Blockchain bridges: their purpose and significance explained

One of the most critical developments in the crypto space is blockchain bridges. They are mechanisms that connect different blockchains to create a cohesive interaction. Bridges play an essential role in eliminating the isolation of blockchains and making the digital economy function more efficiently. In this article, we will look at the basic principles of blockchain bridges and explore why they are needed.

Blockchain bridges

Are tools that link different blockchains together, allowing users to transfer digital assets. They solve the problem of incompatibility between different networks. If you want to transfer a digital asset from one blockchain network to another, your asset will first be locked in the original blockchain network before appearing in the new blockchain network using a «wrapped» token.

A wrapped token is a «copy» of a cryptocurrency asset issued on another blockchain against the original coin.

For example, if you use a bridge to send a Solana token to Ethereum, you will receive a «wrapped» version of that token that is compatible with the Ethereum blockchain. Blockchain bridges make life much easier for active cryptocurrency users and allow them to avoid high transaction fees by switching to more affordable second-level networks such as Arbitrum, Optimism Bridge, and others.

One of the main benefits of blockchain bridges is the extension of the capabilities of blockchain platforms. They allow assets created on one blockchain network to become available for use on other networks. This can be particularly useful in the case of various cryptocurrencies, where users can exchange one currency for another without having to use centralized exchanges.

What are the types of blockchain bridges?

Different types of blockchain bridges are used to perform cross-chain transactions between different blockchain networks. Let's take a look at some of the most common types of bridges:

• Wrapped tokens We have already talked about this type of blockchain network above. It enables users to transfer assets between different blockchain networks by creating a token in one blockchain network that represents an asset in another network.

• Sidechains Sidechains are another type of blockchain bridge that enables the transfer of digital assets between different blockchain networks. A sidechain is a separate blockchain network that is linked to the underlying network and allows digital assets to be moved between these networks.

• Atomic swaps Atomic swaps are a type of blockchain bridge that allows different digital assets to be exchanged between blockchain networks without the involvement of a centralized exchange. A smart contract allows two parties to directly exchange assets without the need for a third party to mediate.

Is it safe to use blockchain bridges?

Using blockchain bridges can be safe, but it also comes with risks and some security concerns. Since blockchain bridges are designed to transfer digital assets and data between different blockchain networks, they are susceptible to threats such as hacker attacks and malicious activities.

However, with adherence to the following security measures, you can mitigate the risks associated with the use of blockchain bridges:

• Verification: before using a particular blockchain bridge, it is worth checking its reputation.

• Updates and patches: keep an eye out for updates and patches to the blockchain bridge as they may include vulnerability fixes and security improvements.

• Secure wallets: use secure wallets and store your digital assets in a safe place.

How do cryptocurrency bridges make money?

Crypto bridges generate revenue by charging fees for providing their services. Typically, blockchain bridges charge a fee for transferring digital assets between different blockchain networks.

In addition, some crypto bridges may earn additional revenue from other sources. For example, they can participate in the steering process, where blockchain bridges can invest their funds in a blockchain network and receive rewards for supporting its security and operation.

Examples of crypto bridges

• Arbitrum

Arbitrum is a layer 2 (L2) protocol for scaling Ethereum, providing a solution that makes transactions faster and significantly cheaper than the core network.

Arbitrum users can interact with decentralized applications (DApps) and smart contracts just like on Ethereum. To increase Ethereum's bandwidth, Arbitrum uses Optimism roll-ups to scale the network efficiently and enable faster transactions.

• Optimism

Optimism is a classic second layer (Layer-2) for the Ethereum blockchain, possessing its native token called OR.

Like any second layer, Optimism was created to speed up and reduce the cost of transactions on the core network by moving some of the computational operations outside of the core network. This way, the Ethereum core network only records changes to balances after transactions have taken place.

• Polygon

Polygon is a scalable Layer 2 solution for Ethereum that includes a blockchain bridge. With this bridge, users can transfer assets between Ethereum and Polygon, and developers can create decentralized applications compatible with both networks.