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Blockchain bridges are a form of base layer infrastructure that connect different blockchain ecosystems. Bridges facilitate this connection by serving as a communication medium for information and data to be shared between ecosystems.
While it is relatively easy and trustless to move assets within an independent blockchain (think Ethereum), it has been hard to move these assets between blockchains. With bridges forming a solution to this drawback, the potentiality of a ‘cross-chain’ future is compelling.
As long as there is demand for funds to be transferred cross-chain, there are providers that will eagerly pop up to fill this demand. If that demand continues to grow, those who create the best bridging infrastructure will grow in market share while their tokens perform well.
As the number of layer-1s and their ecosystems grow, there is an even greater need for managing composability and interoperability across chains. Cross-chain bridges allow for otherwise siloed ecosystems to interact in a meaningful way - this is analogous to the way new trade routes helped connect otherwise disparate regions, ushering in a new era of knowledge-sharing.
Wormhole, Layer Zero, and other bridging solutions support generalized message passing, allowing all types of data and information, including tokens to be moved across multiple ecosystems — applications can even make arbitrary function calls across chains, enabling them to tap into other communities without having to deploy elsewhere. Other protocols like Synapse and Celer are limited to cross-chain transfers of assets or tokens.
There are a number of L1 ecosystems that connect to the Ethereum network and can host ERC-20 tokens. Some examples are the following:
Bridge Use Case
All blockchains have their limitations. For Ethereum to scale and keep up with demand, it has required rollups. Alternatively, L1s like Solana and Avalanche are designed differently to enable higher throughput but at the cost of decentralization.
However, all blockchains develop in isolated environments and have different rules and consensus mechanisms. This means they cannot natively communicate, and tokens cannot move freely between blockchains. Bridges exist to connect blockchains, allowing the transfer of information and tokens between them.
- the cross-chain transfer of assets and information
- dapps to access the strengths of various blockchains – thus enhancing their capabilities (as protocols now have more design space for innovation).
- users to access new platforms and leverage the benefits of different chains.
- developers from different blockchain ecosystems to collaborate and build new platforms for the users.
The simple transfer of assets between different blockchain networks is the fundamental basis of the cross-chain model. This can occur between Layer1 networks themselves or through different dApps such as the lending protocol Aave.
In practice, bridges enable a higher degree of scalability in terms of potential market capture as the limitations of being in an isolated network are eliminated. For example, consider the interoperability between different cellular network carriers (i.e. Verizon, TMobile, AT&T). Without this ability, Verizon users wouldn’t be able to communicate with AT&T users.
This same problem exists in emerging cryptoeconomics, with trillions of dollars in value spread across many different blockchain networks, protocols, and applications. Bridges have begun tackling this problem from two broad approaches, custodian L1 to L1 bridges and L1/L2 to L2 bridges. Ethereum Bridges hold over $11 billion USD in total value locked (TVL) as of Q2 2022. This value is split between a number of bridges that go to external ecosystems like Avalanche, Polygon, or Axie Infinity.
Polygon’s use case is as a hub for scaling Ethereum network transactions. The company Polygon Technology, referred to as Polygon, is focused on building various platforms for blockchain infrastructure to specifically support Ethereum as the overall crypto industry grows.
Polygon consists of a flagship Proof-of-Stake sidechain called Matic POS. It also involves a framework known as the Polygon SDK that allows developers to build and connect Layer-2 scaling solutions such as Plasma, Optimistic Rollups, zkRollups, and Validium (discussed in later sections).
As of Q2 2022, Polygon boasts over 7000 decentralized applications (dApps), over 130M unique users, over 3M daily transactions, and has recorded over 3.4B transactions since inception.
Layer-2 solutions involve scaling that is off-chain, meaning transactions and computations happen off of the Ethereum base chain, keeping the base layer free of congestion. Layer-1 solutions involve scaling on-chain transactions or scaling solutions that keep all transactions on the base layer.
The Polygon Bridge connects the Polygon ecosystem to the mainnet of Ethereum, providing the means in which ERC tokens and NFTs can be ported to Polygon. The bridge operates a two way system, though varying security methods can be found depending on the direction of the bridge transaction.
Technically, Polygon is its own blockchain (with its own token: MATIC), but was built to become Ethereum’s internet of blockchains. Polygon provides the architecture that enables developers to create custom, application-specific chains that leverage Ethereum’s security similar to the Cosmos hub-and-spoke model. It provides an interoperable layer that can bridge many different projects and scaling solutions such as ZK-rollups, optimistic-rollups, and sidechains (discussed below).
Since Polygon is a separate chain, it must be secured by a separate Proof of Stake consensus mechanism where validators stake MATIC. However, MATIC is staked in smart contracts on the Ethereum main chain. Polygon connects to Ethereum through a bridge with the use of a lock and mint mechanism. Users deposit funds into the bridge which locks them in a smart contract on Ethereum and mints the equivalent amount on Polygon. Polygon also maintains a secure relationship with the Ethereum main chain through periodic checkpointing, posting state changes to Ethereum, and leading the Polygon team to characterize it as a “commit chain.” To withdraw funds, you will have to go back through the bridge.
The bridge (and funds) are secured by a 5/8 multi-sig scheme making it incredibly more centralized than the Ethereum mainchain.This centralization factor should be considered when weighing the cost of transacting on a layer 2.
The first entry point a user would have with the Polygon ecosystem would be via bridging their tokens and liquidity into Polygon. There are currently three bridges on Polygon, namely the ERC20 bridge, the ETH bridge, and the Plasma bridge.
The ERC20 bridge is in charge of all non-MATIC ERC20 token bridging activities. The ETH bridge is in charge of ETH token bridging activities. The Plasma bridge is in charge of all MATIC token bridging activities. These three bridges act as gateways between the Polygon PoS Chain and the Ethereum mainnet.
The Polygon blockchain has two key options available to note for bridge transactions. They are:
- PoS Bridge - A bridge that utilizes the Proof-of-Stake consensus algorithm to secure the network and enable transacting between chains. This is the recommended option from Polygon and can transfer ETH and an extended list of ERC-20 tokens.
- Plasma Bridge - Plasma serves as an elevated security option for users who are searching for a higher degree of protection. Plasma supports MATIC, ERC-20 tokens, and ERC-721 tokens (NFTs)
Stay tuned for more in the series as we dive into:
- top L1 bridges like Solana, Terra, Avalanche, Near, and more
- L2 bridges like Arbitrum, Starkware, Optimism, Metis, and more
- general purposes bridges like Hop, Synapse, Li.fi, and more