The world of cryptocurrency as well as Blockchain is evolving every day. The communication of these networks face different kind of challenges. This is where we will apply the crypto bridges also known as Blockchain bridges. The tools are really important to communicate between the centralised finance as well as non-fungible tokens. The ecosystem of cross chains need crypto bridges to exist and communicate. Let’s dive deeper into this topic.
Crypto bridge
Basically, it is a protocol with the help of which two Blockchain and their networks connect with each other. It allows the digital assets and their data to travel without any difficulty.
Most of the time the Blockchain of Solana, Ethereum, avalanche and bitcoin are operating without any visible connection. They operate on their own independently.
Each Blockchain has their own rules and standards. They cannot talk to each other but they can communicate with the help of crypto bridges. The transfer of assets happens within the crypto ecosystem with the help of crypto bridges.
Reasons behind the need of crypto bridge
There are several aspects which determine the main reason for leading a crypto bridge. Let’s take a look at all of them.
● Asset transfer
● Lower fees
● Access to dApps
● Yield and DeFi opportunities
Asset transfer
The movement of tokens such as ETH, USDT and USDC within the block chains can happen easily. Sometimes people transfer these tokens to a platform or a black Blockchain where they are cheaper and faster to use.
Lower fees
There are high transaction fees for the Deum. And you use a bridge to move your assets through low cost networks. And save extra fees. The networks are polygon and B&B chain.
Access to dApps
There are some specific block changes which allow the decentralised applications. When you use a bridge, it allows you to make interactions with the apps. You do not need any kind of fund to start over your connection.
Yield and DeFi opportunities
Block chains are offering yield farming, lending operations as well as staking. With the help of bridges, you can get better returns.
Work of crypto Bridge
Although crypto bridge have different kind of mechanisms, but two are the most common
● Lock and mint
● Burn and release
Lock and mint
Suppose you’re sending your tops to a contract on the chain A. Basically, these tokens are locked. He has a pro version of these tokens and they are going to mint it on chain B.
Burn and release
Upon sending the tokens back chain B burns all the wrapped tokens. The original tokens then get released on chain A.
Risk involved
Although they are convenient and flexible. But just like any other facility, the bridge also has some risks involved.
● Vulnerabilities
● Centralisation
● DePegging.
Vulnerabilities
Crypto bridges are potential targets for hackers. Because they have large amounts of funds that are locked in their complex systems. For example,
The Ronan Bridge hack which included $600 million and on the other hand we have the wormhole exploit which had three $20 million.
Centralisation
The bridges do not have many validators or entities. Which means there is an increased risk of involvement of malicious third parties. Due to which our currency can get compromised easily.
Depegging
If due to some reasons the bridge fails or you cannot redeem your asset then the token which is wrapped in the chain will lose its value.