With a rise in the number of blockchain platforms and more DeFi projects functioning as cross-chain, interoperability becomes a major concern. Blockchain platforms with such siloed nature contradict the concept of decentralization which focuses on making different blockchains accessible for each and every person. Is there any solution to achieve interoperability between various blockchain platforms? How can a person from the Ethereum chain access the information stored on a different blockchain network like Binance?
Blockchain bridges successfully address the concern of interoperability between various decentralized networks. In this article, we will be looking at the concept of decentralized bridges, their types and their token exchange mechanism.
What is a blockchain bridge?
A blockchain bridge facilitates interoperability and smooth connection between two distinctive blockchains that function under two different consensus mechanisms. In easy words, blockchain bridges help two blockchains to communicate with each other completely.
With the help of these blockchain bridges, different blockchain networks can share their smart contract execution rules, exchange tokens, and transfer resources and data with other independent blockchain networks. These blockchains also get to share data off-chain with the help of blockchain bridges. Some of the most popular blockchain bridges are as follows:
- Matic Bridge
- xPollinate Bridge
- Binance Bridge
Now that we are familiar with the concept of blockchain bridges let us look at their benefits in the next section.
What are the benefits of a blockchain bridge?
A blockchain bridge provides the following benefits as mentioned below:
- Blockchain users can leverage the features of two independent blockchains to build a dApp instead of just leveraging the features of the host blockchain network. This explains that a user can deploy the decentralized application on the Solana network and can then trigger the dApp with an Ethereum smart contract.
- Users can easily exchange tokens from one blockchain network that has a high gas fee to the other blockchain network that is cheaper in comparison to the first one.
- As the users can transfer the tokens instantly, they then shift from volatile currencies to stablecoins without any intermediary’s support.
- Users also get to host digital assets on dApps of distinctive blockchains. For instance, a user can mint NFTs on the Cardano network and then can host them on the Ethereum NFT marketplace.
- Blockchain bridging helps users to execute decentralized applications across different blockchain platforms.
Now that we are familiar with the benefits of blockchain bridges let us understand their various types.
What are the types of blockchain bridges and how do they work?
There are currently two types of blockchain bridges as follows:
Federated blockchain bridge
Federated blockchain bridges are also known as centralized blockchain bridges. They specifically facilitate centralized exchanges where both the parties interact with a group of intermediaries. If the token exchange is done between Ethereum and Binance, there will be two pools, one will contain the Ether and the other pool will contain the BNB. As soon as the sender triggers the exchange process with Ether, it gets linked to the pool and then the pool will send him an equal amount of BNB from the second pool. The central authority will charge a minimum fee to regulate this exchange.
Trustless bridges are completely decentralized bridges that remove third-party intervention. These bridges do not use API to monitor the burning and minting of tokens. In place of the monitoring, these bridges use smart contracts, which handle the entire process of burning and minting. When a user begins the token transfer via a trustless bridge, the smart contract freezes the user’s current cryptocurrencies and then provides him with a copy of equal tokens on the new network. The smart contract then administers the minting process of the tokens. The smart contract does so as it understands that the user’s tokens are already burnt or are frozen on the other network.
Why is blockchain bridge important?
Blockchain bridges are important because of the following reasons:
Multi-blockchain token exchange
Blockchain bridges facilitate cross-chain exchanges. They help the users mint token instantly on the blockchain platform of their choice without any costly and time-consuming process.
Blockchain bridges help various blockchains leverage each other’s unique attributes. For example, the distinctive features of Ethereum are not there on the BSC platform. A blockchain bridge will thus help the BSC platform to leverage Ethereum’s distinctive features and vice versa. This way, both the blockchains will grow together and function using each other’s unique attributes.
Blockchain bridges also solve the issue of high gas fees. Most of the popular blockchain platforms have high transaction fees, whereas the newly developed ones have low gas fees. But the new blockchain slack in some of the robust features that the popular blockchains have in them. Therefore, blockchain bridges help the users to do all the processes on one blockchain with a high gas fee and then let the user transfer their tokens to the newer blockchain platforms for leveraging low-cost transactions.
With the evolution of blockchain bridges, cross-chain exchanges have become a mainstream process. Decentralized bridges facilitate interactions between different blockchain platforms. It, therefore, focuses on ending the sovereignty of the centralized processes from the business systems.