How Do Blockchain Bridges Work?

By Notum DeFi App | Notum DeFi App | 1 May 2022

What Is a Blockchain Bridge?

A blockchain bridge is a connecting mechanism between two or more independent blockchains. With the help of the blockchain bridge, it is possible to organize the transfer of tokens, smart contract calls, and other internal data that previously could only be used within the parent blockchain.

To better explain this idea, we can give a simple metaphor. Imagine that blockchain is an independent island with its own inhabitants (community), laws (consensus algorithm), internal currency, and other regional features. Each of these islands has succeeded in some area; for example, Ethereum has a robust community, widely used token standards, a high level of security, etc. But all these islands develop independently of each other and cannot interact with each other. But everything changes if you build a bridge between these islands.


Why Do We Need Blockchain Bridges?

The advantages of Ethereum make it the most popular blockchain for developers of decentralized applications. Thus, Ethereum is the most “densely populated” island where new projects appear every day. But, as we understand it, the island is not borderless. Therefore, due to such an influx of users and developers, Ethereum is experiencing high congestion, slowing down the network’s speed. In addition, to cope with the load, the Ethereum network is forced to charge higher fees — for priority and speed. Think of it as an island where millions of people live and travel from one end to the other. The user must pay a higher fee to be able to drive on a toll road or stand in line at a checkpoint, where one will have to pay a lower fee but spend more time.

These scalability issues experienced by the Ethereum network slow down and increase the cost of developers’ work. Fortunately, there are other blockchains that have succeeded in different directions. For example, Solana, EOS, and Avalanche are more cost-effective and fast but not so popular. Consequently, if a developer reissues the project on one of the more scalable and efficient blockchains, he loses all those benefits that the Ethereum blockchain presupposes. Blockchain bridges aim to solve these issues. They serve as a connecting structure between the blockchains, allowing them to interact with each other, which leads to increased productivity, opportunities, and decentralization while ensuring free trade and the exchange of experience. The crucial point is that blockchain bridges are able to distribute network congestion, thereby reducing fees.


How Does a Blockchain Bridge Work?

So the blockchain bridge is an intercommunication mechanism that allows you to transfer tokens and other internal data between chains. Usually, such projects utilize one of the varieties of the mint-and-burn protocol. The principle of operation of the protocol is as follows:

  1. When tokens are transferred between blockchain A and blockchain B via a blockchain bridge, they do not change their localization from a technical point of view.
  2. Instead, tokens in blockchain A are temporarily locked or burned, and an equivalent number of tokens are issued in blockchain B.
  3. During the reverse exchange, tokens in blockchain A are unlocked or issued, and in blockchain, B is locked or burned.

One of the most popular examples is the Wrapped Bitcoin (WBTC) — a token of the ERC20 standard, which is backed by Bitcoin at a 1:1 ratio. With the help of WBTC, you can transfer the liquidity of Bitcoin to the Ethereum blockchain and significantly expand the range of interaction with the first cryptocurrency. As described above, in order to receive WBTC, the user needs to contact the merchant and provide the amount of BTC that he wants to exchange for WBTC. The merchant then locks the BTC amount and transfers the equivalent WBTC amount to the user. If the user wants to return his BTC, he turns again to the merchant, who requests a custodian to burn the received amount of WBTC in order to unlock BTC and return it to the user.

Thus, the fact of moving tokens from one blockchain to another is rather an illusion. But for users, it doesn’t make any difference in terms of functionality.


Types of Blockchain Bridges

First of all, blockchain bridges are divided into two main camps: centralized (trust-based) and decentralized (trustless):

Centralized blockchain bridges rely on some central authority for their operation. For example, in a centralized system, users entrust their cryptocurrency to an intermediary who controls and holds token deposits in the source chain for minting tokens in the target chain. For example, Wrapped Bitcoin works on this principle.

Decentralized blockchain bridges do not rely on any single authority to conduct operations. Instead, such a bridge is based on mathematical truth, which is achieved by the agreement of many computer nodes. Furthermore, in a decentralized system, anyone can become a validator, and the work is based on smart contracts. All this ensures the system’s transparency, depriving it of the risk of corruption and seizure of power.

The range of applications of blockchain bridges is not limited to token transfer, although it is worth paying tribute to this one of the most common use cases. However, with the help of blockchain bridges, it is also possible to organize any data exchange, including smart contracts calls, decentralized identifiers, and much more.


Blockchain Bridges Benefits 

Blockchain bridges can bring a significant list of benefits both for the end-user and for the entire crypto ecosystem. The most significant advantages are:

  • Flexibility

Bridges allow you to work in various DeFi protocols, not limited to just one network. This enables users to benefit from multiple blockchains, such as community, low fees, scalability, etc. In addition, it allows you to expand the possibilities of use cases, as in the case of WBTC.

  • Scalability

Bridges allow relief of network congestion. For example, by using the bridge between Ethereum and Near (Rainbow Bridge), users can significantly reduce costs and experience better speed. At the same time, the Ethereum congestion decreases, and Near gets more recognition and advertising. 


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