How blockchain bridges help enable interoperability between different networks.
Bitcoin laid the foundation for blockchain nearly ten years back. Over a decade later, and more than 100 active public blockchain networks exist today.
However, this growth has also resulted in a fundamental flaw when decentralized applications built on different blockchain could not interact with each other. The applications designed on one network work only within that system, resulting in the limitation of broader adoption. In its current state, the ecosystem restricts technological advancement by placing boundaries to innovation.
As the number of networks is likely to increase further, the need for establishing a way to connect these networks will also rise. One of the attempts to unify the blockchain landscape is known as a “blockchain bridge.”
A blockchain bridge is a system that helps transfer information between two or more blockchain networks. The information can include assets, contract calls, proofs, or arbitrary data. The bridge enables interoperability between different networks.
In decentralized finance (DeFi) space, users can access the perks of multiple blockchain networks without compromising the benefits of the host chain with the help of blockchain bridges. This enables various use cases like cross-chain collateral, improved network scalability, and reduced transaction fees.
Most blockchain bridges work on a mint-and-burn protocol. When a token is transferred from one network to another, the protocol burns the token and mints a similar token on the other network. However, there are multiple functions of the bridge aside from transferring tokens. Blockchain bridges are capable of exchanging any type of data, including smart contract cells, decentralized identifiers, and off-chain information such as stock market price.
There are different types of blockchain bridges, and are broadly classified into federal or centralized bridges and trustless or decentralized bridges. Federal bridges depend on a central authority to function. They work similarly to a permissioned or private blockchain network. To become a part of federal blockchain bridges, people need to meet certain criteria to be selected. The selected individuals will then supervise the transactions of blockchain bridges.
Trustless bridges, on the other hand, are operated by a decentralized network of agents. Anyone can join the trustless blockchain bridge network to supervise transactions. The agents are incentivized for their efforts to validate the bridge transactions correctly. This process is similar to the function of nodes in Bitcoin or Ethereum blockchain networks.
Four different types of blockchain bridges are discussed below.
The sole purpose of this type of bridge is to provide access to a specific asset from a foreign network. Usually, these assets are wrapped assets and they are completely collateralized either in a custodial or non-custodial manner. For instance, Bitcoin is a common asset that is connected to other chains with seven different bridges on Ethereum. Though these bridges are simple, they need to be re-implemented because they have limited functionality. Examples of assets include wrapped BTC and Arweave.
Chain-specific bridges support simple operations of locking and unlocking tokens on the source chain and minting wrapped assets on the destination chain. They enable faster operations and aren’t that complex. But they also aren’t scalable to the broader ecosystem. The best example of a chain-specific blockchain bridge is Polygon’s PoS bridge. Users can only transfer assets from Ethereum to Polygon and vice versa using the PoS bridge.
These bridges provide applications for two or more blockchain networks. Application-specific blockchain bridges have lighter and modular ‘adapters’ on each of the blockchains instead of having separate instances on each blockchain. This type of bridge has a network effect as the adapter gets access to all the connected networks. One drawback of application-specific bridges is that it is difficult to expand the functionality to other applications. For example, a bridge built for exchange applications cannot offer lending applications to its users.
These protocols are designed for exchanging information across multiple blockchain networks. This design will have a strong network effect because a single integration of a project makes it accessible to the entire ecosystem of the bridge. However, the major drawback of this type of bridge is that sometimes they compromise security and decentralization for scaling purposes. This might cause unintended consequences to the entire ecosystem. IBC is an example of a generalized bridge that is used to send messages between different blockchains.
As individual blockchain networks grow, they will develop their own unique strengths in different aspects such as security, faster yield, cheaper transactions, more privacy, and specific supply of resources. Blockchain bridges are important because they allow users to access multiple platforms and protocols without having to choose the networks. They can interoperate with each other and collaborate to build innovative products.
Interoperability and open collaboration are essential for building an open, decentralized web. Blockchain bridges offer a promising way to unify the whole ecosystem to promote greater innovation and technological relevance. Different blockchain networks can help us move towards the next generation decentralized web by working together.