As the cryptocurrency space improves and innovations are being released regularly, there is a need for digital assets to access cross-chain swap functionality. Crypto enthusiasts use decentralized finance features like yield farming, staking the native tokens of a decentralized protocol, using the wrapped tokens of platforms like Bitcoin, lending their spare coins and much more. People are seeing the perks that come with DeFi, especially in the aspect of cross-chain transfer. A cross-chain bridge connects digital assets to multiple blockchains. Instead of crypto being restricted only to Binance Smart Chain, it can be moved to EVM chains via cross-chain bridges. It is driving massive adoption of the DeFi space because users can seamlessly perform cross-chain swaps and enjoy the features of multiple networks. It is removing the restrictive element that was once present when it comes to interoperability. If a user wants to move an asset from BSC to another network, they can utilize the Binance bridge.
Traditionally, cross-chain transfers are expensive consuming high gas fees, and discourage traders from carrying out this type of transaction. Cross-chain bridges reduce the transaction fees, and make it process economical and efficient.
What is a cross-chain bridge?
A cross-chain bridge is a multi-chain bridge between multiple blockchains that allow cross-chain asset transfers, as well as the movement of smart contracts and data between different networks. For example, with the Binance bridge, the user can bring cross-chain assets from EVM chains to Binance Smart Chain and vice versa. Usually, two chains have different development frameworks, decentralized protocol mechanisms, key features, and much more. The multi-chain bridge allows users to seamlessly move their digital assets from one network to other chains. It is also designed to drive inter blockchain liquidity, as it allows token holders to seamlessly transfer tokenized assets from a source chain to other chains. This feature is creating a more connected blockchain ecosystem.
Common assets that are traded on cross-chain bridges are Ether (Wrapped Ether) and BTC (WBTC) because it offers more leeway to use those tokens in decentralized finance activities. Wrapped tokens of Bitcoin allow traders to carry out decentralized financial activities that are almost impossible with the native token, BTC.
What does a Cross-chain Bridge do?
With the cross-chain bridges, token holders can enjoy the following benefits in the decentralized finance space.
• Cross-chain interoperability
With a decentralized bridge, users can bring cross-chain assets from the source chain to a destination chain. This improves interoperability between different networks. For example, with a wormhole token bridge, blockchains that support the Ethereum Virtual Machine can connect with the Ethereum network and move assets between each other. Blockchain bridges like Avalanche bridge allow bi-directional token transfers in multiple chains, thereby making them more inter-connected than usual.
• Seamless deploying of assets
Developers, through blockchain bridges, can build their architecture on a network like Ethereum and move it to EVM chains without stress. An example is moving a dApp from Ethereum to CoinEx Smart Chain or BSC chain.
• Low transfer fee
Transferring a token, for example, the wrapped version, from one blockchain to the other is affordable using a decentralized bridge. Let’s say, a user wants to swap the BEP20 version of a token to the ERC20 version, they can do that through a bridge without paying exorbitant gas fees.
What to consider when using a cross-chain bridge?
When choosing a cross-chain bridge to use, the token holder should consider the following:
• What is the verification method used by the cross-chain as well as its management system?
• How secure is the cross-chain bridge? What type of security mechanism is the bridge using for digital assets, smart contracts and data transferred through it?
• How fast is the bridge? Are assets transferred in real-time or is there a congestion Issue?
• How affordable is the bridge to its users? Usually, a bridge has to find a balance between incentivizing the infrastructure providers and keeping transaction fees low.
What are the types of decentralized bridges?
In the decentralized finance space, there are different types of bridges available, and three major forms will be analyzed.
• Native L1 bi-directional bridges
This type of multi-chain bridge comes in different forms like the wormhole token bridge by Solana, Rainbow Bridge made by Near and the Gravity Bridge created by Cosmos. Bi-directional bridges allow users to move native tokens between two chains in different directions. It is designed to offer inter blockchain liquidity in the connected networks, as the assets are moved from one side to the other.
