, the ideal cross-chain bridge would transfer any kind of data from any blockchain, where each of them has equivalent security to prevent weak links for this bridge.
In practice, no blockchain technology is created equal. And if bridges can’t reach all three absolutes, the best one to leave out is extensibility. There’s no need in linking all networks to one bridge, and having multiple— although intricate— can prevent potential hacks from spreading to other networks.
The benefits of blockchain bridges are similar to those of any interoperable solution:
But are the bridge benefits enough to compensate for not-so-obvious risks?
We know blockchain bridges can be complex. There are countless variants, each of them with two big challenges. To solve the interoperability trilemma and to connect networks that have their own blockchain trilemma.
Simply put, complexity is risky. Here are some risks associated with bridges:
In October 2022, the BnB Chain “lost” ~$100M worth of BNB from a mint exploit. So the 21 validators halted the network briefly until the issue was solved. How can you pause a decentralized dApp? Either you have too few validators or some secret admin tools.
Regardless of our control over those risks, it comes down to the anti-network effect. New risks will appear when you increase the stakes. Is it really a good idea to allow the free transfer of any data anywhere?
There’s no doubt there's value in bridges as the solution to interoperability. But are they enough to offset the risks? In 2022, bridges lost about $2B in cyber-attacks.
The number doesn’t include the times when funds were returned by attackers or retrieved by US authorities. Notably, a white hat hacker returned $610M to cross-chain dApp Poly Network as a way to bring awareness to those security flaws. Another $32M out of $190M was returned to Nomad Bridge. Besides bridges, other DeFi dApps share similar stories: Team Finance, Cream Finance, Clover Protocol, Akropolis.
Whatever benefits bridges bring to blockchain have so far come at a very steep price. Thankfully things have gone well for EVM-compatible networks like Polygon, Arbitrum, Optimism, and Pulsechain. For every other network, not so well.
Whether developers decide to look for other options or keep searching for the ideal bridge system, there are a few immediate solutions that can help to limit most risks.
One could be to simply not link reputable networks to experimental ones, or perhaps implement one-way bridges instead. Bridge operators could also limit the data they want to transfer. Maybe it’s just information, maybe it’s all tokens and contracts.
But the most problematic approach is trying to connect all chains and data formats with a single bridge. If you have three networks per bridge across ten rather than one with thirty, you’re preventing a potential contagion and reducing complexity. Chances are the average trader isn’t using tens of blockchains anyway, and by specializing in a few, you’re less likely to miss on unintended features.
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Max is a European based crypto specialist, marketer, and all-around writer. He brings an original and practical approach for timeless blockchain knowledge such as: in-depth guides on crypto 101, blockchain analysis, dApp reviews, and DeFi risk management. Max also wrote for news outlets, saas entrepreneurs, crypto exchanges, fintech B2B agencies, Metaverse game studios, trading coaches, and Web3 leaders like Enjin.
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