September 12, 2021 / tehnology

Blockchain Bridges As Way Of Interaction Through Cryptocurrency Networks

blockchain bridg

The crypto community managed to create a multi-chain market structure after years of development. To date, there are over 100 active public blockchains, most of which have their own unique applications, users, geography, security models, etc. At the same time, there is a possibility that their number will continue to increase in the future.

The modern structure of the crypto market requires the interaction of these separate blockchains. In this regard, a number of projects have already been created working in this direction. At the time of this writing, there are over 40 different bridge-projects in the crypto space.

Blockchain Bridges Opens Up Innovation

As the ecosystem grows, more emphasis is placed on security, high throughput, cheap transactions, privacy, resource allocation (e.g. storage, bandwidth), and building regional developer and user communities. Bridges are important because they open up access to new platforms, protocols for collaboration, and developers have great opportunities to innovate. In particular, bridge projects are capable of:

  • improve the performance and usefulness of existing cryptoassets;
  • provide an opportunity to do something new, for example, send DAI to Terra to buy a synthetic asset on Mirror or generate income on Anchor, send TopShot from Flow to Ethereum for use as collateral on NFTfi, or use DOT and ATOM as collateral for obtaining a loan DAI on Maker;
  • expand the product capabilities of existing protocols;
  • expand the design space, for example, cross-chain for NFT on Ethereum and Flow for Rarible Protocol;
  • contribute to the creation of new functions and use cases for users and developers;
  • provide the community with choices, such as SUSHI arbitrage prices on DEX on Optimism, Arbitrum, and Polygon, payment in BTC for storage on Arweave.

Bridge Concept, Types Of Blockchain Bridges

A bridge is a system that transfers information between two or more blockchains. In this context, “information” refers to assets, bids for contracts, evidence or fortune. Most bridges include:

  • monitoring: there is usually an entity, be it an “oracle”, “validator” or “relay”, that monitors the state in the underlying chain;
  • messaging / relaying: after the subject receives the event, he needs to transmit information from the backbone chain to the destination;
  • Consensus: Some models require consensus between the participants in the backbone to communicate information;
  • cryptographic signature: participants need to sign the information sent to the chain as intended.

There are several types of bridges, each with their own advantages and disadvantages:

  • Asset-specific. Examples: wBTC and Wrapped Arweave.
  • Chain-specific. Example is the Polygon PoS bridge, which allows users to transfer assets exclusively from Ethereum to Polygon and vice versa.
  • Application-specific. Examples: Compound Chain and Thorchain using separate blockchains specifically for cross-chain lending and exchange.
  • Generalized. Example is IBC, which is used to send messages between two dissimilar chains (with completion guarantees).

It should be noted that any bridge is a two-way communication channel, which can have separate models in each channel.

The bridge design can be roughly estimated by the following factors:

  • Security: Assumptions of trust and survivability, resistance to intruders, security of user funds, and reflexivity.
  • Speed: delay the completion of the transaction, as well as guarantees of its completion. Users often have to choose between speed and safety.
  • Connectivity: Choice of destination chains for both users and developers, and different levels of difficulty for integrating an additional destination chain.
  • Capital efficiency: saving capital required to protect the system and transaction costs for transferring assets.
  • Statefulness: The ability to transfer specific assets or make cross-network calls to contracts.

Unanswered issues

Building reliable bridges between chains is an incredibly difficult task in distributed systems. Despite the fact that the space is quite active, there are still unanswered questions:

  • Completion and rollbacks: how do bridges account for block reorganizations and hacker attacks on chains? For example, what happens to a user who sent funds from Polkadot to Ethereum if a rollback occurs in any of the chains?
  • NFT origins: how do bridges authenticate for NFTs bridged across multiple chains? For example, if there is an NFT that is bought and sold on the Ethereum, Flow and Solana marketplaces, how are all these transactions and owners accounted for in ownership accounting?
  • Stress Test: How will different bridge designs perform in the face of chain congestion or attacks at the protocol and network level?

The Future Of Blockchain Bridges

While bridges provide access to innovation in the crypto space, they also pose serious risks. The Poly Network hack has demonstrated the economic value of addressing vulnerabilities and attacks, and the situation is expected to only get worse. Although this is a highly fragmented and competitive environment for “bridge builders”, teams must pay particular attention to safety as they enter the market.

While ideally one bridge is sufficient for all chains, it is likely that there is no single “best” design, and different types of bridges will be better suited for specific applications (eg, asset transfers, contract calls, token minting).

Moreover, bridges need to be particularly secure, interconnected, fast, economical, cost-effective and censorship-resistant. However, the optimal design has probably not yet been found.

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