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Cryptocurrency bridges 101
bridges
January 21, 2022
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Cryptocurrency bridges 101

The development of decentralized finance (DeFi) has shown that the flexibility and compatibility of different cryptocurrency blockchains are vital when it comes to the growth of the entire digital asset ecosystem. Unfortunately, modern blockchains still exist as separate closed networks, making it impossible to transfer value (assets) between them. To solve this problem, bridges — special mechanisms that allow the rapid transfer of digital assets from one blockchain to another — have been created. At DeCommas we have compiled a list of the most popular bridges for different cryptocurrencies, and today we will explain how to make the most use out of this new technology.

What are blockchain bridges?

Source: https://coinguides.org/blockchain-bridges-cross-chain-swaps/

A blockchain bridge is a connection between two independent and isolated blockchains aimed at transferring data, tokens, or value. As noted above, until recently, blockchains evolved as separate ecosystems with no compatibility between chains. For example, one could not transfer BTC directly from the Bitcoin blockchain to the Ethereum network. Attempting to make such a transaction could result in loss of coins, automatic cancellation of the transfer, or another error.

The use of a blockchain bridge allows users to do the following:

  • Work with a decentralized application (dApp) on one blockchain utilizing digital assets from another blockchain
  • Conduct seamless and fast coin transfers between different blockchains without resorting to centralized exchanges or platforms
  • Run decentralized applications on more platforms

In today’s world of Web 2.0, these cross-network communications take place between numerous popular websites and applications. Internet Protocol (IP) is a communication protocol widely used to retransmit datagrams (the basic unit of transmission) outside the network. Although IP does not use bridges per se, it does have a routing function that allows networks to communicate with each other. This inter-networking feature of IP has had a huge impact on the development of the Internet. Therefore, in order to succeed on the same scale as the Internet, Web 3.0 must have a similar level of interoperability.

Use cases

There are many benefits to using blockchain bridges. First, they allow the efficient usage of DeFi assets — for example, a user can quickly transfer their Ethereum-based, ERC-20 tokens to the Solana blockchain and use them for yield farming in cryptocurrency ecosystem pools. You can find a list of such pools in the DeCommas resources section.

Second, bridges are a partial solution to the scalability problem of individual blockchains, especially Ethereum. Right now, due to high network congestion and low bandwidth, ETH transaction fees have grown dramatically, making it not economically viable to use the blockchain for relatively small transfers. Using a bridge, ETH can be transferred to the Binance Smart Chain, where the necessary transactions can be executed at much lower fees.

Finally, bridges play an important role in the interaction of the Ethereum blockchain with its Layer 2 solutions like Polygon, Arbitrum and Optimism. With the ability to quickly move assets via bridges, the load on the core Ethereum network is reduced. This has a positive impact on fees and the transaction speed of the entire Ethereum network.

How do bridges operate?

When a user transfers assets from one blockchain to another using a decentralized bridge, those assets are not literally moved. Instead, the process of “moving over the bridge” is broken down into two steps:

  1. First, assets are locked or “frozen” on their native blockchain using a smart contract, or, if smart contracts are not supported, some other mechanism is utilized.
  2. An equivalent volume of new tokens is then created on the “receiving” blockchain.

When the user wants to redeem their tokens back on the native blockchain, the tokens on the second blockchain are burned, and the original assets are unlocked. This process prevents assets from being used on both networks simultaneously.

A prime example of such a mechanism is the Ren Protocol. The Ren Virtual Machine (RenVM) is supported by a large decentralized network of devices that establish consensus, much like the Ethereum network is supported by thousands of nodes. As sensitive information is distributed across many devices, multilateral computing (MPC) is used to create shared cryptographic signatures that allow the network to lock digital assets on one chain, and the user to receive the equivalent amount of digital assets on another blockchain in a trustless manner.

Source: https://www.coinbureau.com/education/cross-chain-bridges/

This approach allows users to potentially move any digital asset from one blockchain to another without relying on any trusted third-party. RenVM currently enables any users to utilize BTC, BCH, ZEC,DOGE, FIL, LUNA, and DGB tokens on Ethereum, BSC, Polygon, Avalanche, Solana, and Fantom blockchains.

The DeCommas bridges guide

DeCommas Bridges section provides information on active bridges. It’s a handy bridge aggregator where these resources can be sorted by the kind of blockchain you need.

To get started, visit the Bridges section. At the top of the page, there is an option to select blockchain A and blockchain B, which represent the networks for sending and receiving tokens. As an example, let’s break down how the Wormhole bridge works when exchanging ETH to SOL. In this case, blockchain A would be Ethereum, and blockchain B is Solana. The list will automatically give you alternative bridges where the desired direction is available when you select these options.

Another way is to simply type the name of the bridge in the search bar. Each bridge’s info includes the name, website, available blockchains, and tokens to exchange. Tokens can also be filtered by their associated blockchain rather than specific tickers. For example, Wormhole allows you to transfer a range of ERC-20 tokens to the Solana blockchain.

Navigate to the website of the bridge, click Transfer Tokens, as shown on the screenshot below.

On the following page, choose a chain to send tokens and click Connect. You will then be prompted to connect your cryptocurrency wallet to the platform. For the purposes of this guide, we will be using the Metamask browser extension as our wallet connection.

Choose the desired digital asset in your wallet, enter the desired amount to transfer.

After clicking Next, you will be prompted to connect the Solana ecosystem wallet to the platform. There are a few of them; in this case, we will choose the Phantom wallet.

Click Create Associated Token Account to create an address to receive coins. This action requires you to pay fees in SOL, but don’t worry, it’s an insignificant amount.

Confirm the transaction on the Ethereum blockchain. At this point, we will need to pay the Ethereum network fee, which is currently quite substantial. Take this into account when exchanging as you will still need to pay these fees. The speed of the process, as well as the transaction fee, also depends on the congestion of the network.

The last step is to receive the coins on the Solana blockchain.

Open the Phantom wallet and check your transactions — as we can see, the address received the same 0.0001 ETH from the bridge, only in the form of WETH tokens. Wrapped Ether or WETH is the regular ETH represented as a token on a different blockchain. With a bridge, you can move your coins to the Solana blockchain and use them to work with decentralized applications or smart contracts within the network.

This is just one example of how bridges operate from the list of resources on DeCommas. You can find dozens of similar resources for the industry’s most popular blockchains. Keep in mind that to use most bridges it’s better to install easy-to-use wallets like Phantom, Metamask or Terra Wallet. Metamask, for example, can work with several popular blockchains at once, making it a great solution for swaps and bridges.

In the near future, the design of DeCommas Bridges will become much more convenient and will look better. With the new design, new features will also appear: routing if there is no direct bridge between the blockchains and extended information on each bridge. In the meantime, a small teaser of the new interface:

An example of the Ethereum-Solana route in the new DeCommas design

The list of available bridges by DeCommas will be regularly updated, but don’t forget that it is solely your choice to choose the right tools for you, and you should always research a bridge before using it. Additionally, we highly recommend you avoid connecting your wallets to unverified platforms, as it can lead to loss of all associated funds.

Be sure to follow the updates on our Telegram ChannelDiscord, and Twitter to be the first one to know about new releases!

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