December 16, 2022

What is a Bridge?

Bridges are tools that allow crypto users to transfer value from one blockchain to another in order to access specific goods and services on different blockchains.
By AJ Scolaro
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Background

Different countries have access to different resources that are used to provide goods and services for their populations. As an individual country advances its goods and services are usually demanded by consumers worldwide, and if the country is producing more than it needs to satisfy its own population, the goods and services are typically exported to global markets which in turn brings more value back to that country. When international consumers are given the choice to purchase substitute (or superior) products at a lower price point, the country of origin rarely matters to them.

In crypto, different blockchains have different technical specifications that are leveraged to create products and services for users with different needs. As an individual blockchain advances, the products built on top of it are generally desired by users of other blockchains. Unfortunately the existing blockchains that make up web3 are isolated from each other, with their own rules and processes in place making it difficult for value to be transferred between them. When a superior product or service is offered on a neighboring blockchain it's not always easily accessible for users, and therefore the blockchain the product is provided on may have trouble capturing external value. 

Bridges are tools intended to allow crypto users to transfer value from one blockchain to another in order to access specific goods and services on different blockchains.

Role of Bridges

In the real world many different countries use different currencies, and international travelers generally have no choice but to use a bank in order to exchange their native currency for the local currency. In crypto, since many different blockchains follow different rules and use different token formats, users who want to transact on multiple chains generally have no choice but to use a “bridge” in order to exchange a crypto asset native to one blockchain for another version of the same asset on the destination blockchain.

Cross chain communication is arguably the largest problem web3 developers are facing, and bridges can be thought of as an imperfect and temporary solution. Since blockchains are sovereign by design, it’s not possible to truly transfer a token from one blockchain to another. In order to move the data (value) these tokens represent between chains a bridging mechanism is required to lock the tokens on the original blockchain and unlock or mint a representation of the token on the destination chain. Currently, many bridges offer different “wrapped” versions of the same assets on various destination chains.

For example, if a Bitcoin user has BTC they’d like to use within the Ethereum ecosystem they’re able to use a bridge to receive “wrapped Bitcoin” (wBTC), an Ethereum token pegged to the price of Bitcoin that can be used across the Ethereum ecosystem. 

In this scenario, no actual Bitcoin is being moved across chains; rather the original BTC is being sent to a custodian for safekeeping and wBTC is being minted and distributed to the user on the Ethereum blockchain. By issuing an Ethereum-specific token to represent the original Bitcoin, the bridge allows crypto users to feel as if they’re using their Bitcoin across the Ethereum ecosystem. While not all bridges are custodial, most operate similarly. 

 

Issues with Bridges

Since bridges don’t actually transfer tokens from blockchain A to blockchain B, but rather issue a wrapped representation of the token from blockchain A on blockchain B, crypto liquidity is fragmented across chains. This creates a poor user experience, forcing users who wish to put their assets to work across multiple chains to use separate wallets and different wrapped versions of the same asset on various blockchains.

With significant amounts of crypto locked in smart contracts, bridges make an incredibly attractive target for exploits. While there are many different types of bridges including both custodial and non-custodial bridges, no bridge is perfect. Custodial bridges are centralized and therefore introduce centralization risk; when a user bridges BTC from the Bitcoin to Ethereum blockchain a significant amount of trust is required between the user and the bridge custodians. If the bridge custodians decide to run off with the BTC, or a hacker gains access to the custodians’ wallets, the wBTC being held by the user would essentially become worthless since it can no longer be redeemed for the BTC it’s meant to represent. Most non-custodial bridges come with risks of their own. Many “decentralized” bridges are not sufficiently decentralized and have a high risk of being compromised. Additionally, an unnoticed bug in a decentralized bridge’s smart contract can allow hackers to make off with enormous amounts of funds at the expense of the bridge users.

The wrapped tokens issued by bridges may have their prices pegged to the underlying assets which they represent, but are only as strong as the bridge that issues them. If attackers are able to exploit a bridge contract to unlock assets on blockchain A, all of the bridge users in possession of wrapped tokens on blockchain B are out of luck. On the other hand, if attackers exploit the bridge contract on blockchain B, the wrapped tokens on blockchain B become tainted for all users. In both scenarios, the entire ecosystem that uses the wrapped version of the token is negatively impacted.

 

What Does the Future of Bridging Look Like?

In short, most existing bridges are band-aid solutions to a wide-scale interoperability problem. While bridging security and user experience continues to improve, the risks associated with bridging often outweigh the benefits. 

Umee’s Gravity Bridge

Bridging solutions like Umee’s Gravity Bridge seek to make the cross-chain bridging process as safe as possible for users by having an entire set of validators securing the bridge. Rather than relying on an individual custodian or a handful of accounts to operate the bridge, Umee’s Gravity Bridge requires Umee’s entire decentralized validator set (currently 100 validators) to run a program to help ensure the bridge remains secure and decentralized. The validators that secure the gravity bridge are strongly incentivized to do their job since they will be financially penalized through a mechanism called “slashing” if they don’t. 

Umee’s Gravity Bridge allows assets to be bridged between Umee and any EVM-compatible chain like Ethereum, Avalanche, or Polygon. This means users can bring their favorite assets from other ecosystems into the Cosmos ecosystem in order to enjoy fast and cheap transactions paired with cross-chain interoperability.

IBC

While Umee’s Gravity Bridge offers a safer experience for users, it isn’t the endgame for blockchain interoperability. There is a strong need for true inter-blockchain communication in order to provide users with a safe experience without fragmenting liquidity across chains, and the Inter-Blockchain Communication Protocol (IBC) has already been providing a viable solution. In short, IBC allows users to securely transfer data between blockchains without setting strict requirements for what the data is or how it is formatted. 

In the future, IBC will enable users to transfer the data they need without the risks commonly associated with bridging. For example, IBC will enable an Ethereum user who wants to borrow on the Umee blockchain to prove he/she has the necessary collateral deposited on the Ethereum market to borrow from the Umee market without the need to actually bridge tokens. The simplicity and flexibility offered by IBC makes it a major contender as a universal bridging solution since it can be securely implemented across major blockchains.

 

Take the Quiz

 

Badges serve as proof a user has completed the corresponding Umeeversity Quiz. Badge owners should not expect to receive any UMEE tokens or additional rewards.

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