Different types of assets can move through the bridge like Non Fungible Tokens, smart contracts, tokens and so on.
The Wormhole bridge from Solana utilizes oracles in tracking when users have burnt their tokens in one chain, thereby ensuring that there is no duplicity of assets on multiple chains. Usually, this type of bridge doesn’t offer any incentives to those running the infrastructure, as they are part of the ecosystem. The same can be said for the other bridges in this category. They are merely part of the network architecture.
• Wrapped bridges
This type of multi-chain bridge links to other chains, wrap the assets of the chain, then send them to other chains. It is unlike bi-directional bridges because it is not restricted to one chain. The wrapped bridges connect to other networks, and they use oracles to broadcast wrapping transactions that occur. If a user wants to transfer a token, the bridge’s smart contracts lock it, then gives the user the wrapped version of the token that has been locked, before moving it to the other chain.
• Cross-chain liquidity bridge
As its name states, this type of bridge is designed to offer liquidity to any of the sides that it is connected to when there is illiquidity. This type of bridge works on multiple networks, and has continuously been used in Web3.
What are the alternatives to a Cross Chain Bridge?
Users may be confused with how a cross-chain bridge works and to ensure that they do not lose their funds in the process, an alternative can be used. A decentralized exchange like WhalesHeaven makes it easy for users to swap the same token across several blockchains. It is safe, easy to use, top-notch customer service team, and very affordable compared to many bridges.
For example, a user can swap their ERC20 USDT to TRC20 USDT on Whalesheaven without jumping through hoops.
For those that have been seeking a more anonymous crypto exchange to carry out transactions with low trading fees, multiple trading pairs, 0% withdrawal fees, and a trading platform that doesn’t request private data, the trading platform that comes to mind is WhalesHeaven. As its name states, it is a crypto exchange that allows users to buy and sell their cryptocurrencies, in large quantities, without necessarily affecting the value of that crypto in the market.
It is a non-custodial exchange, meaning that Whalesheaven doesn’t hold the funds of the users. Whalesheaven is outfitted with state-of-the-art security measures to prevent breaches. In conclusion, this crypto exchange is sticking to the core purpose of the crypto space, which is offering a haven for crypto enthusiasts and traders to carry out trading activities. As the world continues to embrace decentralization, using a non-custodial crypto exchange is efficient.
When to use a cross-chain bridge?
Cross-chain bridges can be used in different scenarios that will be displayed below:
• High transaction fees in Ether network
Cross-chain bridges can be used during those periods that the Etheruem network is congested and has high gas fees. It saves the user from the aforementioned issues.
• Transfer between the Ethereum and a Layer 2 network
Cross-chain bridges are useful in those cases when the token holders want to transfer their assets from Ethereum to a Layer 2 network and vice versa. It makes the tokens to be interoperable in both networks. With the multi-chain bridge, it is easier to deposit funds in real-time.
• Arbitrage trading
Another use case of cross-chain bridges is arbitrage trading across the DeFi space on different networks. Arbitrage traders tend to use bridges a lot.
• Understand a new chain
A potential investor may decide to use a cross-chain bridge to gain access to a new chain and study its strengths and weaknesses before investing in it heavily.
What are the Common Examples of Cross-Chain Bridges?
In the blockchain space, there are major examples of multi-chain bridges that a user will come across regularly.
Binance Smart Chain Bridge
Binance Smart Chain is interoperable with the Ethereum network through the cross-chain bridge. The bridge also allows users to move from the BSC to the BNB chain and vice versa. This is one of the flexible bridges in existence.
The Avalanche bridge was built to make the Avalanche network compatible with the Ethereum network. Users can move digital assets from AVAX to Ethereum and vice versa.
This bridge was designed to link Ethereum to Solana and vice versa. Users can move assets between both networks.
Tezos Wrap Protocol Bridge
This bridge is available for Tezos users that want to move the native token to the Ethereum network and vice versa. Tezos blockchain is a proof of Stake network, and the bridge was built by an independent team to connect Tezos to Ethereum.