Mind the gap! Everything you need to know about blockchain bridges and cross-chain
In 2022, more and more innovative blockchains are still emerging. While the concept of distributed ledger is rapidly becoming mainstream, many adopters and projects tend to concentrate on the few biggest chains.
Different blockchain means different consensus mechanisms, hence different transaction processing, token standards, and so on. But also, some chains have features, that many other chains lack.
All of this leads the developers to create a solution, that can solve the absence of blockchain interoperability.
Here is why, cross-chain is crucial for blockchain projects like DEX (decentralized exchange, NFT Marketplaces, and even DAOs.
What is a blockchain bridge?
Let’s begin from this: cross-chain is the type of blockchain integration that is meant to allow users to transfer or swap their digital assets from one blockchain network or platform to a different one. It is also called a blockchain bridge.
Q: How do blockchains and protocols interact with each other right now?
A: Only with the blockchain bridges.
A typical blockchain bridge is a software code deployed in two chains, for example, A and B. That allows to send the information about the transactions and transfers to another chain, and make the target chain to make it valid.
This is the only way for chains A and B which contain different native coins, governed by different consensus mechanisms to be somehow compatible and “share the networks”. By saying “share the network” we mean — one dAPP/token/NFT/coin, etc. that deployed on a blockchain A can be available on a blockchain B.
Without blockchain bridges, interoperability can not be reached, because due to the nature of blockchain, every public chain is a completely dedicated and independent network.
Why do we need interoperability?
Imagine Ethereum, the biggest blockchain network with vastly developed dAPPS, DeFi tools, and NFTs on-chain. Ethereum is an extremely busy network, due to the number of users, dAPPS, and nodes on it.
Users, that are aware of different chains see the different dAPPS that they would like to use, or NFTs that they want to acquire with a different token or coin, that exists on a different blockchain.
We want interoperability because it is easy and profitable for users, and even if we are creators of a crypto project, we are in any way the users of a blockchain.
Interoperability brings us a lot of benefits by making the transactions cheaper, transferring digital assets easier, and removing us from the need to choose a specific chain for our project.
Why do you think the majority of NFT creators choose Ethereum? Because it is the biggest chain with a greater market cap for NFTs. Interoperability helps us to choose a blockchain that we want, with a different consensus mechanism, without cutting off something from our project, because it must be existing on a blockchain A.
Blockchain interoperability incorporates transferring data from blockchain A to blockchain B without duplicating it in the end place. Besides the ability to transfer all kinds of digital assets, blockchain bridges can also transfer smart-contracts execution conditions.
In plain words, with interoperable blockchains that can work with bridges, users are capable of deploying digital assets from a native blockchain to another without duplicating them, distorting the ownership of those assets, or losing their value. The value of digital assets transferred by a bridge will be always pegged to the native digital asset value.
Blockchain bridges are opening the whole range of possibilities for completely different blockchains to scale. When a network is too big and busy, the transactions are becoming more and more pricey. Hence, blockchain bridges are one of the good solutions for the scalability of big networks.
Minding the gap. How do the blockchain bridges operate?
It is pretty odd, but a lot of blockchain bridges tend to be centralized, on the road to achieving more decentralization and interoperability for networks.
Trusted blockchain bridges (trust-based bridges)
These kinds of bridges are called trusted bridges (trusted-based bridges), due to the fact that a user basically has to literally trust a bridge provider his assets, so then a provider launches a bridge for transferring data.
Almost every blockchain bridge that you know is a trusted bridge (trust-based bridge) including Binance bridge, Compound (Gateway), Harmony, and Terra.
But, not all of them.
The benefits of trusted blockchain bridges are that when they are hosted by big names such as Binance, and when their bridges are working perfectly fine, there is a big room for reliable transferring a humongous amount of digital assets.
Talking about just appearing trusted bridges it is highly risky to rely on those bridges.
Trustless blockchain bridges. Decentralization!
Trustless bridges according to multiple opinions are probably the key solution to develop seamless interoperability for all existing blockchains out there.
