As cryptocurrencies grew, it became evident that instead of racing to be one true crypto, platforms and communities will have to coexist. Solutions like atomic swaps were envisioned long ago but are hardly a widely adopted choice. A more common way to transfer value from one crypto to another is by trading or using a crypto bridge. In this guide, we will explain how crypto bridges work and should you choose it over an instant crypto swap.
What Are Blockchain Bridges?
Different blockchain protocols, such as Bitcoin and Ethereum, are not interoperable. It means that you, for example, cannot send ETH to a Bitcoin address, at least, directly. Bridges are a solution that does not fundamentally solve the lack of interoperability but it definitely helps to connect various blockchain ecosystems.
Blockchain, or cross-chain bridges are chain-agnostic protocols that help transfer value across two or more different chains. They come in a few variations depending on how they work, which we will explain later.
How Cross-Chain Bridges Work
Cross-chain bridges work a little bit differently than bridges in the real world. Instead of literally transferring your crypto assets to another blockchain, they lock up the crypto you’re seeking to transfer with a smart contract. In return, a bridge protocol will mint an equal amount of tokens native to the network you’re bridging to.
If anything, cross-chain bridges are more akin to teleportation devices! An example of a crypto bridge at work would be Wrapped Bitcoin (WBTC), which brings value from the BTC network to ETH and is an ERC-20 token. Another instance of cross-chain bridges is familiar to anyone who tried to use an L2. To get started on Polygon or Optimism, normally you would need to bridge ETH to these networks first.
These examples also belong to different types of bridges: the Polygon bridge is bidirectional, or two-way, meaning it can turn ETH to MATIC and vice versa. Wrapped Bitcoin is uni-directional, or one-way: you can’t transfer ETH to the Bitcoin blockchain using it.
However, a more important distinction lies in what happens to the locked tokens. Is it handled on-chain or off-chain? Do you give them up or can you still use those? Depending on it, the bridges are divided into the following categories.
As the name implies, these bridges require a degree of trust in the bridge operator and their process, some of which can be off-chain. Moreover, the bridge acts as a custodian, so you temporarily give up ownership of the deposited assets. These bridges are more economical, though, and should anything happen, the operator or custodian can be held liable. Popular cross-chain bridges such as Binance Bridge and Avalanche Bridge are trusted.
On the other side of the scales are smart contract-based trustless bridges. They rely on the underlying blockchain for security, rather than on the trust in the operator. Most layer-2 bridges are trustless, and some multi-chain ones are Portal Network (formerly Wormhole), Multichain, and Anyswap.
How Crypto Swap & Exchange is Different from Crypto Bridges
Aside from everything under the hood, the result of using a crypto bridge is drastically different from simply trading the crypto. After using a bridge, what you get is not the other native token.
A bridge does not work as an exchange because it does not have liquidity of its own. It only mints a synthetic asset on the destination blockchain. The bridge protocol will give you a wrapped version of the asset you deposited. Therefore, your uses for the token after bridging are limited.
Moreover, crypto bridges carry certain risks. Curiously, a lot of them are the same as when using an exchange!
Risks of Bridging Tokens
- Smart contract risk (i.e. faulty code => stuck or lost funds);
- Technology risk (i.e. hacks, bugs, exploits);
- Custody risk (censorship, collusion to steal funds from the operator).
Which Should You Go For: Crypto Bridge or Swap?
On the most basic level, the end result is the same: your owned value travels from one blockchain ecosystem to another. However, as we have learned, even the intermediate result is wildly different. Should you use a blockchain bridge? Or should you swap crypto to get the equivalent in the native coin instead of the wrapped token?
Go for the Swap if…
- Time is of the essence. Bridging and an instant swap take up about the same amount of time;
- You prefer self-custody. Swapping crypto does not require you to lock any tokens, and bridge hacks surface the news every couple of weeks;
- You need or own a lesser-known token. Cross-chain bridges support dozens but not hundreds of assets;
- You don’t want to stumble over the UI/UX of the bridge, the wallet and related apps.
Go for the Bridge if…
- You are looking for a specific wrapped/synthetic asset. More often than not, these are provided only by the bridges and not traded freely on exchanges.
Today we learned about crypto bridges and how they are different from just exchanging crypto. Both options are viable depending on your needs, and we hope we helped you understand when to use each. Remember that on ChangeHero, you can instantly exchange crypto assets without logging in or creating an account. It’s easier than using a bridge, and all the network fees are included in the 0.5% service fee.
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