What Are Crypto Bridges? 

Crypto bridges are also referred to as blockchain bridges or cross-chain bridges. They connect two blockchains, enabling users to send cryptocurrency from one chain to the next. 

Crypto bridges are also referred to as blockchain bridges or cross-chain bridges. They connect two blockchains, enabling users to send cryptocurrency from one chain to the next. 

If you have some Bitcoin and want to spend it like it was Ethereum, you can do so by utilizing a bridge. Since most blockchain assets are incompatible with one another, crypto bridges create synthetic derivatives representing assets from secondary chains. 

We will discuss how bridges work, the two major types of bridges, and a few current bridge options for use. Let’s get right to it.  

Crypto Bridges Explained

One of the most pressing issues facing the blockchain space is the inability of different blockchain networks to work together. Blockchain projects are generally fluid and efficient at what they do; however, each blockchain becomes limited by the walls that it has built around its domain. 

The resulting problem is a lack of liquidity translating into higher transaction costs and limited systems. Ultimately, we have real-world-like congestion. 

Crypto bridges solve this problem by allowing two blockchains to communicate with one another and alleviate congestion through teamwork. This communicate can be in the form of: 

  • Token transfers
  • Smart contracts
  • Data exchange
  • Feedback and instructions 

Different blockchains mint their respective native tokens, with each operating under a different set of rules. 

The crypto bridge is a neutral arbiter between the two, allowing users to (in theory) seamlessly switch between them.  By having access to multiple blockchains but only requiring the use of a single network, bridges allow for an enhanced crypto space experience.  

The crypto bridge concept is like a Layer 2 solution, which is built on top of the Layer 1 base network but is designed to address the lack of network interoperability. It works independently from the Level 1 networks it bridges.   

How Do Crypto Bridges Work?

While they can convert smart contracts and send various kinds of data, their most common function remains to transfer tokens between chains. 

For example, there was no interoperable bridge between Bitcoin and Ethereum. These two massive crypto networks have different rules and protocols. However, through a crypto bridge, Bitcoin users can transfer their BTC coins to the Ethereum network and now receive added functionality that they would otherwise not have. These Bitcoin-Ethereum bridge users can purchase ETH tokens and make low fee payments. 

A user who has Bitcoin and wants to transfer some of their holdings to Ethereum utilizes the crypto bridge, holding their Bitcoins and creating an equivalent amount of ETH for the user to conduct transactions. No crypto actually moves between the chains. 

The amount of BTC that is being exchanged for ETH is locked in a smart contract allowing the user to gain access to an equal quantity of ETH on the other side of the bridge. This functions similarly to a traditional swap. 

If they desire to convert their usable ETH back into BTC, then the ETH that remains available for use will be burned, and the equivalent amount of BTC will be returned to the user’s Bitcoin wallet.

If there was no bridge and a user wanted to do the same process, they would have to convert their Bitcoin to ETH on a trading platform, withdraw the purchased ETH to their wallet, and then make a second deposit into another exchange. However, this process is time-consuming, and the amount of fees needed to complete this process could remain significant. 

Two Types of Blockchain Bridges

There is an implicit downside resulting from certain blockchain bridges, and this is centralization.

One attractive virtue that has brought so many to the blockchain space is its decentralized nature. No central entity makes decisions about a cryptocurrency the way central banks control a fiat currency.   

However, with a crypto bridge, the user must release their control of the coins that they wish to use on the other side of the bridge, and this release is in the hands of the bridge owners. This process is like a wrapped token. wBTC is a quantity of Bitcoin that is “wrapped” in an ERC-20 contract. It has the same functionality as an Ethereum token. 

These are called “Trust-Based Bridges” (custodial), and while they are centralized, they are economical and efficient options for transferring a large amount of crypto

Yet the number of reliable bridges is limited. All wrapped bitcoin (wBTC) is held in the custody of BitGo.  Users who choose less well-known trust-based bridges are increasing their risk, and therefore it’s an unattractive transfer method for smaller traders.  

