What are blockchain Bridges? Cross-chain Platforms Explained - FXLeaders

What are Cross Chain Bridges?

A cross-chain bridge is a link that enables the transfer of tokens and information from one network to another. The connection offers a compatible means of secure operation, despite the multiple networks operating in different protocols. 

How do Cross-chain bridges work?

Cross-chain bridges exchange information locally or remotely. The bridges communicate and share value with other networks. The local domain consists of the various aspects of a protocol in a single blockchain. Remote domains are separate blockchain protocols.  

When remote bridging is taking place between Chain X and Chain Y, the bridge locks the tokens in Chain X and generates new tokens in Chain Y. When the owner of the new tokens wants to redeem them, he can first burn them on Chain Y and then unlock them on Chain X. The amount and the value of the tokens remain constant in the lock-mint, burn-release model. 

Why is it important to create a bridge between different blockchains?

Bridging different blockchains solves the problem of applications that are built on one network and are not compatible with other networks. Bridges spur economic growth and innovation, and open trade with no boundaries. When networks are interoperable, DeFi applications benefit from adequate liquidity and a wider user base. 

The differences between Layer one and Layer two blockchains

The Layer 1 blockchain is the underlying main network architecture. In contrast, the Layer 2 blockchain is a third-party solution that complements the Layer 1 protocol for scaling purposes. Bitcoin and Ethereum are among the Layer 1 networks, while the Lightning network built on Bitcoin is a Layer 2 solution. The advantage of the Layer 2 solution is that it does not tamper with the layer blockchain. Layer 1 is still functional, without adding the other solutions on top of it. Layer 1 bypasses detailed verifications that must be followed in the main blockchain, reducing the transaction time. 

Ethereum’s high gas fees

The popularity of Ethereum (L1) in supporting decentralized applications and non-fungible tokens is the reason behind the high gas fees in the network. Gas fees are a metric that measures the level of computational power necessary to settle a specific transaction. Each transaction on the Ethereum network requires a certain amount of fees, which are payable in Ether, the native currency of Ethereum. The gas price is denominated in gwei, which is a unit of ETH. 

What are the best alternatives to Ethereum? 

Cosmos

Cosmos works as an internet of blockchains that aims to tackle the scalability problems in Layer 1 ecosystems. The protocol seeks to build parallel blockchains that link to each other. Tendermint is a consensus algorithm that powers the Cosmos network. ATOM is the native token of Cosmos, and it is used in staking and governance. 

Cardano

Cardano is an open-source blockchain that aims at powering decentralized applications. The platform’s ADA token is a utility and governance token, and it powers the network. The protocol was founded by Charles Hoskinson, a co-founder of Ethereum. Cardano, was founded in 2017, and it uses the proof-of-stake consensus in transaction validation. 

Binance Smart Chain

Binance smart chain is a blockchain that was developed for smart contracts. The protocol operates parallel to Binance Chain, another solution by Binance to enhance functionality. BSC was developed, based on the Ethereum Virtual Machine. It features lower transaction fees than Ethereum. The network uses the proof-of-stake authority model.

Polygon (L2)

Polygon is an Ethereum Layer 2 solution, and part of Polygon SDK, which supports the development of multiple applications. The architecture combines the proof-of-stake consensus model and the Plasma Framework. Polygon has about 65,000 TPS on one single chain and a block time of two seconds. The platform was launched in 2017, and it is powered by the MATIC token. 

Available cross-chain platforms 

Solana Wormhole Bridge

Wormhole is a communication bridge that links Solana to other decentralized financial networks. The bridge enables the transfer of assets between blockchains, with Solana’s fast transaction speeds and low costs. Users can transfer assets from Solana to Ethereum, BSC, Terra and Polygon. 

Binance Bridge

Binance bridge aims at enhancing interoperability across multiple blockchains. Users can convert tokens into wrapped tokens in Binance Chain and Binance Smart Chain (L1). Binance users can also use their Bitcoin, Ethereum and USDT within the BSC (L1). The benefits include leveraging BTC holdings to earn staking rewards. 

Avalanche Cross-Chain Bridge

Avalanche is a proof-of-stake blockchain that is interoperable with the Ethereum ecosystem. The cross-chain feature in Avalanche Wallet enables users to send AVAX to the Ethereum blockchain. The AVAX is exchanged at a fee. Avalanche Bridge uses the Intel SGX to enhance the security of the bridge. Other supported wallets are Metamask, Coinbase and WalletConnect. 

Polkadot

Polkadot enables independent blockchains, called parachains, to be interoperable and to leverage security from the Relay Chain. The cross-chain is also compatible with other blockchain networks, like Ethereum and Bitcoin. A Polkadot chain can serve as an open public network or as one run by a profit-making organization. 

Anyswap

Anyswap is a decentralized cross-chain protocol that facilitates the swapping of tokens from various blockchains. ANY is the native utility token of Anyswap, which is based on Ethereum. The protocol was founded in 2020 by Dejun Qiam and Zhao Jun. Anyswap is supported by Fusion’s Decentralized Control Rights Management technology for the cross-chain transfer of tokens. The Fusion Network uses a sharding process to augment the protocol’s safetySmart contracts hosted on Anyswap. They are open-source to reinforce security in individual audits. 

About the author

Eric Nkando // Financial Trader and Technical Analyst
Eric Nkando is a professional forex trader and financial analyst from Nairobi, Kenya. He has 3 years trading experience, with interests in Forex, cryptocurrencies, and commodities. He is a CPA(K) holder and a B.com degree (Finance) graduate. Eric’s market analysis and coverage have featured on leading financial websites including Wikifx and Seeking Alpha