Blockchain networks have long operated as silos (fragmented ecosystems) until the advent of bridging solutions. While a relatively new addition to the crypto market infrastructure, their value proposition in solving the interoperability problem is undeniable.
In the earlier years, crypto users were limited to a single ecosystem; one could not send BTC to the Ethereum network or ETH to the Bitcoin blockchain. Today, such a transaction is possible through some of the existing bridging solutions, although not as straightforward.
Diving deeper into the finer details, it is worth noting that Decentralized Finance (DeFi) and Non-fungible tokens (NFTs) have played a significant role in the adoption of cross-chain innovations. Over time, it has become increasingly important for users to be able to transfer assets from one smart contract platform to another.
What better way to facilitate this communication than blockchain bridges? According to DeFi Llama, the leading bridge (WBTC on Ethereum) currently enjoys over $4.9 million in total value locked (TVL).
Are the Existing Blockchain Bridges Foolproof?
By nature, the crypto ecosystem is largely experimental, most projects are simply trying out new infrastructures to launch solutions that will attract more users. This normally comes at a cost; in the case of the blockchain bridges, Chainalysis recently estimated that over $2 billion has been lost in 2022 as a result of malicious attacks on cross-chain ecosystems.
In one instance, hackers compromised the infamous Ronin bridge and got away with $625 million worth of digital assets. The big question then becomes whether crypto users can trust these platforms with their hard earned money? While it may not be black or white, one thing is certain – the existing blockchain bridges are not foolproof.
Both trust-based and trustless blockchain bridges face a number of inherent challenges, but let’s differentiate the two before highlighting the shortcomings. The former type of bridge relies on third parties (custodians) for transaction verification; on the other hand, trustless bridges are purely based on algorithms and smart contracts.
That said, here are three major hurdles that today’s blockchain bridges are facing in their role of bridging the interoperability gap.
- Technical Liabilities
Although touted as more reliable than centralized intermediaries, smart contracts are exposed to huge technical risks. The highest percentage of crypto hacks over the past two years were from the DeFi ecosystem. Similarly, trustless blockchain bridges are prone to security hacks – like was the case in the wormhole breach. This Ethereum to Solana cross-bridge was compromised in February 2022 after hackers discovered a bug in the smart contract, they ended up stealing over $326 million.
- Single Point of Failure (SPOF)
Centralization (SPOF) is another risk when it comes to trust-based blockchain bridges. In these ecosystems, users have to put their faith in third parties who run the cross-bridges such as Binance (manages the Binance bridge). However, previous instances like the Ronin $625 million hack exposed serious cracks in the trust-based model. Hackers were able to take control of five out of the nine validators, ultimately draining the funds as a ‘verified’ withdrawal.
- Fragmented Infrastructures
The fundamental role of blockchain bridges is to increase liquidity depth across the entire crypto market, but that has not always been the case. As it stands, most of the cross-chain solutions that have been launched are limited to certain ecosystems. This means that a user would have to go through two or more bridges in some cases before they can transfer funds to their desired blockchain networks. It beats the whole logic of interoperability, let alone creating deep markets for DeFi and NFT natives.
A Long term Solution : Interoperable Smart Contract Hubs
If there’s one admirable thing about the crypto industry, it is the rate at which innovators come up with new solutions. Pioneer blockchain bridges may not have met the expected standards but there is an emerging cross-chain trend; interoperable smart contract hubs. This nascent type of bridging solution introduces open-source registries where developers can share their code and access other smart contracts.
One such bridging solution is t3rn, a smart contract hosting platform designed to offer an interoperable environment for blockchain developers. At the core, the t3rn registry allows developers to contribute smart contract codes to the open repository; these codes can be integrated by anyone through the t3rn plugin circuits and gateways. More importantly, developers also have an option to charge remuneration fees.
Besides the interoperability solutions, upcoming smart contract hubs such as t3rn are going a notch higher in the security domain. This platform features a ‘fail safe’ mitigation approach whereby execution changes are escrowed, so they can be reversed if they fail. While such bridging innovations are yet to gain popularity, the composable nature of smart contract hubs will undoubtedly make it easier for developers to build standard and interoperable DApps.
The blockchain ecosystem is now over a decade old, a lot has changed since Bitcoin’s launch in 2009. Most notably, there are several blockchain networks, some of which are solely focused on smart contract development while others like Bitcoin are largely transactional. That said, it has dawned to the industry stakeholders that we need an ecosystem that can operate under one umbrella. The advancement of bridging solutions will not only unify the digital asset market but eventually create an opportunity for integration with traditional finance.