What Is a Cross-Chain Bridge and How Are Bridges Hacked?

Then you have to provide the destination address you want to send to at blockchain B. The enormous demand for blockchain solutions has led to an increase in blockchain protocols and the need for blockchain communication. When an event takes place on the blockchain network, instantaneously, the agent initiates relevant information transfer from the very source of the blockchain to the destination blockchain. Blockchain bridge development is driven by the constant and dynamic evolutions in the behavior of DeFi users.

An interoperable blockchain sector is critical to the industry’s future success. Custodial bridges require users to place their trust in a central entity to properly and safely operate the system. Users should do extensive research to ensure that this entity is trustworthy. It’s pegged to the value of the asset it represents and typically can be redeemed for it at any point.

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Blockchain bridge functionality meant they surged as a mechanism to connect economically and technologically separate blockchains, allowing them to interact. Blockchain bridges aim to solve the interoperability issues seen between different networks. Bridges between blockchains allow us to interact across various networks to pick and choose the aspects of each we like the most. Rootstock is the most secure smart contract network https://xcritical.com/ in the world and enables decentralized applications secured by the Bitcoin Network to empower people and improve the quality of life of millions. The RSK – ETH token bridge is a decentralized bridge that allows communication between the RSK network and the Ethereum mainnet. The Cosmos Gravity Bridge is the bridge between Cosmos and Ethereum, designed for the Cosmos Hub to pull data and transactions from Ethereum.

Custodial Blockchain bridge operator enabling users to transfer assets across Ethereum, Solana, and Polygon blockchain can collude to seal the investor’s funds as well. These smart contracts can be better understood as digital contracts that are stored on a blockchain and automatically execute when predefined conditions are met. On the other hand, wrapped tokens represent the original crypto assets on a different blockchain.

Risks of Blockchain Bridges

The recent US$600 million Axie Infinity Ronin sidechain hack has brought the problem into stark contrast. Interacting with blockchain bridges carries either smart contract or technology risk. Furthermore, blockchain bridges can help improve the scalability of blockchains. Bridges designed to handle a high volume of transactions can improve scalability without forcing developers to compromise security or decentralization. Blockchain bridges exist to solve that problem – allow the transfer of tokens and information between blockchains. Blockchain bridges also enable users to move quickly from layer 1 to layer 2 protocols.

Blockchain Bridges Makes Interoperability Easier

Blockchain bridges enable interoperability between different blockchain technologies and allow individuals like Bitcoin users and developers access to integrated possibilities. When users send crypto from one blockchain what is a blockchain bridge and how it works network to another using a blockchain bridge, the amount is not practically transferred. However, the fact that cross-chain bridges span multiple blockchain platforms means that they can have complex effects.

The infamous, FSB-connected Turla group took over other hackers’ servers, exploiting their USB drive malware for targeted espionage. The exposure of hundreds of millions of email addresses puts pseudonymous users of the social network at risk. Ronin discovered the breach that day, but the platform’s “validator nodes” had been compromised on March 23.

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To illustrate, the Ronin Bridge protocol relied on nine validators — four of which were held by the Sky Mavis team. To maintain its security, the Ronin Bridge requires the majority of these validator nodes to initiate any withdrawal or deposit. However, because the attackers were able to compromise all four nodes the Sky Mavis team controlled, they only needed a single additional node to take control.

Risks of Blockchain Bridges

He is also the CEO and a co-founder of Unitychain, a venture studio and R&D laboratory. Prior to that, he founded SocialClimax, a think tank focused on emerging technologies. Blockchain bridges offer a compatible way to interoperate securely across blockchains and offer a multitude of opportunities. Blockchain bridges work similarly to physical bridges that connect two separate islands, with each of the islands representing an independent blockchain ecosystem. The PowPeg is a 2-way peg protocol that connects the BTC network to the RSK Ecosystem.

AllianceBlock targeted by $12M exploit

Furthermore, The PoWPeg doesn’t have control or direct access over the private key. The Ecosystem is also connected to the Ethereum network with a token bridge (The RSK – ETH token bridge). Different zones are connected to the external chains to effectively act as a bridge between these external chains. Generally speaking, trusted protocols are riskier because of the trust assumption of external verifiers. Wrapped assets on the destination chain to represent the original assets from the source chain. It also maintains the security and economic stability between the bridge and the chain.

