If you have been involved in the cryptocurrency space then you have probably heard of blockchain bridges. Although this technology is simple it has revolutionized the industry.

Ultimately, it has facilitated the network effects of cryptocurrencies in an unprecedented fashion. That is why in this article, I will be covering all aspects of blockchain bridges. So without further ado, let’s jump right in.

Blockchain bridges facilitate the transfer of tokens and data from one cryptocurrency to another.

What are blockchain bridges?

The major drawback of blockchain technology is that they are a closed system. Most chains differ in the programming language, consensus mechanisms, and general architecture of the network.

Blockchain bridges solve this problem by allowing the transfer of tokens and information between independent blockchains. Ultimately, it is a way of facilitating interoperability in the cryptocurrency space.

How do blockchain bridges work?

In most cases, blockchain bridges work by creating a synthetic asset that is a derivative of the original token. Essentially the original cryptocurrency is locked and a token on the corresponding blockchain is issued in return.

For instance, if you wanted to trade bitcoin using the Ethereum network you can lock the bitcoin via a bridge. This process is done automatically through smart contracts and an equivalent amount of wrapped bitcoin is issued in return.

Wrapped bitcoin is essentially a derivate that is compatible with the Ethereum network. Users can redeem their wrapped bitcoin anytime for the original bitcoin.

Types of blockchain bridges

Centralized bridges – this type of bridge has an intermediary controlling the system. When compared to other bridges they are fast and cheap.

However, as it is centralized there is a single point of failure that makes it more prone to exploitation. Moreover, participants in this system must place their trust in this third party. Ultimately, there is always a possibility that the custodian can steal the funds.

Trustless bridges – on the other hand, trustless bridges are secured by a decentralized network of computers. As a result, there is not a single point of failure. Moreover, the system is permissionless and transparent, meaning anyone can access it and the code is completely open to the public.

Advantages of blockchain bridges

Users can bridge cryptocurrencies to gain some of the benefits from other blockchains. These include the following:

Lower transaction fees – blockchains have varying transaction fees depending on their architecture. Therefore, users can bridge to other blockchains to take advantage of low-fee trading.

DeFi interaction – users can bridge cryptocurrencies to interact with decentralized finance (DeFi) applications from other blockchains. For instance, users can generate a yield on their bitcoin by bridging it to Ethereum and then lending it using a DeFi platform such as Aave.

Scalability – blockchain bridges ultimately help with scalability. As they divert traffic from the main chain there is a reduction in congestion. Therefore, this can lead to cheaper and faster transactions with fewer delays.

Risks of blockchain bridges

Hacks & scams – the main risk of blockchain bridges is hacking. Like most cryptocurrencies, the smart contract can be exploited by hackers if there are faults in the code. Ultimately, they are only as secure as the developers make them.

Moreover, phishing scams can also lead to stolen funds. Fake bridges imitate legitimate ones. When users interact with these protocols their crypto wallets become compromised.

On a side note, this is why it is imperative to use a hardware wallet. You can check out my review of the best wallets here.

Best blockchain bridges

Binance bridge – created by the popular cryptocurrency exchange Binance, you can be sure that this is a reliable and reputable bridge. Binance bridge has over 100 different cryptocurrencies and features an intuitive design.

Additionally, thanks to the underlying structure of Binance Smart Chain the bridged assets can be transferred quickly and for a fraction of a cent.

Not to mention, users can bridge without having to create a third-party wallet. Instead, users can store their assets using the spot wallet in the Binance app.

Polygon bridge – polygon is the most popular bridge for Ethereum and rightfully so. At the time of writing it has over $7 billion in total value locked up.

Founded in 2020 this bridge provides a trustless channel for bridging assets. It supports many of the popular decentralized apps including Aave, Sushiswap, and Curve. Bridging assets is seamless and cheap. Overall, if you want to bridge assets from Ethereum this is the best choice.

Conclusion

As you can see, blockchain bridges are an excellent way of facilitating interoperability. This is crucial to the adoption and development of the space as users can utilize the benefits that each chain offers.

That being said, they are a key target for hackers so it’s important to find reputable bridges like polygon and Binance.

Nevertheless, I am extremely optimistic about this novel technology and it will only get better with time. I hope you found this article useful and thanks for reading.

Want to learn the difference between crypto and stocks? Click here to read my previous article.