Stakely Blog
January 26, 2022

What is a bridge in crypto? Bridges between blockchains

January 26, 2022

Bridges in crypto are platforms that allow data or value to be exchanged between blockchains that don't belong to the same native blockchain. Currently, there are countless blockchain networks. Each of these blockchains has its own native cryptocurrency, which coexists on its network with other native assets that are also representations of tokens or cryptocurrencies from other networks. As long as they are in the same ecosystem, it is possible to exchange these cryptocurrencies, stake or farm them without major issues.

The problem arises when users need to make transactions outside their native network, either because the applications they want to use don’t exist there or because there is insufficient liquidity on decentralized exchanges. With the arrival of DeFi, these problems became very frequent. Fortunately, blockchain developers have codified an application that allows data or value to be exchanged between blockchains, and these applications are called bridges.

Why are crypto bridges so important?

Since their genesis, blockchains have been designed for their users to exchange or trade their assets within their native applications. Previously, there was no way for blockchains to communicate with each other in order to exchange assets and for assets to be compatible with each other. This lack of communication led developers to create applications whose smart contracts allow assets to be exchanged between blockchain networks regardless of the protocol under which they are encoded.

Such applications are called bridges, and with them users can move or send their assets from one network to another to meet their business needs. Without a doubt, bridges widen the scope of action of users in the crypto ecosystem.

Let's look at an example. Peter wants to send ETH from the Ethereum mainnet to get the representation of the ETH token on the Solana network, with the intention of performing a leveraged trade on Mango Markets. Obviously, you cannot send them directly, because as they are two different networks, the sending transaction will be invalidated and you will lose your tokens. To achieve this transaction of your assets, you will need to use a bridge and perform the following steps:

  1. Go to the website where the bridge is hosted.

  2. Connect the wallet that corresponds to the bridge application.

  3. Choose the network to which the tokens will be transferred.

  4. Approve the transaction.

  5. Make the swap.

Once the transactions have been confirmed, the tokens will be received in the chosen network.

What are the characteristics of bridges?

  1. They facilitate interoperability: they allow communication between different blockchains, facilitating the exchange of information (data and tokens).

  2. They extend the usefulness of cryptocurrencies: users can carry out transactions on different networks, thereby enabling cross-chain trading, making their tokens more useful.

  3. They simplify the number of transactions: previously, in order to transfer assets from one network to another, several operations had to be carried out; with the arrival of bridges, users can transfer them to the requested network in a single operation.

  4. They are decentralized: most of them do not depend on a central authority to administer them. To operate them, users must connect their decentralized wallets, which means that they must approve and sign the transactions they carry out.

Types of bridges

There are different types of bridges. Generally, a distinction is made between centralised bridges and decentralised bridges, but this time we will go a little further:

  1. Bridges for a specific asset: they are built to interact with blokchains that hold a specific cryptocurrency or asset, and their functionality is limited to that asset. For example, a bridge deployed in Ethereum to communicate with the bitcoin blockchain, so that it can be used as a wrapper or synthetic in its various DeFi applications.

  2. Chain-specific bridges: these bridges are designed to enable data exchange between two different chains, for example, a bridge to transfer tokens from Ethereum to Fantom.

  3. Application-specific bridges: these are built to function only within blockchain applications. From there, such applications can interact with one or more blockchains. Their functionality is limited.

  4. General bridges: these are built on top of a main blockchain, and can be used by all independent blockchains connected to it, in other words, their design allows all blockchains connected to a main network to share data and information.

Risks of using a bridge

Even though bridges offer a scaling solution for blockchains, there is an inherent risk in their use, so careful analysis should be performed before operating on them, just as any project in the crypto universe is analyzed. Before connecting to any application that offers bridges services it is important:

  1. Read its documentation.

  2. Be informed about the expertise of the team behind its design.

  3. Before connecting any wallet to the bridge, confirm that its URL is in line with the project behind it. Fraudsters often use subtle changes to them to steal users' funds.

  4. Transfer small amounts to ensure that their functionality is effective.

It is important to remember that even though bridges are decentralized, it does not make them immune to attack by malicious actors, so great care should be taken when interacting with one. On the other hand, the user is not in control of their funds at all times, since being built on smart contracts, they will have custody of the funds while the exchange of assets takes place. The risk here is that any error in the code could open up a vulnerability that, if discovered, could result in the loss of assets.

Bridges are undoubtedly a great tool within the crypto ecosystem and more and more bridge crypto projects are developed each day. They are part of the tangible result of the scalability of blokchains in recent years and a gateway that makes blockchain networks, applications and products work more efficiently.

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Why are crypto bridges so important?
What are the characteristics of bridges?
Types of bridges
Risks of using a bridge

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