  • A single bug can lead to the loss of most or all of the bridge’s funds, as shown in the recent Nomad hack.
  • A blockchain bridge can connect a permissioned chain to a public chain.Bridging can also facilitate the exchange of assets between different blockchains.
  • Numerous hacks of cross-chain bridges in recent months demonstrate that not only are they not completely secure but also that hacks of cross-chain bridges can have knock-on effects on other DeFi projects.
  • While sending funds within a blockchain’s ecosystem is easy, developers have struggled to find secure ways to get different networks to interact with each other.
  • Trading, including that of digital assets or cryptocurrency, has potential rewards as well as potential risks involved.
  • As a result of the smart contracts, exchange operations are carried out automatically if conditions are met.

The user should repeat the process if they want to convert their funds back. These blockchain bridges move tokens by locking the assets on the source chains and then minting new ones on the destination chain. The trustless blockchain bridge functions using smart contracts and advanced algorithms, including the underlying blockchain protocol. With the rise of cutting-edge L1 and L2 scaling solutions, including specialised blockchain protocols, the demand for interoperability is steep.

Chainalysis Government Solutions

If certain transactions are not in the best interest of bridge operators, they have the power to prevent transfers of assets via the bridge. Sealing the fate of bridges now seems like a hasty decision, but developers and custodians must improve the overall security around bridges. If the hacking activity around bridges keeps increasing at the current rate, soon, crypto users will avoid bridges at any cost.

Risks of Blockchain Bridges

The most common example in practice is when users leverage centralized exchanges to swap or bridge their own tokens. Both trusted and trustless approaches can have fundamental or technical weaknesses. To be more precise, the centralization aspect of a trusted bridge presents a fundamental flaw, and trustless bridges are vulnerable to exploits that stem from the software and the underlying code. Simply, if there is a flaw in the smart contract, it is almost certain that parties with malicious intentions will attempt to exploit it.

Classification of Bridges Based on Their Functions

Under the burn-and-mint protocol, the crypto tokens/ coins/ assets are not exactly transferred from one blockchain to another. Rather, the tokens are destroyed on the source blockchain and then get created on the destination blockchain. Blockchain bridges help connect and integrate two different blockchain ecosystems running on similar or varying protocols. Blockchain bridges create seamless interconnection enabling users to transfer data and tokens across blockchains.

Although they provide various benefits, such as increased scalability and fee reductions, they are vulnerable to risk and serve as a critical factor for the growth and advancements in the DeFi ecosystem. These bridges operate only via a collection of smart contracts allowing users to bridge tokens across blockchains. A blockchain bridge connects two separate blockchain networks, allowing them to communicate and exchange data and assets.

The hack caused BNB.bsc to be devalued on the BNB chain, but Hundred Finance used the global Chainlink price for the asset. This discrepancy allowed attackers to buy BNB.bsc for cheap and use it as collateral to take out loans of more valuable assets. This platform is popular for having features other than transferring crypto. Once connected to a wallet, you can see all of your balances across different types of coins. However, there are certain blockchains where, if you want to transfer from, you can only go to a specific destination. This decentralized bridge offers one of the largest selections of tradable cryptocurrencies.

Crypto Incident Response

As with every custodial solution in cryptocurrency, the bridge must be highly reputable and trusted. Cross-chain bridges connect two or more blockchain ecosystems, including main chains and side chains. An example is Ethereum as an L1 main chain, with Arbitrum as its official L2 side chain.

However, you still can’t use their Ethereum-based assets on a competing blockchain like Solana. This means if you only had ETH in your crypto wallet, there’s no way you could start using a Solana dApp. Instead, you’d have to visit a centralized crypto exchange , buy Solana’s SOL tokens, and send them to a Solana-compatible wallet. As it stands today, separate blockchains can’t communicate with each other. While sending funds within a blockchain’s ecosystem is easy, developers have struggled to find secure ways to get different networks to interact with each other. Many in the crypto industry have labeled this issue the “interoperability problem.”

Blockchain bridge technology has also become the most targeted sector for hackers in the blockchain ecosystem. This article will cover what bridges are, the problems they solve, the different types of bridges, and their advantages and risks. Furthermore, trusted bridges may also carry additional censorship and custodial risks since they depend on third parties. The bridge operators can theoretically decide to stop some users from transferring assets on their bridge . Blockchain bridging is a valuable tool for connecting different blockchain networks and facilitating the exchange of assets and information between them.