Bridging solutions: Forming the new bouncing blockchains of the future.
When cryptocurrency was first introduced, the users were limited to a single ecosystem; they were unable to send BTC to the Ethereum network or ETH to the Bitcoin blockchain. Fast forward to today, things have changed, and crypto users can make such a transaction now, thanks to some of the bridging solutions. But they are not that simple either.
The advent of bridging solutions is a relatively new addition to the crypto area, and there is a promising value proposition— the solving of the interoperability problem.
Let’s dig deeper into the finer details; note that Decentralized Finance (DeFi) and Non-fungible tokens (NFTs) really helped the cross-chain innovations come through. Now, users are in extreme need of the possibility of sending assets from one smart contract platform to another.
The answer is the blockchain bridges.
The leading bridge (WBTC on Ethereum) has above $4.9 million in total value locked (TVL), according to $4.9 DeFi Llama.
The status of the existing blockchain bridges
The crypto ecosystem naturally experiments a lot; most projects are simply trying out new infrastructures to launch solutions that will attract users. But this comes at a cost. When talking of the blockchain bridges, over $2 billion has been lost in 2022 to malicious attacks on cross-chain ecosystems.
Hackers once compromised the infamous Robin bridge and stole about $625 million worth of digital assets. The big question now is whether crypto users can trust these platforms with their money. The existing blockchain bridges are not exactly foolproof.
All blockchain bridges face challenges inherent to the system. But let’s first differentiate between trust-based and trustless blockchain bridges before we look at the shortcomings. Trustful bridges rely on third parties for transaction verification, while the latter is purely based on algorithms and smart contracts.
The major hurdles of blockchain bridges
Smart contracts are exposed to huge technical hazards, regardless of the fact that they are believed to be more reliable than centralized intermediaries. The DeFi ecosystem suffered from the highest percentage of crypto hacks over the past years.
Trustless blockchain bridges are vulnerable to security hacks. The Ethereum to Solana cross-bridge was compromised after hackers found a bug in the smart contract in February 2022; they stole over $326 million.
Single Point of Failure (SPOF)
Another problem with trust-based blockchain bridges is centralization. Users have to trust third parties who run the cross-bridges in these ecosystems. But instances like the Ronin $625 million hack brought forth serious cracks in the trust-based model. Hackers took control of five of the nine validators, draining out the funds as a ‘verified withdrawal.
Blockchain bridges aim to increase liquidity depth across the entire crypto market, unlike before. The majority of cross-chain solutions launched are limited to certain ecosystems. A user has to go through two or more bridges before they can finally transfer funds to the blockchain network they want. Now, this renders the whole concept of interoperability useless, let alone forming deep markets for DeFi and NFT natives.
The solution? Interoperable Smart Contract Hubs
Innovators in this industry are fast to come up with solutions. The first-gen blockchain bridges may not have been up to mark, but a cross-chain trend is emerging: interoperable smart contract hubs. This nascent bridging solution introduces open-source registries where developers can share their code and access other smart contracts.
t3rn is one such bridging solution; the smart contract hosting platform is designed to offer an interoperable environment for blockchain developers. The t3rn registry enables developers to contribute smart contract codes to the open repository. Anyone can integrate these codes through the t3rn plugin circuits and gateways. Developers also have the option to charge remuneration fees.
These emerging smart contract hubs are taking things up a notch in the security domain as well. This platform has a ‘fail safe’ mitigation approach whereby execution changes are conserved so they can be reversed in the event of failure. Although they are yet to become popular, the composable nature of smart contract hubs will surely make it easier for developers to build standard and interoperable DApps.
A decade has passed since the inception of the blockchain ecosystem; a lot has changed since Bitcoin’s launch in 2009. Now, there are several blockchain networks, some of which are solely focused on smart contract development while others are largely transactional, like Bitcoin. The industry stakeholders now realize that there is a need for an ecosystem that can operate under one umbrella.
As bridging solutions advance, they will unify the digital asset market and ultimately create an opportunity for integration with traditional finance.