There are also “Trustless Bridges” (noncustodial), or decentralized crypto bridges, that are intended to make users feel safer when they are transferring their coins to other networks. A trustless bridges is a solution that operates like a decentralized blockchain network that validates the bridge’s transactions.  

If a user is concerned about their coins being turned over to others, then the use of a trustless bridge provides more peace of mind. Bridged assets using “Wormhole” are held only by the protocol, making it more decentralized. Hardline decentralization advocates may argue that trust-based bridges like wBTC make them less secure than the decentralized alternatives.

Bridges open new markets and support a multichain future, but there are security challenges. February 2022 saw a $326 million exploit of the nascent Wormhole bridge, showing that decentralized bridge assets might not be safer.

Choosing a Crypto Bridge

Crypto bridges have become easier to use. DeFi protocols are integrating them into platforms to make token swapping much more manageable.  

Porting assets to another blockchain provides several benefits. The new blockchain may be faster and cheaper than the native blockchain. Ethereum has high transaction fees, and while it is still a proof-of-work system, it’s also slow. 

However, if users bridge to a Layer 2 network like Polygon or Arbitrum, they can trade ERC-20 tokens at a fraction of the cost and not sacrifice their Ethereum token exposure.

Investors could also use bridges to benefit from markets that only exist on other blockchains. For example, the DeFi protocol Orca is only available on Solana, but it supports wrapped ETH.  

Major Crypto Bridges

The following list includes some prominent crypto bridges in operation that can be used to transfer your crypto assets and more.

Multichain (Formerly AnySwap)

This bridge system is famous for providing features beyond just transferring crypto. Once Multichain is connected to a wallet, the user can see all of their balances and the different types of coins. These balances can easily be transferred from one currency to another. 

Multichain operates its own node network based on Secure Multi-Party Computation (SMPC). Multichain does have some limitations, and there are specific blockchains where transfers can only be made to particular destinations, but a double hop can be made if necessary to reach the desired network.  

Images Courtesy of Multichain

Binance Bridge 2.0

This is a decentralized bridge that offers a large selection of tradable cryptos. It supports several popular blockchainssuch as Ethereum, TRON, and Solana (35 in total). The bridge is easy to access for those trading on Binance (both the US and international versions) right from their app. The bridge wraps listed and unlisted tokens as “BTokens,” and these wrapped tokens can be used with the BNB Chain’s ecosystem for DeFi, decentralized games, the metaverse, and more.   

Celer cBridge

cBridge is accessed from Binance and is a good alternative if you don’t want to use the Binance Bridge 2.0.  

Image Courtesy of cBridge

cBridge is like other trustless bridges. There are a variety of blockchains and other cryptos that it allows users to interact with.  If you are not a Binance user, then you will have to connect a wallet to cBridge before you can conduct any transactions. 

No matter which bridge you choose to use, you should check what are the limitations and fees before conducting any transactions. Smaller transfers vary a lot between the different bridges, so be aware beforehand and make sure you check the bridge’s reputation and update status.

Final Thoughts

The blockchain space has always been defined by its decentralization. This factor’s prominence supersedes the importance of making other operative improvements, including scalability and interoperability. A network’s developers are naturally resistant to making significant network changes, especially if it deviates from the philosophy of decentralization. 

Outsiders creating blockchain bridges have realized this need and are have signaled that developers are seeing its importance. These crypto bridges and the interoperability they bring are moving the world toward a broader crypto economy. They should be embraced and become part of the layer one network’s protocol, ensuring the dedication they deserve.  

Disclaimer: The author of this text, Jean Chalopin, is a global business leader with a background encompassing banking, biotech, and entertainment. Mr. Chalopin is Chairman of Deltec International Group, www.deltec.io.

The co-author of this text, Robin Trehan, has a bachelor’s degree in economics, a master’s in international business and finance, and an MBA in electronic business.  Mr. Trehan is a Senior VP at Deltec International Group, www.deltec.io

The views, thoughts, and opinions expressed in this text are solely the views of the authors, and do not necessarily reflect those of Deltec International Group, its subsidiaries, and/or its employees.

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