What is a cross-chain bridge? The key technology to realize a multi-chain ecosystem
Each blockchain network has a specific consensus mechanism, tokens, smart contracts, etc., which makes it impossible to directly exchange data between each other, and users in the ecosystem are also limited by this. For example, if user A has 10 BTC, he wants to mortgage the assets on AAVE and borrow them to obtain interest income. Since the Bitcoin network and the Ethereum network are not the same blockchain, he cannot participate.
According to the statistics of the CoinMarketCap website in 2024, the number of cryptocurrencies currently in circulation in the market exceeds 50,000, and this number is still increasing with the development of the blockchain industry. In order to meet people’s increasing demand for asset exchange, many blockchain networks have developed cross-chain bridge technology to help users move freely between different blockchain networks.
What is a cross-chain bridge?
At its core, cross-chain bridges are protocols or infrastructure designed to enable communication and interoperability between different blockchain networks. They facilitate the secure and trustless exchange of assets, data, and information between different blockchains, enabling users to benefit from the unique features and capabilities of multiple networks without going through complex and time-consuming processes.
Cross-chain bridges allow assets on different blockchains to circulate with each other. For example, BTC can circulate to the Ethereum network and participate in its application activities, and ETH can also circulate to the Solana network.
How does the cross-chain bridge work?
In simple terms, it locks the assets of the original chain and issues anchored tokens on the new chain. For example, to transfer tokens from blockchain network A to blockchain network B, the specific method is to lock the tokens in blockchain network A and then issue packaged tokens that comply with the protocol of blockchain network B in blockchain network B to complete the transfer of assets.
The same token will have different names and comply with different protocol specifications on different blockchain networks. For example, BTC is the native asset on the Bitcoin network. Users can transfer their Bitcoin to Ethereum through the cross-chain bridge to generate WBTC, which is a token that complies with the ERC-20 standard.
Packaged tokens are one-in and one-out at both ends of the cross-chain bridge. After a user sends a BTC on the Bitcoin blockchain to the cross-chain bridge, he can receive a WBTC on the Ethereum blockchain. This process is called token packaging. On the contrary, if the user does not need to continue using WBTC on the Ethereum blockchain, he can also send WBTC to the cross-chain bridge and redeem the same amount of BTC on the Bitcoin blockchain. This process is also called token unpacking.
Smart contracts are automatically executed program codes, and the custody service is operated by a third-party intermediary, which can ensure that the number of native tokens and packaged tokens passing through the cross-chain bridge is consistent, and there will be no price decoupling problems. Users who use the cross-chain bridge service generally need to pay the packaging and unpacking fees.
Types of cross-chain bridges
There are several different types of cross-chain bridges, which can be simply classified as follows according to the operation mode and degree of centralization:
Centralized custody cross-chain bridges
The service of cross-chain transfer of cryptocurrency assets is provided by a trusted third party. After the user deposits the cryptocurrency, the third-party custody service will provide packaged tokens that can be used in other blockchain networks. When redeeming, the packaged tokens need to be returned as vouchers. After the third-party custody service destroys the packaged tokens, the user can retrieve the previously deposited cryptocurrency assets.
Decentralized smart contract cross-chain bridge
The operation process is the same as that of the centralized custody cross-chain bridge. Both of them complete the cross-chain asset transfer by issuing packaged tokens after depositing native tokens, destroying packaged tokens and retrieving native tokens. The biggest difference is that the smart contract cross-chain bridge is completely executed automatically by program code. The locking, issuance, destruction and unlocking of tokens do not go through third-party intermediaries. The verification of cross-chain transactions is completed by multiple decentralized nodes.
Cryptocurrency exchanges
Most cryptocurrency exchanges support the recharge and withdrawal of multiple cryptocurrency assets and blockchain networks, so users can use cryptocurrency exchanges as cross-chain bridges. For example, Matic tokens of the Polygon blockchain network can be recharged to the Gate exchange, and ERC-20 Matic tokens can be withdrawn to personal Ethereum wallets.
Challenges of cross-chain bridges
Centralized custody is still not completely trustworthy
Centralized custody services require a trusted third party. If the custodian absconds with the funds, users are at risk of not being able to redeem the packaged tokens back to the deposited assets. Therefore, when using centralized custody cross-chain services, you need to pay attention to whether the custodian has a bad record.
Decentralized bridge code vulnerabilities can easily cause huge losses
Decentralized cross-chain bridges also have risks. Hackers will look for loopholes in smart contracts to attack and steal assets deposited by users. For example, in February 2022, hackers used the program errors of the Wormhole Cross-Chain Bridge to steal up to 120,000 Ethereum coins.
There are also many restrictions on cross-chain bridge services
The security, speed and cost of cross-chain bridges are also affected by different blockchain networks. When cross-chain bridges connect different blockchain networks, the overall system’s operating performance will be the same as that of blockchain networks with poor security, slow speed and high costs. For example, when transferring assets from Ethereum to the Polygon blockchain network using the Plasma cross-chain bridge, users may have to wait for more than 3 hours to receive the assets, and the handling fee paid may exceed US$100.
About Starcoin
Starcoin provides the utmost security from the origin via its enhanced PoW consensus and Secure smart contract, using the language of Move. Through layered and flexible interoperability, it optimizes the building of ecosystems such as DeFi, NFTs, Gaming, etc., with higher efficiency and convenience. This process redefines value by empowering every participant in the ecosystem to enjoy the multiplication of values.
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