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Blockchain bridges are a base-layer infrastructure that connects different blockchain ecosystems. Bridges support this connection as a communication medium for sharing information and data between ecosystems.

While it's relatively easy and trustless to move assets on an independent blockchain (think Ethereum), it's been hard to move these assets across blockchains due to their siloed architecture and programming. With bridges posing a solution, the potential for a ‘cross-chain’ future may exist.

However, most L1 blockchains are developed and constructed as isolated environments, meaning they don't communicate with other L1s. A dapp on Ethereum can't communicate with a dapp on, say, Polkadot due to their virtual machines (VMs) and consensus algorithm design. The two chains simply weren’t designed to interact with other chains. As the L1 crypto ecosystem has grown since 2018, the need to connect these isolated environments has become obvious as users aren’t loyal to any one particular chain in their DeFi and NFT activities.

Enter bridges. Bridges allow for data sharing between blockchains that previously had no connection, i.e., interoperability. Bridges connecting separate blockchains enable “remote” communication instead of “local,” which is between different layers on the same blockchain. This report will cover both instances but emphasize the remote level across separate blockchains.

In a literal sense, a blockchain bridge doesn't actually transfer tokens between blockchains. In reality, a blockchain bridge consists of two smart contracts on each side of the bridge, containing tokens and determining where those tokens wind up. Between them, messages with cryptographic signatures are sent back and forth containing updates—state changes—between accounts. These messages tell smart contracts on the destination chain to issue or release additional tokens, resulting in a dividend to the transaction's beneficiary. Therefore, bridges must guarantee the integrity of these signals.

As long as there is demand for funds to be transferred cross-chain, there are providers that will eagerly provide the supply. If that demand continues to grow, those who create the best bridging infrastructure will grow in market share. At the same time, their tokens perform proportionately to the quality of the value capture mechanisms.

Bridges allow end users and Web3 protocols to transfer assets or make cross-chain function calls. However, this would not be possible without an infrastructure that monitors the source chains and relays the transfers and calls on the destination chain. This relaying infrastructure is operated by trusted third parties with high power, including minting or unblocking assets and making authorized function calls.

The way a bridge handles assets can affect whether or not it requires liquidity providers. If the bridge allows withdrawal of the token on the destination chain, which is not minted by the bridge operators, the liquidity providers must deposit it first. On the contrary, if the bridge mints its wrapped version of a token, the liquidity is not required but the minted token is in fact a different one from the originally bridged token (see the official USD Coin (PoS) and its wrapped version USD Coin (Wormhole)) and might not be as widely accepted in applications as the original one.

From a security perspective, there are three main attack surfaces that potential attackers could focus on:

• WEB3: Security bugs in smart contracts on both chains (source and destination).
• WEB2: Attacks on relaying and verifying infrastructures (e.g., intercepting and blocking data flow).
• PEOPLE: Customized social engineering attacks on operators or monitoring their activity to discover mistakes.

By understanding these attack surfaces, we can take steps to mitigate them and protect our funds when using bridges.

Here are some additional tips for protecting yourself when using bridges:

• Use a reputable bridge: Reputable bridges have a good track record of security and are less likely to be attacked.
• Diversify your assets: Don't keep all of your assets on a single bridge. If one bridge is attacked, you won't lose everything.
• Be careful with social engineering attacks: Attackers may try to trick you into giving them your private keys or other sensitive information. Don't fall for these scams.