- Crypto bridges may become a more efficient means for users to exchange coins.
- These sophisticated solutions have pros and cons that crypto enthusiasts need to know about.
The crypto sphere has so many blockchains running with different protocols. Bitcoin, Ethereum, and all the leading assets have their unique networks. For obvious reasons, an asset belonging to one chain doesn’t work smoothly on another. That’s why the developers came up with crypto bridges. These smart solutions helped users to seamlessly transfer and use their assets on different blockchain ecosystems.
Crypto Bridges: A Brief Explanation
Cross-chain interoperability became a problem when the blockchain domain started expanding. But crypto bridges solved them without creating any hassle for the users. Understanding them technically is difficult but one can try to comprehend the basic concept. Bridges create synthetic derivatives that represent cryptos from their respective blockchains. Let’s take an example to fully understand the concept of crypto bridges.
Suppose a user wants to send a Solana coin to an Ethereum wallet. They will use a bridge that will send a bridge version of Solana to the Ethereum wallet. The “bridge” has already converted the former into an ERC-20 token, an affiliate of Ethereum. These crypto bridges also work with different methods that keen users must know.
Methods Used by Crypto Bridges
Wrapped Asset Method
The example shared above follows this method. In it, the crypto bridge changes the original coin into an equivalent of the destined blockchain’s coin. The smart contract locks up the deposited SOL right at the beginning of the process. It then releases a
ETH-compliant coin in return.
Liquidity Pool Method
This one works almost like a foreign exchange or a bank. Crypto bridges with liquidity pools keep many different digital assets with them. They keep reserves of cryptos in exchange pairing like Solana on Ethereum, WETH on BNB, and so on. Thus, when a user wants to make an inter-blockchain transaction, they use this method. The bridge simply applies one of its preset exchange pairings to facilitate the transactions. In case it doesn’t have the desired combination, it asks users to find different options.
Crypto enthusiasts must also know how bridges create and maintain their liquidity pools. They often have staking and farming programs to support their operations. The platforms use their locked assets to facilitate the transactions.
Types of Crypto Bridges One Must Know
Trusted Bridges
A trusted bridge follows a centralized structure for executing the transactions. During the process, a centralized entity takes ownership of assets. The users have no option but to trust the integrity of that entity for safety and efficacy. However, they deliver impressive speed and charge lower gas fees.
Trustless Bridges
Trustless bridges follow a decentralized structure using algorithms and smart contracts for execution. Since there is no third party involved, users have to take full responsibility for their assets. These bridges are preferred by users who want to use the defi system for their transactions.
Downsides of Crypto Bridging One Must Know
Possibilities of Theft
There’s a possibility that the centralized entity steals the assets and vanishes into thin air. Although such an incident hasn’t taken place yet, it can happen in the future. To prevent that possibility, users need to choose a reliable platform.
Scamming and Phishing
Scammers have taken advantage of naive crypto users on many occasions. In this context as well, they can do it with their bridge service. A spam link suggests a bridge could be a gateway for cyber miscreants to gain access to one’s assets.
Attack on Crypto Bridges
The decentralized bridges are not fully immune to cyber attacks. Like many other exchanges and other blockchain firms, the bridges can also be their victim. A report reveals that assets worth $2.5 Billion have been stolen from cross-chain bridges so far. Some popular crypto bridge hacking instances resulted in the loss of millions.
Ronin Bridge- $522 Million
Wormhole Hack- $320 Million
Nomad Hack- $200 Million
Multichain Bridge Hack- $3 Million
Why Should Users Opt For Crypto Bridges Instead of Exchanges?
Exchanges also provide the same service and are more popular. Hence, users must find themselves in a favorable spot to use crypto bridges. Here are some reasons that make crypto bridges more useful than exchanges.
Cost– When exchanges perform a swap of cryptos, they charge a great amount of fee. In comparison, it is cheaper to exchange the assets using a crypto bridge.
Speed– Besides low cost, the asset holders using crypto bridge enjoy better speed of transaction too. That’s due to a less complicated procedure that includes fewer steps.
Airdrop-Friendly- Blockchain ecosystems can use crypto bridges for large-scale token distribution events too.
A crypto bridge is a noteworthy solution for all digital asset users. Still, they must use it after analyzing all the options.
