Cross-Chain Bridges: Here’s what you need to know.
Picture a blockchain as a highway. The cars driving down the highway each represent a cryptocurrency token.
Your car can only use the exits designated for this highway. That’s great if you need one of those exits.
But imagine you want your car to use an exit on a different highway. To allow your "car" — or coin — to reach those exits, you must get on the other "highway" — or blockchain.
The cross-chain bridge is what you use to get there. Its purpose is to move a token to a different blockchain.
There are more than 125 blockchains, and they cannot communicate with each other. Each blockchain is a self-contained "silo" with no entry or exit. The most efficient way to get a token from one blockchain to another is by using a bridge.
Without cross-chain bridges, you would have to transfer your tokens to an exchange and sell them on the old blockchain. Then you could buy crypto on the new blockchain.
That method is expensive and time-consuming. You'll incur transaction fees by transferring, buying, and selling the tokens. There's a better way to transfer crypto between blockchains: the cross-chain bridge.
The Purpose of Cross-Chain Bridges
Cross-chain bridges serve the purpose of moving cryptocurrency tokens from one blockchain to another.
One commonly bridged cryptocurrency is Ethereum. Ethereum can be used to buy NFTs, for example. Some NFTs are on the Ethereum blockchain, while others reside on the Polygon blockchain.
To buy an NFT on Polygon, you'll have to use Ethereum on that blockchain. The cross-chain bridge is how you'll move your crypto from the Ethereum blockchain to the Polygon blockchain.
For bidding and accepting offers on NFTs, you'd have to use Wrapped Ethereum (WETH). That's because the marketplace needs immediate access to your funds when an offer is accepted. It can't do so with regular Ethereum.
The best way to get WETH is to bridge your Ethereum. You can bridge back from WETH to ETH at any time.
Being able to bridge blockchains is necessary for the growth of the crypto space. That's why the cross-chain bridge is essential.
How Cross-Chain Bridges Work
Now that you know what a cross-chain bridge is, it's time to discover how they work. The technology behind bridges is sophisticated. Bridging your crypto is more straightforward, so we'll cover that first.
To use a cross-chain bridge, you send your crypto on one blockchain to the bridge. Doing so locks it up in the smart contract of the bridge. Your crypto won't be released once you switch back.
Now if the request is approved and verified, the bridge contract on the destination chain will then mint a wrapped asset. You can use these wrapped tokens any way you want. The tokens can later be bridged back to the original chain.
If you want to switch back to the original blockchain, simply deposit your wrapped assets back into the bridge on the destination chain. This bridge will burn the assets and issue a request that if approved and verified, the bridge on the original chain will release native locked tokens. That way, the bridge is not creating new tokens out of thin air.
How To Choose a Cross-Chain Bridge
According to Alchemy, there are over 125 blockchains in existence right now. Each chain has its own benefits and drawbacks.
Switching chains allows you to use your tokens for different purposes. That way, you can take advantage of the opportunities and benefits of transacting on different blockchains.
Which cross-chain bridge should you choose? It's an important decision, especially considering the risks you'll learn about later.
First of all, consider which blockchain you're moving to and from. The most important aspect is to choose a bridge that gets you where you want to go.
The most popular bridge moves Bitcoin to the Ethereum blockchain. It creates "Wrapped Bitcoin," which is an ERC-20 token that's usable on Ethereum.
Another key consideration is security. Make sure it's a trustworthy bridge from an established provider. Any bridge can be hacked, but one with the proper protection is more difficult to exploit.
Risks of Using Cross-Chain Bridges
The smart contracts that run a cross-chain bridge need high security to avoid being hacked. These are complex pieces of code; one coding mistake can have disastrous results.
According to Chainalysis, $2 billion in crypto has been stolen in 2022; 69% of this was stolen from a cross-chain bridge. With such a huge payday, hackers are highly motivated to attack cross-chain bridges.
They are the "bank robbers" of the crypto space. The attackers can even be rogue nations. Of the crypto stolen in 2022, $1 billion — one-half of the total stolen assets — was linked to North Korean hackers.
These bad actors look at smart contracts and skillfully seek out vulnerabilities in the code. Then they exploit those vulnerabilities to steal crypto from the bridge and its users.
Such a disaster happened recently with the Wormhole cross-chain bridge. Wormhole was hacked to the tune of $320 million. The attackers got away with 120,000 Wrapped Ethereum tokens.
In another incident, Coindesk reported that the Nomad bridge was hacked for $200 million. Instead of being attacked by one entity, it was exploited by numerous people. It all happened due to a bug in the code that let users withdraw funds using fake transaction confirmations.
The largest crypto hack in history was on a cross-chain bridge. It occurred on the Ronin bridge, used for the play-to-earn game Axie Infinity. The hackers walked away from the Ronin bridge attack with $650 million in various cryptocurrencies.
That exemplifies the high stakes involved in running a cross-chain bridge. No effort should be spared in securing such a valuable and vulnerable service.
How To Safely Use Cross-Chain Bridges
Cross-chain bridge providers will have to bring more security to the table with the new dangers they face. Users must also be conscious of the risks involved in cross-chain bridges.
As an end user, you can secure your password and information to ensure a hack doesn't expose you to harm. Only use bridges that are created by trustworthy and established companies.
You'll need to ensure that any bridge you use secures its smart contract against attacks.
Companies that run and work with bridges are exposed to more risk than ever. There are hacking groups whose entire mission is to exploit cross-chain bridges for the crypto they hold.
You'll need security audits to protect your bridge from attacks. In addition, having constant threat monitoring to protect your bridge in real time is essential.
We Can Help You Stay Safe
With such massive exposure to risks, how can developers secure their bridges against attacks? You need to make sure that a proper audit has taken place to evaluate the security of the bridge and as a developer using the bridge, you need, beyond an audit, access to a service that monitors your project against threats and bad actors.
That's why we created FYEO Domain Intelligence as an additional layer of security. With our security service, you will sleep better, knowing your project is constantly monitored and protected against attacks.
Contact us to learn more about our service options.