What are the so-called “bridges” of cryptocurrencies? | TechBuzz

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Even when transaction volume drops, blockchain platforms like Ethereum struggle with transaction speeds and fees. To solve this problem, Ethereum supports layer 2 solutions to temporarily modify some transactions off-chain. However, at some point transactions must be returned to the Ethereum blockchain, and the method these solutions connect to Ethereum is known as cryptocurrency bridge.

What is a cryptocurrency bridge and how does it work?

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Cryptocurrency bridge – what is it and what is it for?

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A cryptocurrency bridge is an application that allows someone to transfer their cryptocurrency between blockchain platforms. One concern with blockchain technology is its ability to communicate with other blockchains. This communication, called interoperability, allows developers to build on multiple blockchains and meet user requirements regardless of which blockchain they want to use.

The problem hindering interoperability is that each blockchain has a native coin, token creation rules, a potentially unique coding language, and smart contract executables. Basically, every blockchain speaks a different language and there is no translator.

To solve that problem, bridges allow users to send their cryptocurrencies to other blockchains by creating a token that represents that cryptocurrency, minting that token on another blockchain, and keeping the previous tokens. Then, if the user decides to return, they surrender their minted tokens and receive the original cryptocurrency in the first chain.

How exactly do these bridges work?

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When a user sends their cryptocurrency to another blockchain through a cryptocurrency bridge, they technically do not receive the same cryptocurrency or token that they sent. Instead, the user receives a token representing the amount of cryptocurrency, which he put into the bridge, which the new blockchain ties to the value of the transferred tokens. Let’s say you want to bridge your Ethereum from the native Ethereum blockchain to the Avalanche blockchain.

After wrapping your ETH, you would send the new WETH coins to the crypto bridge connecting Ethereum to Avalanche. The bridge takes WETH, mints an Avalanche equivalent called WETH.ei and deposits the tokens to the target wallet address. These bridges convert everything one-to-one, meaning you should get the same amount of WETH.e tokens as you had in WETH.

Tokens created through bridges have their value tied to the underlying cryptocurrency, similar to how stablecoins have set values. As the market value for the base token changes, so will the value of the tokens created via bridges on new blockchains. Once you are on the new blockchain, the tokens work like any other token on the blockchain. You can use these tokens on decentralized exchanges, buy goods or services, and otherwise participate in the blockchain.

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Why are cryptocurrency bridges important?

The biggest appeal of cryptocurrency bridges is the interoperability solutions they offer. Anyone who uses cryptocurrency is familiar with the scalability issues that large projects like Bitcoin and Ethereum face. As these projects grew, their processing speed dropped, while additional fees rose, especially for Ethereum.

While these projects have different solutions in testing for scaling, like Bitcoin’s Lightning Network or Ethereum’s Layer 2 solutions, cryptocurrency bridges offer a way to move some dApp traffic to less congested blockchains. For example, developers on Ethereum can use a bridge to switch some of their transactions to a faster chain, improving their speed and reducing the load on Ethereum.

Developers on smaller blockchains will also benefit. As more Ethereum users come into their ecosystem, smaller chain developers are encouraged to make their DApps work with these bridges, as they can attract a larger user base by integrating the bridge. This adoption gives them a connection to the talent that is also available in the Ethereum ecosystem.

However, cryptocurrency bridges can suffer from the same drawbacks that any DA application based on smart contracts can. The exploitation of smart contracts has resulted in the theft of vast sums of money, killing trust and funding targets. Bridging to a blockchain with weaker smart contract security can cause problems for an otherwise secure project.

Cryptocurrency bridges improve cross-platform interoperability

Despite their shortcomings, cryptocurrency bridges are the first step blockchain platforms need to create a seamless cryptocurrency-wide ecosystem. While many blockchains work independently of each other, some people believe we are moving towards a vast network of interoperable blockchains.

It is difficult to say how far that future is and whether it will happen at all. But for now, cryptocurrency bridges will help projects decouple their transactions and provide a wider range of options.

Written by: Ivan Hečimović

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I am admin of techbuzz.asia blog & I provide tech-related news. As a part of my hobby, I make content related to technology and gadgets reviews too. I love to be a content creator apart from it, I am a full-time employee in an MNC company and manage blogs systematically. You can mail me at [email protected]

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