Bridges allow you to trade crypto across different blockchains. Here is an easy guide on how they work.
How It Works
Just like a physical bridge connects two locations, a bridge on the blockchain connects two blockchain ecosystems.
In the crypto world, you could use a cross-chain bridge to transfer your USDC stored in your Ethereum (ETH) wallet for a transaction with your Polygon (MATIC) wallet.
Here's another example: let's say you want to buy a token only on the Ethereum blockchain, but you only have BTC. Using a bridge is the best solution.
To buy a token on Ethereum with BTC, use a bridge. Wrapped Bitcoin (WBTC) acts as a cross-chain bridge, generating a new token on the Ethereum network while securing a Bitcoin in a smart contract.
The quantity of WBTC corresponds to the amount of Bitcoin in the smart contract. Once the bridge is complete, you can use the Bitcoin-backed ERC-20 token on Ethereum.
The Benefits of Bridging
Bridges allow investors to move their crypto holdings between blockchains to access a wider range of DeFi applications, NFTs, and more.
Bridges allow investors to leverage the unique advantages of each chain.
You could hold your assets on a secure chain like Bitcoin and then bridge them to a faster chain like Solana for quicker transactions.
This also increases the liquidity of different cryptocurrencies and tokens by attracting more investors and capital.
The Downsides of Bridging
Bridges rely heavily on smart contracts. These can be complex and if they have bugs or weaknesses, hackers can exploit them.
In a centralized bridge, a single entity controls the validation process. If there are any vulnerabilities, scammers could potentially steal or manipulate assets.
Bridging often involves locking assets on one chain and creating a corresponding representation on another.
If the bridge is hacked or malfunctions, these locked assets could be inaccessible or even become worthless.
Wrapping Up
The potential for cross-chain bridges is extensive.
As digital assets expand to include other asset classes, such as real estate or shares of stock, cross-chain bridges could become a big part of everyday finance.
Look for bridges with a strong reputation and a history of security audits.
Is it trusted or trustless? How does it handle security?
And only bridge what you can afford to lose. Be cautious with the amount you transfer.
