Why Is There A Need For Cross-Chain Bridges?
Bitcoin was the first cryptocurrency that was introduced in 2009. Now, there are more than 1500 cryptocurrencies, each having its original value. Moreover, new crypto projects are launched every day. All these cryptocurrencies rely on blockchain technology. However, every crypto has its own isolated and separate chains that differ from each other. As a result, a problem arose where people having crypto on different chains could not exchange it with crypto on a different chain. This is where cross-chain bridges come into play!
Each blockchain platform has its own rules and protocols governing cryptos. To eliminate this problem, a cross-chain bridge was introduced. As the name suggests, a cross-chain bridge facilitated the exchange and trading of various crypto on different platforms. With the help of this new technology, the major hurdle of increasing use cases of crypto is soon to be solved across the world.
What are Cross-Chain Bridges?
A cross-chain bridge facilitates interoperability between various crypto-blockchain platforms. It allows users to transfer or trade information or assets between different blockchains. Different types of cross-bridges differ from each other in terms of protocol.
However, the primary technology behind the interoperability remains the same. It also comes with minimal costs and risks and operates without an intermediary. In a cross-chain bridge protocol, the sender sends funds in a particular asset which is then locked into a contract.
When the receiver confirms the amount or value of these assets, the exchange takes place in the equivalent value of tokens from the other chain. Finally, the contract is unlocked by the sender, and the receiver gets his desired value of tokens.
How Do Cross-Chain Bridges Work?
The best way to explain how a cross-chain bridge works are with the help of an example. In this scenario, we will talk about a person ‘A’ who wants to exchange Ethereum (ETH) crypto for the same value as Bitcoin (BTC) crypto.
To do that, first, he needs to choose and select a cross-chain bridge protocol like Wormhole or Binance Bridge. There, he will have to deposit the desired amount of ETH tokens which will be then “wrapped” in a smart contract to issue assets on another blockchain. These wrapped ETH (wETH) tokens will be used as collateral, and a secret combination is generated, which will be known to person ‘A.’
After that, another person, ‘B,’ will inspect the wETH tokens and ensure that it is of the requested value. Person ‘B’ will deposit the needed BTC in the same process as person ‘A.’ Once the contract is created and the secret combination is generated, each person will check and confirm the number of tokens.
Once verified, the secret combination is exchanged between the parties. After that, both person ‘A’ and person ‘B’ will be able to unlock the number of tokens in the contract and deposit it in their wallets. Finally, a cross-chain swap or transaction is completed.
Top 3 Popular Cross-Chain Bridges
As mentioned earlier, different cross-chain bridge protocols facilitate the exchange of tokens across other platforms. They work similarly but differ in interoperability and the tokens they can exchange. Here are the top 5 cross-chain bridge protocols:
1. Binance Bridge
Binance is one of the most popular platforms for buying, selling, trading, and exchanging cryptocurrencies. It also has a cross-chain bridge called Binance Bridge to facilitate crypto exchange over various platforms. Currently, it supports Tron, BNB Chain, Solana, and Ethereum blockchains. Any cryptocurrency within these blockchain platforms can be exchanged via cross-chain bridge protocol.
Moreover, Binance Bridge is open-for-all, so users without a Binance account can also exchange their tokens. Once a user proposes an exchange, the tokens are wrapped and converted into BEP-2 and BEP-20 formats. After the conversion, the wrapped BEP-20 tokens can be used as native tokens for staking and swapping across other platforms.
The conversion takes only a few minutes and is relatively straightforward. In addition, there are no transaction fees throughout the conversion process. However, they are required to pay gas fees. Binance Bridge is most commonly used as an entry point from Ethereum into the Binance network.
2. Portal Token Bridge
Formerly known as Wormhole, Portal Token Bridge is another popular cross-chain bridge platform. The cross-chain bridge was initially built on the Solana Network to facilitate the exchange of Ethereum and Solana. Now, it connects major DeFi blockchains, including Oasis, Avalanche, Terra, Polygon, BSC, Ethereum, and Solana.
Portal Token Bridge’s protocol uses a special validator node called Guardians to offer a user-friendly cross-chain swap experience. These Guardians are responsible for monitoring and verifying user requests on the bridge.
