What Is a Blockchain Bridge?

Wondering what a blockchain bridge is? Get stuck in! In this Article Ledger Academy explains all about blockchain bridges and why you might need to use one.

We love a good blockchain: distributed, decentralized, digital technology, designed to give control back to the people. But while a lot is going for blockchains as we know it, there are still kinks that need ironing out. One of the biggest ones is that many of the blockchains we know and love are self-contained ecosystems that can’t operate with other networks. It’s a problem of interoperability.

Imagine different banks worked in silos with no integration between any of them. If you operate with one bank and your friend operates with another, trying to move money across to the other would not only be a headache, but it might be downright impossible. Without interoperability, working across networks would simply fail. In the world of banking, money would be almost unusable. For this reason, interoperability – and the lack thereof – is one of the biggest problems blockchains are facing at the moment.

But it’s not a problem without a solution. In fact, this is exactly what blockchain bridges were designed for.

The Need For Blockchain Interoperability

When a developer builds a decentralized application (or a dApp), they generally choose a single blockchain to release it on. That means the app is stuck using the features of that single blockchain. Put simply, that locks the project out of benefits of other blockchains. Put simply, each blockchain has its own language, and they aren’t all cross-compatible.

Let’s look at an example to explain how this works. As the OG blockchain-based asset, Bitcoin, is still the most popular cryptocurrency to date. Then let’s take another popular network, Ethereum. Although they are both blockchains, you can’t just send Bitcoin to an Ethereum account. These two chains are not interoperable.

Decentralization, away from banks and middlemen, is the defining mission of blockchain. But, if users need to lock themselves into a specific network to access the full ecosystem of platforms and services, we’ll once again be centralized. In this scenario, the only difference is that the deciding factor is a blockchain rather than a bank. This is directly the opposite to most crypto enthusiast’s aims, and as such, innovators tried to find the solution to this problem.

So how do we go about moving assets between different blockchain systems to promote a continued decentralized ecosystem?

This is where blockchain bridges come in.

What Is a Blockchain Bridge?

A blockchain bridge solves the problem of inter-network communication by offering a way to connect island-like blockchains with each other. Like any physical bridge, a blockchain bridge acts as the missing link between two blockchain ecosystems, making the transfer of information, data and tokens across them fairly easy. It’s a huge deal in the world of decentralized finance because it introduces connections between previously isolated networks.

What is a Blockchain Bridge For?

You might be thinking, “But why is this actually important? Surely one could just swap their tokens for another currency on an exchange?”

Well, the answer comes down to a couple of factors: convenience, and cost. It’s not only inconvenient for users to swap tokens around on crypto exchanges, but it gets expensive too. Crypto gas fees and other platform-based charges can be high. Since transaction fees are required not just for making the swap, but also for moving tokens around between various wallets or platforms as you do so, the cost adds up. Using a blockchain bridge instead makes the process seamless. Plus, they allow you to convert your crypto into a blockchain compatible wrapped coin in just one transaction.

How Does a Blockchain Bridge Work?

So you might be wondering how blockchain bridges actually manage to send assets across incompatible blockchains. And the answer is, they don’t.

Instead, blockchain bridges work via smart contracts, which are essentially a compliation of computer code. When you want to move assets from one chain to another, the blockchain bridge locks up your funds within its smart contract. In return, you receive the same amount in wrapped crypto on your target chain. This wrapped token represents the same value as the asset you locked up in the contract. Put simply, wrapped crypto represents the native coin of one network (such as Bitcoin) while living on another (like Ethereum).

So let’s see how this works in practice.

Say you wanted to send someone some Bitcoin on the Ethereum network. First you would need to finnd a Bitcoin-Ethereum blockchain bridge. Once you locked up your funds in the platform’s smart contract, you would receive wrapped bitcoin (WBTC) on the Ethereum network.

With your WTBC on the Ethereum network, you could use it as you would any other of Ethereum’s tokens. This is because WBTC is essentially an ERC-20 token and operates seamlessly with Ethereum’s ecosystem. Once in the ecosystem, you can also swap or sell those tokens like any other asset on the Ethereum network. You can even use it for projects or platforms.

If you want to get your BTC back, you send your WBTC back to the bridge (where it is burned to protect the supply and value). As a result, the BTC you locked in at the bridge is unlocked and comes back to you for use.

Blockchain Bridge Use Cases

It’s important to note that Bitcoin isn’t the only coin you can wrap. People make use of blockchain bridges to wrap other cryptocurrencies to be used on other networks. For example, some devs will use a blockchain bridge to explore other blockchain systems to try out native dApps or to take advantage of better interest rates on other networks.

Investors might take advantage of bridges to gain exposure to other tokens without needing to go through the process of swapping. Buying wrapped tokens might not mean you own the native token on a network, but the 1:1 pegged ratio means an investor can still have all the same benefits they would have had with the real currency.

What Do Blockchain Bridges Mean For The Future?

For a fluid blockchain future, interoperability is not only important – it’s a necessity. Being able to work and move assets across networks will be a driving force in the digital world, from cryptocurrency networks to Metaverse platforms.

Blockchain bridges will connect the gap between platforms that can’t talk to each other, making online transactions and digital travel seamless, simple, and stress-free – and they are just one example of the industry’s overall commitment to decentralization. So enjoy your crypto freedom and spare a thought for the dev teams behind these projects – they’re working to make sure we stay free!

Knowledge is Power.

Blockchain bridges are just one of the many ways developers have created to further the decentralization of the system as a whole – layer 2 blockchains are another important example. School of Block is here to check it out!