How Cross-Chain Bridge is Used for Transfer of Assets

How Cross-Chain Bridge is Used for Transfer of Assets

Did you know that the mechanics of cross-chain ecosystem allows token transfers between multiple chains? This unique feature promote communication between blockchains and help to provide liquidity during bridge transactions.

If you are a blockchain developer or a curious crypto enthusiasts interested in cross-chain swaps, this article will demystify everything you need to know about cross chain bridge, how token bridging between one blockchain to another works, and the importance of this interoperability protocol to help prevent vulnerability.   

What is a Cross-Chain Bridge?

A cross-chain bridge is a system that allows token transfer and assets from one blockchain to another. On a normal condition, every network like Solana, Ethereum, and Binance Smart Chain are seen as individual blockchains. Thanks to blockchain bridge, there is movement of assets between blockchains. 

For instance, a user who want to transfer tokens from a Polygon network to the Ethereum blockchain can use bridges. The native tokens of Polygon are locked on the blockchain while an equivalent amount is minted via smart contract on the destination chain.   

How Cross-Chain Bridges Work

Bridges enables the transfer of assets across different networks and supported chains through wrapped tokens and smart contracts. Here is an overview of bridges work in Web3:  

1. Locking: Let us say you have ETH; you deposit your tokens in a smart contract on one chain.   

2. Minting: The bridge mints a wrapped version called wETH asset on the target chain B.  

3. Redemption: You can get your original tokens back by burning the wETH tokens on the destination chain when you're done 

This method ensures cross-chain liquidity, security of assets on the source, and supply parity between non-evm chains.  

Types of Cross-Chain Bridges

1. Trusted Bridges

Trusted bridges are bridges that are controlled by a central authority or body to oversee the operation of locked tokens as they are securely transferred to another chain. Binance Bridge is an example of this type of bridge. 

2. Trustless Bridges

These bridges are necessary for decentralization because they are controlled by smart contracts when users move tokens. Trustless bridges involve Synapse and Wormhole

3. Hybrid Bridges

Hybrid bridges are the combination of trustless and trusted bridges. The aim of these bridges is to promote security when users stake their tokens in a liquidity pool and scalability when using decentralized applications (dApps) of EVM and Non-EVM chains. 

How to Transfer Tokens Between Supported Chains in Web3

Step 1: Start the swap on original chain

The first step is to choose a supported chain bridge like Portal Bridge, Multichain, and Synapse Protocol for the swap. You can make the Ethereum blockchain to be your source chain and the Avalanche chain your destination chain. 

After doing that, you can choose the token you want to transfer and the amount, then use DEXs like MetaMask to confirm the transaction. 

Step 2: Lock or burn tokens

Bridges allows you to burn or lock the token on the original network. If you choose to lock it, the tokens will be stored in a smart contract vault, or the wrapped token is destroyed as a finality. Example, if you want to send a token from Arbitrum to Ethereum, your token will be locked in an Ethereum smart contract.    

Step 3: Verification and communication across ecosystems

Bridges can also confirm transactions with an Oracle, validator, or relayer system. These networks can be used to track the source chain and send proof of tokens being locked or burned to the recipient chain.

Step 4: Minting or releasing on receiving chain   

After the tokens are confirmed, the bridge can either release an already existing liquidity token that was stored on the destination network or mint a wrapped version of the coin on the chain. Let's say you move ETH from the Ethereum blockchain to Polygin, you will get wrapped versions of ETH on Polygon. 

Popular Cross-Chain Liquidity Bridges Protocol in DeFi

Why Cross-Chain Bridges are Necessary?

Cross-chain bridges use smart contracts to control assets on different networks. Below are the reasons why it is necessary:

1. Interoperability: In DEX, cross-chain bridges allow the transfer of tokens across several chains, thereby promoting interoperability.  

2. Cost Efficiency: Users can use bridges to avoid high transaction fees when they switch between multiple blockchains

3. Liquidity Access: Explore the full potential of another chain by gaining liquidity access that is not accessible on your original chain.  

4. User Flexibility: With bridges, you can spread your investment portfolio without having to swap any assets.  

Challenges of Cross-Chain in Crypto

1. Security Risks

The risk of security is a major concern because several bridges have been targeted or hacked via faulty codes, smart contract bugs, or poor confirmation mechanisms. In 2022, more than $600 million was stolen when the Ronin Bridge was hacked. Since bridges store large volumes of tokens, they are usually vulnerable to attacks.

2. Lack of Standardization

There is no standard across all networks because individual chains have different programming languages, structures, and consensus mechanisms.It is almost impossible to have a general solution that works across all blockchains

3. Complex User Experience

Cross-chains are known to have complex UI, and this can be difficult to operate when several wallets are needed. There is a risk of error during assets transfer, leading to permanent loss. 

4. Latency and High Fees

Latency is another issue when it comes to using bridges. During transfer across different networks, there can be delays and high fees because of the multiple confirmations. This means that users are required to pay high fees when using both chains 

5. Limited Interoperability

Network like Bitcoin is made to be an isolated system and do not support interoperability. There are also chances of having partial compatibility among interoperable blockchains, leading to limited interoperability. 

Real-World Use Cases of Cross-Chain in Blockchain

1. NFT Transfers: Move NFTs from Ethereum to Polygon for lower fees.

2. Yield Farming: Use tokens from Avalanche on DeFi platforms on Arbitrum.

3. Token Arbitrage: Swap assets across chains for price advantages.

Relevant YouTube Videos to understand the seamless transfer of assets between blockchain networks. 

1. How Cross-Chain Bridges Work in Crypto | Coin Bureau

2. Best Cross-Chain Bridges in 2024 | Whiteboard Crypto

3. Crypto Bridges Explained Simply | Finematics

Conclusion

The importance of cross-chain bridges cannot be underestimated in areas like DeFi and dApps. With bridges, people can leverage the potential of another chains, use the DeFi platforms, and get access to other features available. This article has provided with the necessary knowledge on how to use cross-chain bridges that can help boost your investment portfolio. Remember that there are also security risks when it comes to using these bridges and ensure that you have the needed experience to fully operate a token bridge as a trader or blockchain developer. 

Find out how having the right allocation of crypto portfolio can help boost your assets as an investor.

FAQs

1. What is the purpose of a cross-chain bridge?

A cross-chain bridge enables users to transfer assets between different blockchains, promoting interoperability and expanding usability.

2. Are cross-chain bridges safe to use?

While some are secure, others have been hacked. Use bridges with a strong track record and security audits.

3. Do I need to pay gas fees when using a bridge?

Yes, you’ll pay network fees on both the sending and receiving blockchains, which can vary.

4. Can I bridge any token across blockchains?

Not all tokens are supported on all bridges. Always check the list of supported tokens on the bridge’s official website.