What exactly are cross-chain bridges, how do they work and why are blockchain bridges needed in the crypto industry? Find out below.
Another week, another cross-chain bridge hack.
Cross-chain bridges seemingly appear to be constant targets of hackers, and with millions of dollars lost in these hacks, one might wonder — why the need for blockchain bridges?
There are over hundreds of blockchains with different features and use cases. While blockchain technology has continued to gain traction and attract more users, the issue of interoperability between different siloed blockchains has remained a major challenge.
Currently, blockchains exist largely as isolated networks that cannot effectively communicate and share data with one another. For instance, Ethereum users cannot deploy smart contracts on the Bitcoin network and Bitcoin holders cannot use their tokens for transactions on the Ethereum network.
Put simply, cross-chain bridges connect individual blockchains, enabling the transfer of assets and information between them.
This allows interoperability across blockchains — allowing users to access protocols and decentralized applications (DApps) in a multi-chain manner.
Cross-chain bridges have emerged as one of the available solutions that are being used to connect different blockchains and ecosystems within the crypto space.
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What Are Cross-chain Bridges?
A cross-chain bridge, otherwise known as a blockchain bridge, is a protocol that connects two blockchains, allowing users to transfer digital assets and information from one blockchain to another.
It is more or less a ‘middleman’ that connects different blockchains, facilitating token transfers, smart contracts and data exchange, as well as communication between two independent chains.
For instance, if you have Bitcoin and want to spend it on the Ethereum blockchain, a cross-chain bridge will make this possible, by wrapping BTC.
Blockchain bridges grew in popularity partly due to the rise of “alternative” layer-ones blockchains, such as Solana, Avalanche and BNB Chain. These so-called “Ethereum-killers” attempted to win market share, and users, from the first smart-contract chain. However, many users had funds locked up on Ethereum. Bridges gave them a seamless way to move their assets over to other chains.
In general, having access to multiple blockchains through a single network enhances the experience of users, increases liquidity for DApps and enhances efficiency of assets.
How Does a Cross-Chain Bridge Work?
Although cross-chain bridges can be used for other cool stuff like converting smart contracts and sending data, the most common utility is token transfer.
Before blockchain bridges, you’d have to rely on the services of centralized exchanges (CEXs) like Binance or Coinbase if you want to use a particular asset on another blockchain.
Let’s assume you have some BTC on the Bitcoin blockchain and want to move these tokens to the Ethereum blockchain, which has a native ETH token. To make this happen, you will need to send your BTC to a cross-chain bridge, which will hold your coin and create equivalents in ETH for you to use.
In reality, your BTC is not transferred from the Bitcoin to the Ethereum network. Instead, it is locked in a smart contract that gives you access to an equivalent amount in wrapped Bitcoin (wBTC) that can be used on the Ethereum blockchain. If you decide to convert the wBTC back to BTC, whatever is left of the wrapped token will be destroyed (burn) while you receive an equivalent amount of BTC.
Read: What Is Wrapped Bitcoin?
A cross-chain bridge would allow you to convert and use your BTC on the Ethereum network without going through a tedious process on a CEX. It works by wrapping tokens in a smart contract and then issuing native assets that can be used on another blockchain of choice.
Why Are Cross-Chain Bridges Important in the Crypto Ecosystem?
To understand the importance of cross-chain bridges in the crypto space, it is necessary to understand how interoperability is powering seamless transactions in traditional finance. You may not have noticed but you can use your Visa to pay for your Mastercard bills. Similarly, you can use PayPal to pay for virtually all your online purchases irrespective of where you are buying from.
These are all different companies, operating different systems and protocols. Yet, transactions are fast and seamless.
The lack of interoperability between different blockchains has been touted as one of the hurdles preventing the mass adoption of cryptocurrencies. As a result, solutions like cross-chain bridges are a big step towards the wider adoption of blockchain technology.
Blockchain bridges also help to lower transaction costs while providing a better user experience. Imagine having to go through different exchanges each time you need to swap a token. Apart from the higher fees associated with doing this every time, the process is quite cumbersome.
In general, cross-chain bridges allow users to enjoy the best features from two different blockchains, such as lower gas fees with higher transaction throughput, and better utility in the form of DApps.
Notable Cross-Chain Bridge Hacks in 2022
To use the services of a cross-chain bridge, users face smart contract risks, amongst other things.
Decentralized bridges are trustless, using oracles and smart contracts to manage the bridging of assets. However, smart contracts are prone to vulnerabilities. Moreover, the nascency of the technology means that many new design models are still being built and tested, thereby presenting other novel attack vectors that can be exploited.
In August 2022, Chainalysis released a report claiming that about $2 billion worth of cryptocurrencies had been stolen across 13 separate cross-chain bridge attacks since the beginning of the year. According to the report, attacks on bridges make up nearly 70% of the total funds stolen between January and August 2022.
Here are some of the top cross-chain bridge hacks in 2022.
Ronin Bridge Hack
The Ronin Bridge attack might go down in history as the largest DeFi exploit ever committed. In late March, the ETH sidechain built for the popular play-to-earn (P2E) game Axie Infinity was compromised. The attackers made away with over 173,600 Ether (ETH) and 25.5 million USD Coin (USDC), valued at more than $600 million at that time.
