Understanding Blockchain Bridges: the Key to Interoperability in Web3

What Are Blockchain Bridges?

A blockchain bridge is a protocol or mechanism that serves as a connection between different blockchains, allowing for the transfer of tokens and data between them. Bridges enable blockchains to communicate with each other, and in particular they address two distinct challenges:

• Bridges enable the transfer of assets and data between completely separate blockchain ecosystems. For example, a bridge could be used to move assets from Ethereum to Stacks, two fundamentally different tech stacks.
• Bridges also enable the transfer of assets and data between blockchain layers. For instance, a bridge can move assets between Ethereum (L1) and Optimism (an ETH L2) or between Bitcoin (L1) and Stacks (a Bitcoin L2). 

The Importance of Bridges in Web3

Blockchains are not designed to communicate with each other. They are each different networks with different technical specifications, run by independent nodes that only have visibility to the network they operate. This is obviously a problem for interoperability.

It means users have little flexibility in moving assets and data between various blockchain networks, and people want that. They want flexibility. They want to be able to use apps on different networks and easily move assets between them. They want deeper liquidity. And they want these things without having to go through a centralized exchange to swap assets.

Interoperability is table stakes in the digital world. Imagine not being able to send emails to Mac users if you use Windows. Blockchain bridges help solve this interoperability problem in Web3.

Bridges enable the seamless transfer of data and assets between disparate blockchain networks. They break down the silos of individual blockchains and unlock the full potential of a permissionless, borderless Web3. More specifically, blockchain bridges:

1. Enable cross-chain communication: Blockchain bridges serve as, well, bridges, that enable assets and data to move between blockchains.
2. Increase user flexibility: By allowing users to transact across different chains, users gain more flexibility of what apps they use and which networks they transact in, which can lead to better pricing, better competition, and deeper liquidity.
3. Improve network scalability: Bridges can ease network congestion by spreading transactions across chains, increasing the overall transaction capacity of Web3, reducing user fees
4. Reduce fees: As a byproduct of improving scalability, bridges can allow users to shift their transactions to less costly networks without completely leaving their original chain, making blockchain usage more affordable and accessible. 
5. Encourage modular architecture: By making communication between networks easy, bridges help enable modular blockchain architecture where different layers specialize in different functions and users can easily move assets and data through the stack.

How Does a Blockchain Bridge Work?

At a high level, bridges do not literally move assets from one chain to another. Instead they work by enabling users to deposit assets from one chain into the bridge and then mint a synthetic (or wrapped) version of that asset on a different chain. And then to withdraw assets, users can burn (destroy) the wrapped asset on one chain to withdraw the native asset on another.

Importantly, blockchain bridges enable users to move assets between chains without going through a centralized exchange, which can involve more steps and processing delays, as well as a point of centralization which many Web3 users do not want to be dependent on.

Types of Bridges

Blockchain bridges come in a variety of different designs, and you can think of them as existing on a spectrum between more and less centralized, with different tradeoffs at each end of the spectrum. 

Trusted (Centralized) Bridges

Trusted bridges are facilitated by a trusted third-party that holds custody of the assets being transferred between blockchains, and that party could be an individual or a multi-sig federation.

• Custodial bridges: With custodial bridges, a single trusted custodian holds and manages the transfer of assets between blockchains, requiring users to trust that entity. An example of a custodial bridge is wrapped bitcoin, whose custodian is BitGo.
• Federated bridges: Federated bridges are operated by a group of trusted validators. Those validators can be elected or picked. These bridges are more decentralized than those run by a single custodian, but they still require trust. An example is Wormhole, which uses 19 “guardians” to act as oracles (more on oracles in a bit).

In a trusted bridge, a user deposits assets on one chain into an address controlled by the custodian (whether an individual address or a multisig), and once the custodian receives those deposited assets, they mint the corresponding amount of wrapped asset for the user on the destination chain.

While these bridge designs are simpler to implement and can be more efficient, they compromise the principle of decentralization and expose users to counterparty risk, meaning the trusted third party custodian could potentially act maliciously (stealing user funds) or incompetently (losing user funds).

Trustless (Decentralized) Bridges

There are two important terms to understand when it comes to trustless bridges: “1 of n” and “unilateral exit.”

• 1 of n: In most federated bridge models, the federation requires a majority of its `n` members to act honestly and approve withdrawals in order for the bridge to function. In a `1 of n` bridge design, users only need to trust that 1 member of the federation will behave honestly instead of trusting the majority, making this design much more trustless than a traditional federation.
• Unilateral exit: This refers to the ability for users to withdraw assets from the bridge without permission from any other network participant, providing a safeguard against bridge liveness and security failures.

In the most trustless design, bridges operate without an intermediary, using cryptographic proofs and smart contracts. To use a trustless bridge, the user deposits assets into a smart contract on one chain, and that contract generates a cryptographic proof of that deposit. An entity called a relayer (sometimes called an oracle or validator) listens for those proofs on-chain and then propagates them to a smart contract on another blockchain. Once that second contract verifies the proof, that contract will mint a corresponding amount of the wrapped asset for that user. No centralized custodians involved.

This approach upholds the decentralization ethos of blockchain and reduces counterparty risk.  However, trustless bridges are technically more complex and regularly face attention from hackers looking to exploit bugs and drain the bridge of funds. There’s a valid argument that trustless bridges today are less safe than their trusted counterparts because of those exploits.