Because the trustless bridges don’t require a user to grant any trust “out of air”. Trustless bridge doesn’t actually take the assets anywhere. Instead, transferable assets don’t go outside of their native blockchain during a bridge transfer.
Trustless bridge executes the burn of assets on one blockchain, and mints assets on the other, when the value of those assets is always equal to the value of assets in the first place.
You can also imagine that these bridges work in a way like a blockchain in between does. Having individual networks pitching in to validate transactions in two separate networks.
Trustless decentralized bridges offer way more transparency and security for the DeFi dAPPS and protocols. This is extremely crucial for them because the DeFi protocol’s purpose is to incentivize trading, exchange, and locking of multiple kinds of crypto. This is more beneficial for a user, and for a DeFi protocol as well.
What are “wrapped” tokens?
When you see a token like wETH, it means that this is not actually ETH on a native blockchain (in this case Ethereum), it is a token, that is representing ETH on a different blockchain where it was “bridged”. Wrapped tokens are the only way to transfer assets from a blockchain A to B and vice-versa without continuously exchanging them.
When a native coin, cryptocurrency, or a token “go from” a blockchain A to blockchain B with a bridge, a wrapped token is being created on a blockchain B, and its value will be always pegged to the value of the digital asset it represents.
A user can always unwrap a wrapped token either to bridge it back to the native blockchain or by redeeming its equivalent to other digital assets existing on another blockchain.
In the majority of cases, any wrapped token is an ERC-20 token.
Important note: The concept of wrapped tokens is actually almost identical to the concept of stablecoins. The majority of stablecoins are pegged to the fiat currency rate that they represent on a blockchain.
What problems blockchain bridges do solve?
Once a developer builds their dapp on any particular network, they’re generally locked into that platform with no opportunity to leverage any of the benefits of other blockchains.
That also creates a blockchain monopoly, is we could say like that. Bridges are needed to wipe off the borders for different blockchains, to make them even more centralized. So eventually, users, developers will benefit from it. The main benefit will be is not to be dependent only on one blockchain network, and be able to interact seamlessly with other blockchains.
Problem 1. Lack of interoperability between blockchains. This is a core problem of the whole blockchain space. Some networks have different advantages and disadvantages, and it is important for them to grow following the user’s demand for what they are offering.
If, for example, you want to have super fast transactions for your blockchain project that will provide payments in crypto, you will deploy your project on Solana, because the transaction speed is crucial for you.
But then, users on Ethereum won’t be able to use your dAPP, without switching to Solana. And that goes way deeper for plenty of blockchain projects, especially DeFi protocols, and NFT collections.
Interoperability is also crucial for adopting technology by enterprises and institutions because practically, these users want to use a reliable, secure chain that is also can be compatible with any other chain. So, in this sense, they can dispatch the maximum utility from adopting blockchain technology.
Problem 2. Lack of Scalability. Remember how we already mentioned too big and too busy networks? Where the gas fees are so high, that they exceed the available balance in your wallet?
Ethereum is a great chain, but because it is not easy to modernize the blockchain it takes a lot of effort from the blockchain developers to create effective solutions that will make it work.
Blockchain bridges can help to enhance the scalability for tremendous transaction volumes and spread on a blockchain. And this solution won’t force users and devs to drain the liquidity (exchanging assets), consequently resulting in a negative effect for the whole blockchain.
Problem 3. Lack of Efficiency. The situation is when users have to go through multiple centralized and decentralized crypto exchanges and pay multiple fees for making various transactions in order to move from coin A to coin B.
Bridges are supposed to solve this issue by giving an opportunity for a user to move from one asset to another with one transaction.
Hence, it creates a big room for enhancing cross-chain NFT gaming projects, and cross-chain Yield Farming, DeFi protocols.
Problem 4. DeFi that are rigid and “locked” from growth and derivative collaterals.
As we already mentioned, bridges can be the key to redefining the DeFi. Blockchain bridges that allow users to seamlessly move between the chain will empower existing (and not existing yet) DeFi protocols by bringing them more liquidity and more room for creating innovative DeFi products and dAPPS. Holders of Bitcoin can’t stake it, but they can stake Cardano, but they refuse to exchange their portfolio value of BTC for ADA. With bridges, they will be able to stake altcoins without selling their BTC.
