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- 1 The bridges used for the transfer of assets and data from one ecosystem to another are called crypto bridges.
- 2 The bridging in crypto is basically to facilitate cross-chain interoperability.
Bridging in crypto is the same as bridging in the physical world. As bridges connect and facilitate easy movements from two or more places, the same way crypto bridges facilitate the demand of moving assets across different blockchains. It provides a way for the transfer of information and assets between blockchains.
So, what is bridging in crypto is answered as the facility to initiate the transactions, information, and data with ease from one blockchain to another. In other words, crypto bridges are the communication between the blockchains that is made through the transfer of assets and information.
What is the Need for Bridges and How Do Bridges Work?
The need for bridges arises due to increased demand for ease. All the blockchains have their limitations. For example, Ethereum to scale and keep up with the demand of required rollups. L1s like Solana and Avalanche are designed differently to authorize higher throughput but at the cost of decentralization.
However, all the blockchains are created in a separate environment with different needs to satisfy. The native currency of one blockchain cannot move freely from one blockchain to another. To assist the information and assets free-flow crypto bridges are needed. Bridges connect the blockchains.
It will let the user access and gain the benefits of the other chains as well. Developers from different blockchain ecosystems can collaborate and build new platforms for the users.
How Do Bridges Work and Their Use Cases?
The utility of bridging includes lower transaction fees, dApps on other blockchains, exploring the blockchain ecosystem, and owning native cryptocurrencies. But, how do bridges work? If users have ETH on the Ethereum blockchain and if there is a need to explore different dApps, then crypto bridging plays a significant role in that. The user can move to the Layer 2 roll-ups with the help of crypto bridges and experience low transaction fees.
If the user wants to own the native currency Bitcoin (BTC) and all the funds are in Ethereum Mainnet. So to gain access to BTC on Ethereum, the user can buy Wrapped Bitcoin (WBTC). However, WBTC is an ERC-20 token native to the Ethereum network. This means that it is the Ethereum version of Bitcoin.
To own the native BTC, users have to bridge assets from Ethereum to Bitcoin using a bridge. This will bridge the WBTC and convert it into a native BTC. Bridges exist to connect blockchains allowing the transfer of information and tokens between them. Hence, when tokens are transferred through bridges it is called token bridging.
The crypto bridges work in 4 ways.
- Locking Mechanisms: The tokens are locked on the source blockchain in a smart contract. This confirms that the tokens are taken out of circulation on that chain.
- Minting: The needed amount of tokens is minted on the destination blockchain. This can be a wrapped version or the same token.
- Transfer Verification: The bridge uses different methods to verify the transfers; one such method is validators or relayers, who confirm the locked tokens correspond to the minted tokens.
- 4. Unlocking and Reversal: If the user wants to reverse the asset to the original chain the process is backed. The tokens on the destination chain are burned or locked and the original tokens on the source chain are unlocked.
For token bridging the user has to connect the wallet. Simply select the source and target blockchains. Then select the token wished to be bridge, the number of tokens, and gas, and confirm the transaction. The token should reach its target blockchain within minutes.
What is Cross Chain Bridging?
A cross-chain bridge is a type of decentralized application that transfers tokens from one blockchain to another. It also increases the token utility by increasing the cross-chain liquidity between different blockchains.
A cross-chain bridge involves locking and burning tokens on the source chain through a smart contract and unlocking and minting tokens through another blockchain. Token bridges often utilize cross-chain messaging protocols for a specific purpose to move tokens between blockchains. Cross-chain bridges are often used to provide wider uses like Decentralized exchanges, cross-chain functionality, and cross-chain money markets.
There are 3 types of Cross-chain bridging namely lock and mint, burn and mint, and Lock and Unlock. In this lock and mint, the user locks the token on the source chain and then a wrapped version of the token is minted on the destination chain. In burn and mint a user burns the token on the source chain and the same token is minted on the destination chain. In lock and unlock the user locks the token on the source chain and unlocks the same native token from the liquidity pools on the destination pools.
Best crypto bridge
There are many crypto bridges, some of the best crypto bridges which are also popular include names like Stargate Finance, Across protocol, Stargate Finance, Portal Bridge, Hop Exchange, etc.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
