What are cross chain bridges?

Explanation of cross chain bridges

Cross-chain bridges are software applications that allow you to transact between various blockchains. If someone wants to transfer cryptocurrency, non-fungible tokens (NFTs), or other digital assets between blockchain networks, cross-chain bridges are an essential part of the process. While most digital assets are tied to a specific blockchain, cross-chain bridges allow for transactions between networks that power a much larger digital ecosystem. Using cross-chain bridges, cryptocurrency owners can unlock the value held in their crypto wallets for a wider range of real-life uses.

Cross-chain bridges enable many innovative processes, but are surrounded by security concerns, as these apps have suffered from hacking leaks. Due to the technicalities of cross-chain bridges, it’s best to only use them if you understand how they work and what you’re doing, so you don’t encounter unexpected crypto losses.

Key points

  • Cross-chain bridges allow for transactions across blockchain networks.
  • The software behind cross-chain bridges works with cryptocurrencies and other digital assets.
  • Cross-chain bridges are vulnerable to hacking and security threats.

Understanding cross chain bridges

Blockchains are distributed databases containing an undisputed record of all transactions in the history of that specific blockchain network. While there are many benefits to using blockchains, they are effectively self-contained systems that typically don’t interact with other blockchains. Cross-chain bridges allow for interactions between various blockchain networks.

To better understand cross-chain bridges, consider several top-tier cryptocurrency blockchains today. Ethereum is one of the best-known smart contract networks, enabling NFTs, cross-chain bridging, and other blockchain features. For example, if you have $1,000 worth of USD Coin in your Ethereum (ETH) wallet and need to use it for a purchase with your Polygon (MATIC) wallet, a cross-chain bridge could help you send USD Coin from your Ethereum wallet to your Polygon wallet.

The potential for cross chain bridges is large. As the number and type of digital assets expand to include other asset classes, such as real estate or stocks, cross-bridges could become as important to your finances as Automated Clearing House (ACH) transactions between bank accounts.

While cross-chain bridges are mostly used for good purposes, cybercriminals and hackers target cross-chain bridges for vulnerabilities. Users should be wary of the risks inherent in cross-chain bridge software.

Example of a cross chain bridge

The largest cryptocurrency by market capitalization is Bitcoin (BTC). As a popular and widely used digital currency, some cryptocurrency investors and users may want the option of holding BTC outside the Bitcoin blockchain. But, as discussed, users cannot transfer cryptocurrency between blockchains. If you want to buy an NFT on the Ethereum blockchain but you only have bitcoin, you can use a cross-chain bridge to conduct the transaction.

To send your bitcoins to your Ethereum wallet, you can use Wrapped Bitcoin (WBTC). Wrapped Bitcoin is a cross-chain bridge that creates a new WBTC token on the Ethereum network and holds a bitcoin in a smart contract on the Bitcoin network. The number of WBTC is always equal to the number of bitcoins in the WBTC cross-chain bridge smart contract. After using the cross-chain bridge, you have a Bitcoin-backed ERC-20 token that you can use on the Ethereum network.

Which cryptocurrencies work with cross-chain bridges?

Cross-chain bridges are not limited to any specific cryptocurrency or network. Any blockchain network can be compatible with cross-chain bridges if software developers with the right skills and knowledge create one.

Are cross-chain bridges safe?

Cross-chain bridges carry unique risks compared to other blockchain applications. As a software program built on top of other blockchains, a vulnerability in the blockchain software or smart contract behind the cross-chain bridge poses a hack risk.

Can a cross-chain bridge work with multiple blockchain networks?

Cross-chain bridge software can interact with any blockchain if the software is designed to be compatible. However, more complex blockchains may be at greater risk of security incidents.

The bottom line

Cross-chain bridges are an important cryptocurrency and digital asset management tool, but they are not without risk. When used as intended, cross-chain bridges allow for a vast upgrade of the functionality of the blockchain network. When combined with other smart contract features, cross-chain bridges can amplify the capabilities of blockchain, cryptocurrencies, NFTs and more.

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