An example of a trustless bridge is Celer cBridge.

Blockchain Bridge Operators

All bridges, even the most decentralized designs, rely on blockchain nodes or network participants to process bridge deposits and withdrawals. Understanding the different roles involved in operating the bridge is important. Here are some of the most common types of bridge operators.

• Custodian: In trusted bridge designs, the custodians safeguards bridge deposits. Funds are deposited into a wallet controlled by a single or group of custodians. Custodians are then responsible for processing withdrawals and deposits from the bridge. 
• Oracle: A blockchain oracle is a mechanism or data feed that connects a blockchain to external, verifiable data sources, such as price feeds, stock markets, web APIs, and more. Trusted and trust-minimized designs can use oracles to check changes in price or monitor contract activity on separate blockchain networks.
• Validator: Validator is a more specific term for network participants that verify a transaction’s validity and enforce network rules. For example, a validator could verify a user’s deposit into a bridge before enabling the user to mint a wrapped asset through the bridge.

Considerations for Using Bridges

Utilizing a blockchain bridge involves balancing the trade-offs between security, decentralization, ease of integration, and user experience. It's important to research various bridges, understand their risks, and make well-informed decisions that meet your needs.

Some things to keep in mind when picking a bridge are:

Choose the Right Bridge

When picking a bridge to use (or to integrate with your application), you need to consider whether you want to leverage a custodial (centralized) bridge or a trustless (decentralized) one. Each has its merits and drawbacks.

While custodial bridges might offer more efficient transfers, they introduce potential counterparty risk and sacrifice decentralization. And for trustless bridges, you get the benefits of decentralization, but introduce technology risk (hacks and bugs). Your decision could significantly impact your users and their confidence in your security. 

There are also other categories of bridge that we haven’t mentioned yet. For example, we have mostly talked about two-way bridges, in which assets can move back and forth between chains, but there are also “burn and mint” bridges that only allow assets to flow one way (in which an asset is destroyed permanently on one chain before being minted on another).

Some bridges also exist only to bridge a single asset from one chain to another, or exist as a bridge only for a specific app or ecosystem. Other bridges support multiple chains and multiple assets. For example, Wormhole supports 20 different ecosystems, and by using Wormhole, you can bridge assets to any of them with a single integration.

Other considerations might relate to bridge operations such as operator liquidity requirements or settlement times. Operator liquidity requirements dictate how much liquidity (funds deposited) a bridge needs to maintain in order to prevent a liveness failure. Some bridges also take longer to settle to the base chain, and faster finality and settlement times generally result in a better user experience. 

Which bridge you use has implications not only for UX and security but for which assets and ecosystems you have access to.

Be Aware of Security Risks

Speaking of security, it’s critical for bridges because by nature, they are honeypots: bridges are contracts or addresses with a lot of money held in them, making them ripe targets for bad actors. Historically, we have seen that play out. Multiple bridges have experienced hacks, and those exploits have been some of the biggest in Web3 history:

• $650M stolen in the Ronin Bridge attack
• $570M lost in the Binance Bridge drain
• $236M worth of tokens stolen in the Wormhole attack

Sometimes, bridges recover from these hacks, but other times, they end up shutting down. For example, the Multichain bridge completely shut down earlier in 2023 after $130 million was stolen from the bridge.

Bridges will get more secure and stable over time as code vulnerabilities are discovered and patched, but you want to do your own research and make sure that any bridge you use takes security seriously, whether multiple smart contract audits, bug bounty programs, relayer validation, and more.

Bridges Alongside Other Interoperability Tools

Bridges are one tool for interoperability, but they are certainly not the only one. Not every use case needs a bridge, and some might be better served with an exchange or simply a price oracle bringing in data from another chain. Many times, these tools will be used in tandem.

• Bridge: The main benefit of bridges is preserving your liquidity on one chain while maximizing utility of your collective assets on another chain. What does that mean in plain English? If you have 10 BTC, you might want to bridge it to Stacks in order to earn yield on it as sBTC. With bridges, you can do that without having to sell your Bitcoin. 
• CEX/DEX: A centralized/decentralized exchange is good if you want to convert assets from one chain to another, and you don’t particularly care about losing your liquidity in one position or chain for another.
• Oracle: Oracles pull in data from other sources, blockchain or web2 data streams, and enable on-chain events in reaction to those data streams. For example, you might use an oracle in a DeFi loan platform to determine how often and by how much to adjust credit lines.

The Future of Blockchain Bridges: Toward Greater Interoperability

The future is multi-chain, and in the past few years that has become increasingly clear through 3 trends:

1. The modular blockchain thesis has grown in popularity, thanks to the inter-blockchain community by Cosmos, parachains by Polkadot, and the modular data availability of Celestia.
2. The concept of blockchain layers is also gaining traction for non-modular chains. For example, Ethereum layers have provided a clear path to scalability for EVM, and Bitcoin layers are unlocking the full potential of Bitcoin.
3. Interoperability has seen strides of exciting innovation, such as the cross-chain interoperability protocol by Chainlink or the Omnichain messaging protocol by Layer Zero.

With so many chains and chain layers, interoperability is critical for the growth of Web3 as a whole, and bridges are integral to cross-chain activity. Curious to learn more? Go down the rabbit hole of Bitcoin bridges in our free guide on Bitcoin layers: