Cross Chain Bridge Explained
Cross chain bridge is a much needed solution in the cryptocurrency market. With such rapid developments taking place, restrictions cause more harm than good. Cross chain bridges are therefore established to tackle that.
In this article we well be glancing on the basics of cross-chain bridges and how cross-chain bridges are useful for investors and crypto enthusiasts.
What is a Cross Chain Bridge?
Cross-chain Bridge or a blockchain bridge is like a bridge between different cryptocurrencies and it is used to link multiple blockchains with one another.
Cross-chain bridge serves as an infrastructure designed to allow users to transfer their digital assets seamlessly over multiple blockchain networks. These bridges provide users with a neutral environment for switching.
Most of cross-chain bridges that exist today are between Ethereum and the newly created blockchain networks. The newer generation of blockchain networks however have already incorporated cross-chain features.
In terms of usage, through a cross chain bridge a user can easily spend their owned token of one cryptocurrency into the token of some other cryptocurrency. In simple words it is like making a purchase in US dollars by spending Euros.
Advantages of Cross-Chain Bridge
A cross bridge can have several advatanges. Those can range from deploying token holdings to working as a middle man between different networks of a blockchain.
Other advantages include:
Increased productivity of assets: Instead of leaving their crypto stagnant, users can use it for different purposes like using one asset as an collateral for the other, which in return increases the value being earned by each of their asset.
Better User Experience: Users are looking for services which are better in terms of speed, financial security, swift payments, etc. Cross chain bridges help the users in using the enhanced features from one network into the other network.
Use of DApps: The DApps allow users to easily move their funds across different blockchains.
How do Cross Chain Bridges work?
Cross-chain bridges' functionality revolves around generating and wrapping up different types of tokens. These tokens act like a reference value for the blockchain. The Cross chain bridges create a receipt for the blockchain network, which can then be easily used on other network.
For example, a blockchain bridge will generate token X for your Blockchain X and token Y for Blockchain Y; now, take a scenario where you want to move your token X holdings to blockchain Y, the bridge will take up your token X holdings and generate an equivalent amount of token Y for the Blockchain Y.
These bridges don't transfer your token from one Blockchain to another; on the other hand, they tend to create the same amount of holdings in Blockchain Y using the smart contract concept.
These smart contracts get discarded whenever the user moves their token holdings back to the origin.
Types of Cross-Chain Bridges
There are different types of cross chain bridges but all the bridges are broadly classified into two distinct categories with the main difference being their nature.
One of the cross chain bridges is Centralized, while the other one is Decentralized. The two categories are:
Trusted bridges are designed to be fast and affordable for every user on the blockchain network. However, they are governed by some central organization.
As the name suggests, the users need to trust a third party to close the process effectively. This bridge might be fast and affordable but is not yet as secure as its counterpart which is:
Trustless bridges are known for being decentralized and follow the regular procedure that the blockchain network follows.
In trustless bridges the users put their trust in the code which operates the bridge and thus it is considered safer as no centralized body can hamper the code and manipulate it.
Cross chain bridges are a good creation in the web3 world as they help in connecting two blockchain networks enabling cross chain transfers and provide a much needed ease to all the users.
Image Credits: Zecrey; Li FI; China DeFi