There are already hundreds of blockchains and the number keeps growing. Each has its own protocol, governance model, economy, and other unique characteristics that make them incompatible with one another.
Cross-chain bridges aim to solve the compatibility problem. These are decentralized platforms that enable the transfer of crypto assets between different networks.
Put simply, you can swap USDT on ERC-20 (Ethereum) to USDT on BEP-20 (BNB Smart Chain) via a cross-chain bridge, for example.
Wrapped tokens are created for transfers between blockchains. Liquidity pools in different ecosystems and relay nodes with liquidity in different networks are used for the same purposes.
Before using a bridge, you need to connect a cryptocurrency wallet to it. You can connect Tangem Wallet to cross-chain bridges as well as to all other DeFi platforms using the WalletConnect protocol. Visually, a cross-chain transmission is the same as an exchange within the same network.
How cross-chain bridges work
The cryptocurrency transfer between blockchains using a bridge works as follows:
- Crypto from blockchain A is sent to a smart contract with the recipient address in blockchain B.
- A smart contract (lock contract) locks the received crypto and notifies the oracle that a specific crypto transaction has been made to a specific address.
An oracle is an algorithm that confirms that a specific transaction has been performed and validated on the source network. It then allows a smart contract on the target blockchain to continue the transaction.
- After receiving the confirmation of the transaction in Blockchain A, a smart contract (mint contract) mints a copy of the crypto locked in the original blockchain, i.e. wrapped tokens (synthetic asset) and forwards it to the wallet of the addressee.
A wrapped token is a synthetic crypto asset whose value is the same as the original token, regardless of which network it is placed on.
- When a reverse transaction is performed, tokens previously issued in blockchain B are destroyed (burned) with their synthetic counterparts in blockchain A, oracles confirm the destruction, the original cryptocurrency is unlocked and sent to the user’s wallet.
Liquidity pools are another way to transfer tokens across a network bridge. Blockchain A’s crypto is locked in the bridge’s liquidity pool and Blockchain B’s crypto from another pool is sent to your wallet.
In the first case, token wrapping transfers its value from one blockchain to another, that is, to get a token on the other network, the value of which is the same as the original.
The second way is to exchange a token on one network for a token on another.
This means that when you transfer crypto from one blockchain to another, it is not the actual transfer, it only appears to be. Although it makes no difference to a user, a user gets a token on the desired network.
Cross-chain bridging problems
Decentralized bridges have different problems.
- long process. A cross-chain bridge is a protocol that connects two technologically different blockchains with different economies; it is not easy to connect them. Networks can have different transaction speeds, consensus algorithms, and other factors. This slows down the speed of token movement from one blockchain to another.
- The risk of hacking and irretrievable loss of assets. Cross-chain bridge smart contracts are thought to be the most vulnerable to compromise. But the network itself can also be a target of attacks. For example, the Ronin Bridge was hacked by taking control of five of the nine nodes that processed transactions. If the original cryptocurrency was stolen from the bridge, its packaged copies would immediately devalue to zero since the paired cryptocurrency was stolen.
There is also the problem of finding the right bridge to transfer the desired cryptocurrency from one network to another. You can use DeBridges, a cross-chain bridge aggregator, to find the right bridge for you.
Cross-chain transfers require special algorithms that allow you to interact with multiple blockchains and liquidity providers in different ecosystems.
7 Popular Cross Chain Bridges
There are enough cross-chain bridges available today, and as the DeFi sector grows, so does their number. Bridges can be different, with different blockchains and token combinations: one token can be transmitted to multiple networks; multiple tokens converted between two blockchains; multiple tokens transferred between multiple blockchains.
Anyswap, a decentralized bridge, supports 35 blockchains. It only charges gas and has automated pricing and liquidity. It provides a large number of tokens that can be exchanged over Ethereum, Avalanche, BNB Chain, Fantom and other networks. Also, tokens can be moved between Level 2: Arbitrum, Optimism, Polygon, etc.
Connext enables transactions between Ethereum, Avalanche, Polygon, BNB Chain and other blockchains and L2 solutions (supports 13 blockchains).
Supporting more than 30 blockchains, cBridge enables the transfer of USDT, USDC, BUSD and other stablecoins between networks, as well as tokens on Ethereum, BSC and other L1 and L2 networks. In addition, the bridge enables the transfer of NFTs from one blockchain to another, for example from the BNB chain to Ethereum.
Tezos wrap protocol
The Tezos Wrap Protocol is a decentralized bridge for transferring ERC-20 and ERC-721 tokens from Ethereum to Tezos. The cross-chain bridge can be integrated with Plenty (a platform for creating liquidity and trading FA 1.2 and FA 2 tokens within Tezos).
Avalanche Bridge allows you to transfer tokens between Ethereum and Avalanche. The platform does not charge any fee, you only have to pay for gas. For crypto exchanges above $75, get 0.1 AVAX Airdrop.
This cross-chain bridge enables the transfer of stablecoins (USDT, USDC, DAI, etc.) between Ethereum L2 blockchains. The bridge supports Ethereum, Polygon, Arbitrum, Optimism and Gnosis networks.
THORChain is a decentralized finance protocol with native RUNE token for directly exchanging cryptocurrencies between different blockchains.
The process takes place in two phases:
Crypto swap from Blockchain A to a RUNE token (using funds from the first liquidity pool);
Exchange of the RUNE token for a cryptocurrency in Blockchain B (using funds from the second liquidity pool).
THORChain supports Ethereum, Bitcoin, Litecoin, Bitcoin Cash, Binance Chain, Dogecoin and other networks.
The decentralized finance sector is evolving every day, and this significant advancement is leading to increasing popularity of blockchain bridging and cross-chain transfers. The exchange of various coins and tokens between networks is in high demand in the market and the number of new projects is increasing, which indicates further development of the sector.
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