The Limitations and Challenges of Blockchain Bridges

One major hindrance in the blockchain space is how disconnected it can be, especially in transferring tokens between multiple chains; blockchain bridge seeks to address this issue.

Blockchain bridges are protocols or platforms that enable interactions between different blockchain networks. Interactions here simply mean the exchange of data and value between different blockchain networks. For instance, between Ethereum and the Bitcoin network. 

One major challenge in the blockchain ecosystem is the inability of different blockchain networks to work together, making cross-chain transfers impossible. This is because each blockchain has its own unique rules, tokens, protocols, and smart contracts. For example, Binance Smart Chain, Bitcoin, Ethereum, and Solana are popular blockchain ecosystems but use different consensus mechanisms and operation rules. Binance Smart Chain uses the Proof of Staked Authority (PoSA) consensus mechanism. Solana uses the Proof of History (PoH) consensus mechanism. Ethereum 2.0 uses the Proof of Stake (PoS) consensus mechanism, while Bitcoin uses the Proof of Work (PoW) consensus mechanism.

With a blockchain bridge, different blockchain networks can collaborate, ensuring a seamless exchange of value. Much like a physical bridge connects two separate locations, allowing the unhindered flow of people, goods, and services between them, a blockchain bridge links two distinct blockchain networks, enabling interactions such as the transfer of digital assets.

How do Blockchain Bridges work?

Let's illustrate this concept. Arthur wants to move assets from the Ethereum Network to the Polygon Network. He sends these assets to a smart contract on the Polygon blockchain. In response, the smart contract on the Ethereum side locks these assets and generates a matching token on the Polygon network to represent the locked assets.

Once the assets are locked, and the corresponding token is created on the Polygon network, Arthur can use this token to interact with the originally locked assets on the Ethereum blockchain. If he decides to return the assets to Ethereum, he sends the tokens back to the Polygon smart contract. This contract then releases the locked assets, transferring them back to Arthur's Ethereum account. Blockchain bridges make this seamless asset transfer between the two blockchains possible.

From the provided example, it's clear that when Arthur moved assets from one blockchain to the Polygon network using a bridge, the assets weren't truly transferred. Instead, they were secured within smart contracts on the original network. In response, an equal number of wrapped tokens were created on the destination blockchain. Whenever Arthur chooses to retrieve his assets, these tokens are nullified, and the original assets are released, returning to his account.

Types of Blockchain Bridges

There are various types of blockchain bridges. For clarity, we can categorize blockchain bridges into three main types:

• Blockchain bridges by functions.
• Blockchain bridges by mechanism.
• Blockchain bridges by level of centralization.

Blockchain Bridges by Functions: Bridges in this category are differentiated by the roles they play in the ecosystem. They can be further divided into wrapped asset bridges and sidechain bridges. Wrapped asset bridges facilitate the transfer of cryptocurrency between different blockchain networks. Take, for instance, the conversion of bitcoins to the Ethereum network by turning BTC into Wrapped BTC (WBTC). In the Ethereum ecosystem, WBTC acts as a counterpart to BTC and is tradable.

Sidechain bridges streamline the transfer of value between a primary blockchain and its associated sidechain by linking them. Given that the main chain and its sidechain often employ different consensus mechanisms, this connection is crucial. As inferred from the prior explanation, sidechain bridges fulfill a distinct role in the ecosystem compared to wrapped asset bridges.

Blockchain Bridges by Mechanism: Bridges in this category can be one-way or two-way. A one-way bridge permits asset transfers to a single target blockchain without the possibility of returning them to the original blockchain. In contrast, two-way bridges support bidirectional transfers, allowing assets to move from the native blockchain to another and vice versa. In our earlier example, Arthur utilized a two-way bridge for his asset transfer.

Blockchain Bridges by Level of Centralization: In this category, blockchain bridges can be governed by either a centralized authority or a decentralized network. Those managed by a central entity are termed "custodial bridges," while those without such central control are called "non-custodial bridges." Using a custodial bridge means trusting the overseeing entity to operate the system competently. In contrast, a non-custodial bridge operates based on smart contracts.

The Importance of Blockchain Bridges to The Blockchain Ecosystem

Blockchain bridges play an important role in ensuring the optimal function of the blockchain ecosystem.

First and most importantly, it breaks the barrier to interoperability in the blockchain ecosystem: As previously mentioned, blockchain networks struggle to collaborate without bridges, given that each has its distinct rules, tokens, standards, and protocols. Blockchain bridges overcome this limitation, enabling transfers, communication, collaboration, and interaction between different blockchain networks. This fosters interoperability and facilitates transfers across chains.

Allow users to access new protocols on other chains: Blockchain bridges enhance the capabilities of blockchain networks and provide users with a seamless experience by allowing them access to protocols on other chains. For instance, wBTC lets Bitcoin users explore the Ethereum ecosystem's decentralized applications (dApps) and decentralized finance (DeFi) services.

Enables developers from different blockchain communities to collaborate: By eliminating barriers related to differing consensus mechanisms, operational methods, tokens, and smart contracts, developers from any blockchain community can join forces to enhance the ecosystem.

Ability to improve scalability: Beyond interoperability, the ecosystem also struggles with scalability issues. Blockchain bridges are proficient at processing a vast number of transactions both efficiently and effectively. Take the Ethereum Polygon bridge, for instance: this decentralized two-way bridge serves as a scaling solution for the Ethereum network, offering users quicker transactions at reduced costs.

In essence, blockchain bridges have transformed the ecosystem, promoting better interaction among apps.

The Limitations and Challenges of Blockchain Bridges

Having mentioned the benefits and important role blockchain bridges play in the blockchain ecosystem, it is important to consider the cons and their limitations. 

Exploitation of its vulnerability by hackers: Non-custodial bridges, whose system security hinges on code quality, are vulnerable to hackers, particularly if their smart contracts contain flaws. There have been incidents where hackers exploited these vulnerabilities in the bridge's smart contracts, leading to significant cryptocurrency misappropriations by malicious entities.

Custodial bridges may expose users to several risks: Custodial bridges, being centralized, inherit the vulnerabilities typical of centralized systems. This centralization could lead to stolen user funds or unexpected access restrictions to the bridge. The potential for fraud also increases.

While blockchain bridges are crucial for the seamless operation of blockchain ecosystems, they come with their set of risks. It's essential to thoroughly research and make well-informed choices regarding which blockchain bridge to use. If opting for custodial bridges, it's advisable to choose well-established brands with proven track records to ensure the safety of your assets.

Are Blockchain Bridges Safe?

The safety of blockchain bridges varies based on the type you choose and your risk tolerance. Non-custodial bridges, being decentralized, are generally considered safer than their centralized, custodial counterparts. With non-custodial bridges, there's no need to trust a central organization. However, they aren't without flaws. Despite their reliance on smart contracts, they aren't guaranteed to be entirely secure. Their safety largely depends on the quality of the smart contracts they utilize.

Conclusion 

Blockchain technology has established its influence across several industries and is unmistakably a significant fixture in our digital landscape. Likewise, blockchain bridges that address the critical challenge of interoperability — a major setback of individual blockchain networks — are equally pivotal. As we witness the gradual adoption of Web3 and the profound integration of blockchain technologies, the relevance and utilization of blockchain bridges will undoubtedly intensify, paving the way for easy asset transfers across diverse networks.