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Layer 1-to-Layer 1 Cross-Chain Bridges
Layer 1 bridges come in many different forms and perform similar functions with differing approaches. In cross-chain transfers, bridges are mainly looking to do four things:
- Monitor: Constantly observe the state in real-time and recognize smart contract function calls from the origin chain.
- Consensus (if required): Relay validators must reach consensus on the validity of the bridged transactions.
- Signing: Validators sign off on the transaction.
- Relay: Pass the transaction/message from the origin chain to the destination chain.
With the substantial growth of alternate L1 (and L0) networks experienced during 2021, there’s been a massive increase in transaction value using bridges.
The demand shock to alt L1s helped drive bridge construction, leading to a significant increase in the number of cross-chain bridges available between Ethereum and other L1 blockchains. TVL across Ethereum bridges is now in the billions of dollars, showcasing how critical cross-chain infrastructure is to the entire system.
Yes, bridges connect blockchains, but most do so by taking control of users' funds and directing them to another destination. In that sense, bridges are quite analogous to banks rerouting money all over the globe. Banks acquire assets on the one hand and issue liabilities on the other. Its solvency depends on balancing these assets and liabilities. This ‘bank's’ principal responsibility is to maintain full capitalization and continuously process deposits and redemptions.
If we set aside security, bridges will compete just as banks do: lowest fees and best UX. Banks and bridges with the largest balance sheet (liquidity) will be the most reliable and should garner the most customers. Obviously, UX and efficiency are important, but balance sheet depth is the ultimate trump card when fighting on trust.
The “official” bridges for certain L1 chains (discussed in this section) will have an advantage over third-party solutions regarding capital. Chains like Avalanche and Solana have billions of dollars earmarked for supporting infrastructure and specific projects like an official bridge. These “official” bridges have a significant head start regarding built-in users and liquidity. Data supports this competitive advantage as most of today’s TVL is in "official” bridges.
Where these default bridges to and from Ethereum suffer is latency. For most bridges, going from Ethereum to the bridge only takes a matter of minutes. However, removing funds from the secondary chain back to Ethereum mainnet can often take days or weeks (Optimistic rollups) when using the “official” bridge. Popular default bridges, which take a while, include Polygon (30 minutes from ETH to Polygon, but three hours back if using POS bridge), Rainbow bridge (10 minutes ETH to Near/Aurora, but 16 hours back), and Optimistic rollups (seven day challenge period).
For many, this waiting period is simply too long. This disparity is where third-party bridging solutions shine.
Binance Smart Chain (BSC)
Overview
The Binance Smart Chain operates its bridge to connect BSC with the rest of the growing crypto space. The Binance Bridge V3 lets you access inter-blockchain liquidity for many different chains. The Binance Bridge, like everything in the Binance ecosystem, is highly centralized around the exchange’s parent company. Binance serves as a broker between BSC, Binance Chain, and other blockchains, receiving user funds on one chain and releasing wrapped tokens on BSC or Binance Chain.
Technology and Risk
The Binance bridge uses a lock-and-mint architecture with Binance serving as the external validators. Users lock assets on the origin chain and get “bAssets” on the BSC. Like all things associated with the Binance ecosystem, the bridge requires full trust in Binance, the company. Binance validators don’t post any collateral; instead, they risk Binance’s reputation should anything go wrong. You must fully trust Binance with your funds, which shouldn’t be an issue for many Binance users since many already do so with the exchange. In case of malicious activities, you can’t recover your funds. Per Binance, “Binance Bridge 3.0 is a trusted bridge protected by the highest security standards of Binance.”
With Binance Bridge V3, the BSC DeFi ecosystem now has access to a total of 78 popular crypto assets, such as;
- BUSD
- USDT
- ETH
The new bridge upgrades are meant to, above all, make it far easier to switch between BNB tokens and ERC-20 tokens, through a wrapping process on BSC. Additionally, the upgrades are expected to increase Binance and Ethereum bridge usability, bridging two of the largest crypto ecosystems more effectively.
Binance Bridge V3 also lets you use the bridge's functions without going through a third-party wallet service. This means you’ll be able to transact with the bridge from your Binance wallet directly.
In Q4 2022, an attacker stole 2 million BNB (about $560 million) from the cross-chain bridge of the Binance network, BSC Token Hub. After investigating the situation, the pseudonymous researcher "samczsun" uncovered a flaw in how the bridge validated security proofs, allowing attackers to fake arbitrary messages. In this instance, the attacker fabricated two messages "persuading" the bridge to send them each 1 million BNB. Validators suspended the chain for several hours in order to limit the vulnerability until a solution could be discovered. The Binance team will hold an on-chain governance vote to choose what to do with the stolen assets and whether or not to develop a "white hat" program for future bugs.