When a user requests a crypto exchange, the Guardian nodes will burn the requested number of tokens on the blockchain from where the request was made. Subsequently, the same number of tokens are minted on the destination blockchain with the “wrapping” method. Portal Token Bridge offers a user-friendly interface and has extremely low transaction fees.
Multichain is one of the most extensive cross-chain bridge protocols that facilitates the exchange of cryptocurrencies in various blockchain platforms. It was formerly known as the Fantom Anyswap bridge, allowing the exchange of assets and data.
The cross-chain bridge uses Fusion DCRM technology and has an automated pricing and liquidity system. It facilitates crypto exchange with the help of smart contracts and enables a 1:1 swap. Hence, the protocol has zero slippage fees and eliminates any hidden costs with the help of AMM. As a result, it offers a cheaper swapping experience compared to other cross-chain bridges. Moreover, you can receive a portion of all swapping fees if you buy $Multi.
The list of blockchain platforms supported by Multichain includes the following:
- And more
VoltSwap is one of the major Decentralized Exchange platforms within the Meter blockchain. It is a community-driven project where the cross-chain bridge protocol is designed for retail traders and investors. It is the fastest layer 2 sidechain with more than 100 validator nodes.
The crypto swap incurs low gas-cost transactions and is very fast. Moreover, the exchange takes place without the need for KYC. VoltSwap has a friendly user interface that offers cross-chain swaps with low fees. The network decides the gas fees, and transactions are executed as and when ordered despite the gas prices. Swapping different cryptos is possible because the Meter Passport can connect various chains.
5. Avalanche Bridge
Avalanche Bridge is the next-generation cross-chain bridge to replace the Avalanche Ethereum Bridge. It offers a user-friendly interface with low fees, faster finality, and stronger security. Moreover, it is significantly cheaper than other cross-chain bridges. The transfer of tokens in the Avalanche Bridge is easy and seamless.
The initial token is deposited and locked in a ChainBridge Smart Contract when a user requests an exchange. When the tokens are deposited, a proposal is sent to the relayers on the Bridge. These relayers are responsible for the voting process to approve or reject a proposal based on Avalanche’s data. Once approved, equivalent tokens are minted, which can then be used on various protocols. The additional voting process adds a layer of security to the crypto exchange process.
RelayChain is another cross-chain platform used as a BaaS (Bridging as a Service). It has a unique protocol that helps to connect new ecosystems to existing ones. Currently, it supports Heco, Avalanche Polygon, Ethereum, and others, with more to be added soon.
The cross-chain bridge is one of the first to introduce bridge gas token faucets to DeFi. Moreover, the bridge airdrops tokens to new users to reduce friction for other users who wish to start on new chains. As a result, it is a safe and reliable cornerstone of the DeFi ecosystem.
Why are Cross-Chain Bridges Important?
By now, you must clearly understand the function of a cross-chain bridge protocol. The biggest challenge the crypto ecosystem still faces is its use cases in everyday life. Although it is primarily traded on various platforms, it is still challenging to use it the same way a fiat currency is used.
Despite new cryptocurrencies being launched every day, their use cases remain limited. Moreover, different blockchains mean more restricted crypto usage over other blockchain platforms. As a result, cross-chain bridges help to solve this problem. It allows interoperability between various blockchains without the need for an intermediary.
Moreover, a cross-chain bridge helps to increase the use cases of various crypto on different blockchains. A cross-chain swap occurs in real time and is safe and secure. Investors and traders have complete control over their digital assets as the exchange takes place in their original wallets without creating another wallet.
Additionally, cross-chain bridge protocols also facilitate the exchange of information across different platforms. Hence, various industries like finance, gaming, healthcare, energy, and government institutions can utilize cross-chain bridge protocols for their transactions.
Cross-chain bridge protocols help to facilitate interoperability that will eventually increase the use cases of cryptocurrencies. Enabling the exchange of different crypto tokens on other blockchains helps overcome the need to maintain various crypto wallets. It also allows the user to build their digital portfolio efficiently. Hence, a user can trade or exchange different tokens using their original wallet with the help of a cross-chain bridge protocol. Therefore, it is essential to ensure that a suitable cross-chain bridge protocol is used that supports the crypto tokens that the user wishes to exchange.
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