According to the company, the hackers gained entry through the private keys to validator nodes, resulting in the compromise of five validator nodes. There are claims that the North Korean Lazarus Group was responsible for the attack, with later reports showing how an advanced phishing attack was used to get the private keys to the validator nodes.
Wormhole Hack
A month before the Ronin incident, another cross-chain bridge had already been hacked. On February 2, 2022, the second-largest cross-chain bridge exploit happened on the Wormhole Bridge.
Wormhole is a “decentralized, universal message-passing protocol that connects to multiple blockchains.” A post-analysis of the event revealed that the attacker was able to bypass the verification process of the protocol. This led to the loss of 120,000 Wormhole Ethereum (wETH), close to $325 million.
To carry out the attack, the hacker forged a valid signature for a transaction that allowed them to mint 120,000 wETH without first inputting an equivalent amount. This was then exchanged for around $250 million in Ethereum.
Two minutes after the attack, the attacker bridged 10,000 ETH to the Ethereum blockchain and another 80,000 ETH about 20 minutes later, effectively amounting to nearly $250 million. Interestingly, the funds are still sitting in the attacker’s wallets to this day.
Harmony Bridge Hack
Another recent cross-chain bridge hack is that of the Harmony chain, which happened at around 11AM UTC on June 23, 2022.
On the said say, the bridge between Harmony chain and Ethereum suffered multiple exploits. Some security experts were able to identify twelve attack transactions and three attack addresses. Surprisingly, the Lazarus Group, a well-known North Korean hacking syndicate, was identified as the primary suspect behind the incident.
The group used the login credentials of Harmony employees in the Asia Pacific region to gain entry into the protocol’s security system. Once in, the hackers deployed automated laundering programs that transferred the stolen assets late at night.
They netted a plethora of tokens on the bridge, including ETH, USDC, WBTC, USDT, DAI, BUSD, AAG, FXS, SUSHI, AAVE, WETH and FRAX, with varying values between $49,178 and $41,200,000. In total, the protocol lost around $100 million worth of assets.
Nomad Bridge Hack
In the beginning of August 2022, Nomad token bridge suffered a security breach that allowed the attackers to systematically drain a large portion of the protocol’s funds over a long series of transactions.
Over $190 million was removed from the bridge, leaving just $651.54 in the protocol’s wallet. However, the company told reporters that some of the funds were withdrawn by “white hat friends” who took the funds out to safeguard them. However, 24 hours later, only $9 million out of the $190.7 million had been returned.
Unlike other blockchain bridge hacks, the incident saw hundreds of addresses receiving tokens from the bridge, in what could be best described as a free for all.
Top Cross-Chain Bridges
As with blockchains, there are quite a number of cross-chain protocols. The image above gives an idea of the number of blockchain bridges operating across different networks.
Portal Token Bridge (formerly Wormhole)
Despite the February hack, Portal has remained one of the most popular cross-chain bridges in the space. Although originally built on the Solana Network for bi-directional crypto token transfers between Solana and Ethereum, the multichain now connects over ten blockchains, including Solana, Ethereum, BNB Chain, Polygon, Avalanche, Oasis and more.
Portal uses special validators known as Guardians to provide its users with a robust cross-chain swap experience. The Guardians monitor the activity on the bridge and verify user requests.
In addition to its beginner-friendly interface, Portal token bridge also offers competitive transaction fees of $0.0001 per transfer. The protocol has so far processed over $400k transactions and has a total value locked (TVL) of $469 million at the time of writing.
Binance Bridge
Coming from the world’s leading exchange, Binance Bridge is an Ethereum-BNB Smart Chain Bridge that allows anyone to convert into and from the BNB Smart Chain and other BSC-compatible formats. At the time of writing, the Binance Bridge supports the conversion of ERC-20 tokens along with coins on other networks like XRP, LINK, ATOM, DOT, XTZ and ONT.
It is worth mentioning that the bridge charges zero fees for transactions. Users are only required to pay the gas fees on the native and destination chains.
Avalanche Bridge
The Avalanche Bridge is a two-way cross-chain bridge between Avalanche and the Ethereum network. It uses ChainSafe’s ChainBridge to enable two-way transfers of both crypto tokens and non-fungible tokens (NFTs).
The protocol depends on Relayers to secure the bridge. These Relayers (Protofire, Hashquark, POA Network, Avascan) compare the proposal to swap assets against Avalanche’s data and approve or reject the proposal through a voting process. This additional voting process makes Avalanche one of the most secure crypto bridges in the space.
Fantom AnySwap Bridge
Like the Avalanche Bridge, Fantom’s AnySwap is a bi-directional solution that facilitates cross-chain transfers between the Ethereum Network and the EVM-compatible Fantom Network.
AnySwap provides a multi-chain liquidity solution and uses liquidity pools to enable cross-chain swaps. The liquidity pools deployed across various blockchain networks facilitate transfer to Fantom from Ethereum, Avalanche, Polygon and the BNB Chain.
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