Quite contradictive to say, but the decentralized principles of blockchain technology put the brakes on the DeFi growth, Which is weird because DeF are the finances 2.0, decentralized protocols that emerged because of the decentralized ledgers.
Blockchain’s inability to be compatible with other blockchains is locking the users of DeFi into the border of a specific network with the ability to trade and stake the assets that are available exclusively on that native blockchain. This puts a burden of limits on DeFi because other networks can offer even more utility, functionality, and innovative algorithms.
Besides constraining the decentralization due to the lack of interoperability between blockchains, that issue also freezes the development and advancement of innovation emergence, seamless trade of digital assets, natural and competitive growth of blockchain projects.
Frankly, the dAPPS, project creators, and developers remain the experience limits of only one network solution without giving it wider adoption. In this case, multi-chain will be a poorer solution, rather than a great blockchain bridge. Or better multiple bridges.
DeFi dAPPS will face the new era with blockchain bridges, by becoming more accessible for multiple groups of users, attracting more users with higher rewards, because of increased liquidity.
Cross-chain solutions that empower blockchain projects
Even though developers of many blockchain communities and projects started to use this solution way more often in 2021, there is still a lack of blockchain bridges out there. It means, that we have more blockchains that need a bridge to another already now. We decided to bring a few examples of prominent blockchain bridges at the moment.
- Polkadot Snowfork bridge
Snowbridge is a decentralized, trustless, and general-purpose bridge between Polkadot and Ethereum built by Snowfork.
The most common purpose (there are more) of this bridge is to move from ETH to DOT and vice-versa in order to be able to use the Polkadot protocol seamlessly without draining your ETH or DOT.
The Snowbridge will make it possible to transfer ETH, ERC-20 token, loan/futures contracts, option/future contracts, and other sorts of Polka-Eth assets within both of the chains.
- Multichain cross-chain protocol (ex. Anyswap bridge)
Anyswap bridge has been transformed into a cross-chain solution provider. Anyswap has relaunched as Multichain with a focus on infrastructure for arbitrary cross-chain interactions with a maximum blockchain to interoperate.
Multichain, as a cross-chain router protocol (CRP), endeavors to be the ultimate router for Web 3.
Now, Multichain supports more than 1428 coins and tokens to swap between 30 chains including Ethereum, Terra, Avalanche, Binance Smart Chain, and Aurora. You can even bridge to BTC.
- Harmony bridges and network
“Harmony’s bridges can connect any Proof-of-Work and Proof-of-Stake chains. Our FlyClient architecture is fully trustless and highly gas-efficient. Currently, our bridges for Ethereum and Binance Smart Chain secure tens of millions of cross-chain assets.”
The examples of blockchain bridges that we’ve built
One of the greatest examples of a cross-chain solution that was developed by the team of our experienced blockchain developers is the Less Bridge. Made for Less Network.
Less Bridge is a trustless bridge that allows transferring coins and tokens between 6 blockchain networks including the most demanding Ethereum, Binance Smart Chain, Avalanche, Tron, Polygon, and fantom.
The bridge moves assets by interacting through Matemask wallet integration or Binance wallet with taking the Less tokens, but not releasing them.
Less token is the native coins of Less Network, the project is certified and audited by CertiK and gained a total score of 95 after all final audits. You can check this out here.
⚡️ Check out how it works! Less bridge
We take the building of a blockchain bridge to the right path
Rock’n’Block’s team can help you with:
⚡️NFT and NFT Marketplaces development ;
⚡️NFT 10K generator;
⚡️Any other custom request from a crypto wallet development to custom blockchain development.
If you’re interested in building your blockchain project, feel free to contact our team via the Telegram channel or book a call via Calendly.
Follow us on social media to receive the hottest blockchain development Rock’n’Block updates Twitter, Telegram, LinkedIn, Facebook, Instagram
Article author: Mariia Zavtur