Cross-chain Bridge: An Introduction

Zecrey Protocol
5 min readAug 26, 2021

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There were more than 10,000 cryptocurrencies currently in circulation, according to CoinMarketCap. While most of these will be built upon the Ethereum blockchain, many are not. Besides, according to statistics from DeFi Llama, the amount of DeFi locked up on Ethereum has exceeded 100 billion dollars [1]. With blockchain finance thriving rapidly, the bottleneck hindering its sustainable development has gradually emerged.

In recent years, blockchain projects have sprung up on the stage of history with respective features and visions. However, most of them focus on circulating liquidity and assets within their individual projects, forming islands of value. This silo status results in serious influences. First, asset owners have lost control over the free circulation of assets, which has seriously affected the user experience on blockchain finance ecology. Second, for emerging public chain projects that lack basic infrastructure such as stable coins (usdt, usdc…), there is an urgent need to introduce assets on other chains into their own public chains through cross-chain technologies to achieve ecological integrity. Most importantly, the isolation of assets hinders the circulation of value on the blockchain, which is not conducive to healthy competition in the blockchain financial market, and stifles the possibility of positive development of blockchain projects. All of these emphasize the requirement for an effective cross-chain technologies for blockchain assets.

In the current iteration, the value stored on each of blockchain networks can only flow to others via exchanges [2]. While that’s fine in theory, exchanges have become incredibly powerful by acting as middlemen for wealth to move through the crypto ecosystem. However, as we know, centralized framework always suffers from inherent drawbacks, including single point attack, scalability issues, and privacy leakage risks. No matter how powerful an exchange is, there always exist some worries for assets management. Thus, this pattern could be about to change.

A number of projects have been aggressively building what are called cross-chain bridges, essentially digital pathways that allow data, money and dapps to move seamlessly from one blockchain to another. The hope is that developers — and communities — won’t be limited by where and what they build on, creating a web of blockchains with little or no barriers between them.

If a blockchain project wanted to pay less fees to move data around the network, it can’t. If it wanted to speed up the pace by which the underlying blockchain validates the blocks, it can’t. While there are now a whole host of other blockchains and ecosystems that have worked on solving some of the problems faced by builders on Ethereum, moving data, tokens and audiences is time consuming and potentially very expensive. That’s where blockchain bridges come in. Blockchain bridges are gateways by which blockchains can mix. Bridges can operate between one blockchain and another, or they can operate between a blockchain and a side chain, which either operates under different consensus rules or inherits its security from the parent blockchain (e.g., rollups built on Ethereum) [3]. This interoperability allows the transfer of tokens, data, and even smart contract instructions between independent platforms [4]. This is a big thing for blockchains, as it essentially allows projects to deploy digital assets hosted on one blockchain to dapps on another. It also means projects can carry out fast, low-cost transactions of tokens on other chains and even run dapps across more than one platform.

Formally speaking, a cross-chain bridge is a connection method that transfers tokens or data between blockchains. The two chains may have different protocols, rules and governance models, but the cross-chain bridge provides a compatible way to safely interoperate between the two chains.

According to Saidler & Co. Research, there are a number of different approaches to implement cross-chain bridges, but are broadly split between centralized and decentralized solutions.

Centralized versions effectively manage the locking and minting of new assets themselves. A popular example is Wrapped Bitcoin, aka. WBTC. WBTC allows Bitcoin holders to access the Ethereum ecosystem via a token swap. In this system, users deposit their Bitcoin into wallets controlled by a centralized custodian, in this case, institutional digital asset company BitGo [5]. The BTC is then stored, and the wBTC tokens are minted in equal value on the Ethereum blockchain. WBTC tokens can then be used inside Ethereum dapps such as Uniswap, Compound, or Aave, for example, bringing Bitcoin’s liquidity to DEXs and making it possible to use Bitcoin for token trades.

When it comes to decentralized versions, things run a little differently. When an asset is looking to switch chains, it typically gets locked or frozen on the blockchain it’s leaving via a smart contract. On the new blockchain, equal amounts of tokens are created and deposited into the user’s wallet. If the user wants to move their assets back the other way, the tokens are effectively burned and the original assets are unlocked.

According to the way of reaching a consensus and whether custody is required, cross-chain bridges can be divided into the following categories.

  • Custody + centralization (such as CEX-based cross-chain, WBTC, etc.)
  • Custody + POA (Proof of Authority)
  • Custody + PoS (Proof of Equity) (Such as Matic, xDAI)
  • Custody + MPC (multi-party computing) (Such as Thorchain, Anyswap)
  • Non-custodial + MPC (multi-chain)

Polkadot is one of the largest projects dedicated to cross-chain bridges. It’s goal is to build a ‘blockchain of blockchains’, allowing sovereign blockchains, what Polkadot calls ‘parachains’ to be interoperable with other projects, via Polkadot’s Relay Chain.

Cosmos is another project trying to enable more data transfer between networks. It has built a number of bridges already, including the DeFi Cosmos Ethereum Bridge, which allows digital asset holders to make DeFi investments.

The NEAR Protocol is another project looking to help Ethereum developers create faster and cheaper ways of running applications via a bridge. It’s version, called Rainbow [6], allows projects to run transactions on NEAR while maintaining a presence on Ethereum.

There are also numbers of projects that try to create cross-chain bridges across multiple networks, but are not part of any network themselves. The ShuttleFlow, built by Conflux, is a public blockchain that has built a cross-bridge to allow digital asset swaps between Ethereum, Binance Smart Chain, Huobi ECO Chain and OKEX Chain.

In summary, cross-chain bridges release digital assets that locked in a silo system, unleash the value of each chain, and most importantly, invite innovation in other ecosystems without necessitating a winner-takes-all mentality, which helps create a greater blockchain finance ecology.

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References

[1] https://www.chainnews.com/articles/532015957169.htm

[2] https://saidler.com/why-are-crypto-projects-like-polkadot-and-near-building-cross-chain-bridges/

[3] https://decrypt.co/60878/vitalik-buterin-touts-100x-scaling-solution-for-ethereum

[4] https://blog.makerdao.com/what-are-blockchain-bridges-and-why-are-they-important-for-defi/

[5] https://wbtc.network/

[6] https://near.org/zh/bridge/

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