Why are crypto projects building cross-chain bridges?
Last count by CoinMarketCap revealed that currently there are over 10,000 cryptocurrencies in circulation. While most of these will be built upon the Ethereum, many are not.
In the current iteration, the value stored on each of those networks can only flow to others through exchanges. Plausible as it is theoretically, the role as the agency for the flow of wealth inside the crypto ecosystem has made exchanges incredibly powerful.
But that is about to change.
Lots of projects have been aggressively building what is called “cross-chain bridge”, which is essentially digital pathway that allows data, token and project to move seamlessly from one chain to another.
The hope is that developers, and communities, won’t be limited by where and what they build on, creating a web of chains with few or no barrier in between.
What are cross-chain bridges?
In our perception, chains are essentially walled gardens in which users find assets and data difficult to move. Take Ethereum and Binance Smart Chain as an example. While all on-chain data is accessible to the public, that data is actually locked in that chain. To make the ledger that records all transactions on the chain accurate and secure, all participants must abide by the rules of the network.
This silo system has kept these networks secure, yet challenges and choke points have still floated up with the evolution of the chain world. Take Ethereum for example.While it has the probable largest ecosystem than any other chains, still those projects and companies that are built upon it have to abide by the rules of Ethereum.
If a project wants to pay less gas fees to move data around the network, it can’t. If it wants to speed up the pace by which the underlying chain validates the blocks, it can’t.While there are now plenty of other chains and ecosystems that have been working on solving some of the problems faced by builders on Ethereum, it is still time-consuming and potentially expensive to move data, tokens and audiences. That’s where blockchain bridge comes in.
The bridge is a gateway for chains’ mixup. Bridges can operate between one chain and another, or between a chain and a side chain, which is essentially a chain that operates under a different set of rules but is connected to that chain. This interoperability makes it possible to transfer tokens, data, and even smart contract instructions between independent platforms. This is a big thing for chains, because it essentially allows projects to deploy digital assets hosted in one chain to dapps in another. It also means that projects can transact tokens faster at a low cost, and even run dApps across more than one platform.
How do cross-chain bridges work?
This is viable through various approaches, which are broadly split between centralized and decentralized solutions.
Centralized solutions guarantee effective self-management of the locking and minting of new assets. A popular example is Wrapped Bitcoin, whom 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 agency, in this case, institutional digital asset company BitGo. 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. Bitcoin, on its own, cannot be used in this way.
When it comes to decentralized ones, things are a little different. When an asset needs switch chains, it typically gets locked or frozen on the chain it’s leaving via a smart contract. However, On the new chain, An equal amount of tokens is 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.
What projects are building cross-chain bridges?
Polkadot is one of the largest projects dedicated to cross-chain bridges. It endeavors to build a ‘chain of chains’ to allow sovereign chains, what Polkadot calls ‘parachains’ , to be interoperable with other projects, via Polkadot’s Relay Chain. So in this example, Bitcoin and Ethereum could have a bridge built between them on Polkadot.
Cosmos is another project that is 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 that looks to help Ethereum developers create faster and cheaper ways of running applications through a bridge. Its version, Rainbow, allows projects to run transactions on NEAR while maintains a presence on Ethereum.
There are also other projects that try to create cross-chain bridges across multiple networks, but are not part of any one network themselves. The ShuttleFlow, built by Conflux, is a public chain that has built a cross-bridge to allow digital asset swaps between Ethereum, Binance Smart Chain, and polygon.
New as this technology is, its successful development will help create an ecosystem more parallel to what the internet has become. In earlier years, a variety of networks,such as NPL, ARPANET, Merit and CYCLADES, offered different ways of moving data around a network. But it wasn’t until a unified version called the Internet Protocol came about that networks found ways of speaking to each other. Now Let’s just hope blockchain gets to this point sooner rather than later.