As the Web3 landscape flourishes with an assortment of L1 blockchains and L2 scaling options, each designed for specific strengths and compromises, the necessity to transfer assets across these chains becomes paramount. To address this need, we rely on blockchain bridges.
Understanding Blockchain Bridges
Analogous to physical bridges, blockchain bridges link separate blockchain ecosystems, allowing the exchange of information and assets between them. For example, if you want to swap ETH on Ethereum Mainnet for ETH on Arbitrum, a bridge enables this transaction.
The Significance of Bridges
Blockchain development often occurs in isolated settings, with distinct rules and consensus mechanisms that prevent native interaction and asset movement. Bridges connect blockchains, enabling users to move assets and information, access the advantages of different chains, and explore diverse ecosystems. Developers from various blockchain ecosystems can also collaborate and develop new platforms using bridges.
Here are some instances where bridges can be beneficial:
- Reduced transaction fees: By bridging your ETH from Mainnet to an Ethereum L2 rollup, you can enjoy lower transaction fees.
- Dapps across blockchains: If you prefer using Aave on Polygon rather than Ethereum Mainnet for better lending interest rates on USDT.
- Discovering blockchain ecosystems: Use a bridge to transfer your ETH from Ethereum Mainnet to an alternative L1 and experiment with their native dapps.
- Acquiring native crypto assets: Bridge your assets from Ethereum to Bitcoin to exchange Wrapped Bitcoin (WBTC) for native BTC, or vice versa.
Bridges can be divided into trusted and trustless bridges:
- Trusted Bridges: These depend on a central entity or system and require users to trust the bridge operator with their funds’ custody.
- Trustless Bridges: Operating via smart contracts and algorithms, trustless bridges provide security equivalent to the underlying blockchain, enabling users to maintain control of their assets.
Potential Risks of Using Bridges
Since bridges are in their infancy, interacting with them entails some risks:
- Smart Contract Risk: Code bugs could lead to lost user funds.
- Technology Risk: Software malfunctions, human mistakes, or malicious attacks could disrupt user operations.
Trusted bridges carry extra risks, such as censorship and custodial risks. User funds may be jeopardized if there’s a smart contract flaw, user mistake, underlying blockchain compromise, malicious intent from a trusted bridge operator, or a bridge breach, as witnessed in Solana’s Wormhole bridge incident.
In spite of the risks, bridges play an essential role in introducing users to Ethereum L2s and enabling the exploration of different ecosystems. Being aware of the trade-offs and risks associated with using bridges can help users make well-informed decisions when interacting with them.
Authors: WhichSwap Team + ChatGPT-4