Cross-chain bridges explained
Cross-chain bridges are software programs that allow transactions to occur between different blockchains. If someone wants to transfer cryptocurrency, non-fungible tokens (NFTs) or other digital assets between blockchain networks, cross-chain bridges are an essential part of the process. While most digital assets are tied to a specific blockchain, cross-chain bridges enable cross-chain transactions that power the broader digital ecosystem. Using cross-chain bridges, cryptocurrency holders can unlock the value stored in their crypto portfolios for wider real-life use.
Cross-chain bridges enable many innovative processes, but security concerns surround them, as these applications have suffered hacking losses. Due to the technical aspects of cross-chain bridges, it is best to use them only if you understand how they work and what you are doing to avoid unexpected crypto losses.
- Cross-chain bridges enable transactions between blockchain networks.
- The software behind cross-chain bridges works with cryptocurrencies and other digital assets.
- Cross-chain bridges are vulnerable to hacking and security threats.
Understanding Cross Chain Bridges
Blockchains are distributed databases that contain an indisputable record of all transactions in the history of that particular blockchain network. While there are many benefits to using blockchains, they are effectively independent systems that typically do not interact with other blockchains. Cross-chain bridges allow interconnection between different blockchain networks.
To better understand cross-chain bridges, take a look at some of the best cryptocurrency blockchains today. Ethereum is one of the most popular smart-contract networks that provide NFTs, cross-chain bridges, and other blockchain features. For example, if you have $1000 in USD Coin in your Ethereum (ETH) wallet and you need to use it to make a purchase with your Polygon (MATIC) wallet, a cross-chain bridge can help you send USD Coin from your Ethereum wallet. Your Polygon wallet.
The potential of cross-chain bridges is vast. As the number and type of digital assets expand to include other asset classes, such as real estate or equity shares, cross-chain bridges can be as important to your finances as Automated Clearing House (ACH) transactions between bank accounts.
Although cross-chain bridges are mostly used for good purposes, cybercriminals and hackers target cross-chain bridges for vulnerabilities. Users should be aware of the risks inherent in chain bridge software.
An example of a cross chain bridge
The largest cryptocurrency by market capitalization is Bitcoin (BTC). As a popular and widely used digital currency, some crypto investors and users may want the option to store BTC outside of the Bitcoin blockchain. However, as discussed, users cannot transfer cryptocurrency between blockchains. If you want to buy an NFT on the Ethereum blockchain, but only have bitcoins, you can use a cross-chain bridge to make the transaction.
You can use Wrapped Bitcoin (WBTC) to send your Bitcoin to your Ethereum wallet. Twisted Bitcoin is a cross-chain bridge that creates a new WBTC token on the Ethereum network and stores bitcoin in a smart contract on the Bitcoin network. The number of WBTC is always equal to the number of bitcoin in the WBTC cross-chain bridge smart contract. After using the cross-chain bridge, you have a Bitcoin-backed ERC-20 token that you can use on the Ethereum network.
Which cryptocurrencies work with cross-chain bridges?
Cross-chain bridges are not limited to any particular cryptocurrency or network. Any blockchain network can be compatible with cross-chain bridges if software developers with the necessary skills and knowledge create them.
Are cross-chain bridges safe?
Cross-chain bridges come with unique risks compared to other blockchain applications. As a software program built on top of other blockchains, a vulnerability in either the blockchain software or the smart contract behind the cross-chain bridge creates a risk of hacking.
Can cross-chain bridging work with multiple blockchain networks?
A cross-chain bridge can interact with any blockchain if the software is designed to be compatible. However, more complex blockchains may be at higher risk for security incidents.
Cross-chain bridges are an important cryptocurrency and digital asset management tool, but they are not without risk. When used as intended, cross-chain bridges allow for vast improvements to blockchain network capabilities. When combined with other smart-contract features, cross-chain bridges can power blockchains, cryptocurrencies, NFTs, and more.