Blockchain Bridge

The cryptocurrency space is made up of dozens of competing blockchains. Each of these networks functions as its own closed box, unable to natively interoperate with each other. This means that a token issued on Base has no way of moving onto Avalanche, and vice versa.

Bridges are protocols designed to address this problem. They provide an onchain solution for interoperability that does not require users to channel funds through centralized exchanges just to move between ecosystems.

Most do this through a lock-and-mint mechanism. Users deposit tokens into the bridge protocol on one chain, which locks them inside a smart contract. The same protocol then mints a “wrapped” version of the tokens on the destination chain. These wrapped assets are treated as functionally identical to the original tokens, as they allow holders to redeem in the other direction: users burn the wrapped tokens through the bridge protocol to unlock the original assets on the starting chain.

Although this allows for fast movement of assets between networks, it also carries risks — some high-profile hacks have displayed how flaws in a bridge protocol’s code can result in a fatal exploit.

Ronin Bridge ($625 million lost), Wormhole ($325 million) and Nomad ($190 million) were all exploited in 2022 for a combined total of over $1 billion. Bridge protocols are especially attractive targets for hackers because they pool large amounts of funds in one place. If an attacker is able to exploit the code to trick a bridge into unlocking funds, the results can be catastrophic.

As a result, developers have sought out alternative solutions to the problem of blockchain interoperability. Cross-chain messaging networks and decentralized oracles can provide some of the same functionality, without reducing reliance on large pools of locked assets.