What are Cross Chain Bridges?

What are Cross Chain Bridges?

Table of Contents

What are Cross Chain Bridges?

Cross-chain bridges are software applications that allow transactions to occur between different blockchains. If someone wants to transfer cryptocurrency, non-fungible tokens (NFT) or other digital assets between blockchain networks, cross-chain bridges are an important part of the process. While most digital assets are tied to a specific blockchain, cross-chain bridges enable transactions on the internet that power a much broader digital ecosystem. By using cross-chain bridges, cryptocurrency owners can unlock the value held in their crypto portfolios for a wider range of real-world uses.

Cross-chain bridges enable many innovative processes, but security concerns surround them, as these apps have experienced hacking losses. Due to the technical aspects of cross-chain bridges, it’s best to only use them if you understand how they work and what you’re doing, so you don’t run into unexpected crypto losses.

Important takeaways

  • Cross-chain bridges enable transactions across 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 undisputed record of all transactions in the history of the specific blockchain network. Although there are many advantages to using blockchains, they are effectively self-contained systems that typically do not interact with other blockchains. Cross-chain bridges allow for interactions between different blockchain networks.

To better understand cross-chain bridges, consider several of the top cryptocurrency blockchains today. Ethereum is one of the most well-known smart contract networks, enabling NFTs, cross-chain bridges, and other blockchain features. If you have $1000 in USD coins in your Ethereum wallet and need to use it for a purchase with the Polygon wallet (MATIC), a cross-chain bridge can help you send the USD coins from your Ethereum wallet to your Polygon wallet. .

The potential for cross-linked bridges is extensive. As the number and type of digital assets expands to include other asset classes, such as real estate or stocks, cross-chain bridges can become as important to your finances as automated clearing house (ACH) transactions between bank accounts.

While cross-chain bridges are mostly used for good purposes, cybercriminals and hackers target cross-chain bridges for vulnerabilities. Users should be cautious of the risks inherent in cross-chain bridge software.

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 have the option of keeping BTC off 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 bitcoin, you can use a cross-chain bridge to complete the transaction.

To send your bitcoin to your Ethereum wallet, you can use Wrapped Bitcoin (WBTC). Wrapped Bitcoin is a cross-chain bridge that creates a new WBTC token on the Ethereum network and holds one bitcoin in a smart contract on the Bitcoin network. The number of WBTC is always equal to the number of bitcoins 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 specific cryptocurrency or network. Any blockchain network can be compatible with cross-chain bridges if software developers with the right skills and knowledge create one.

Are cross chain bridges safe?

Cross-chain bridges come with unique risks compared to other blockchain applications. As a program built on top of other blockchains, a vulnerability in either the blockchain software or the smart contract behind the cross-chain bridge poses a risk of a hack.

Can a cross-chain bridge work with multiple blockchain networks?

Cross-chain bridging software can interoperate with any blockchain if the software is designed to be compatible. However, more complex blockchains may have a higher risk of security incidents.

The bottom line

Cross-chain bridges are an important tool for managing cryptocurrency and digital capital, but they are not without risk. When used as intended, cross-chain bridges enable a comprehensive upgrade to blockchain network capabilities. When combined with other smart contract features, cross-chain bridges can enhance the capabilities of blockchains, cryptocurrencies, NFTs, and more.

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