Cross-Chain Bridges: An Introduction, Current Status, and Risks by Tusima

Our surveyed studies mentioned that the following mitigation makes the system less scalable. RQ1 aims to identify challenges regarding what does bridge mean in crypto security and privacy, mentioned by researchers and practitioners, in both grey and scientific literature. RQ2 seeks to provide a overview of the mitigations in the field, while RQ3 focuses on which challenges follows these mitigations. Details about Blockchain interoperability and currently used approaches are presented in Section 2.

What makes cross-chain bridges so vulnerable?

If you’re planning to use a cross-chain bridge, first find out how long a bridge has been operational and whether it has a history of hacks. https://www.xcritical.com/ Ideally, your bridge should have a third-party audit that verifies the code’s security. You should also review transparent information on your bridge’s leadership and security procedures.

Security vulnerabilities in blockchain bridges

First, the blockchain onto which you migrate assets may be less expensive and quicker. Investors could use these bridges to take full advantage of marketplaces restricted to a different blockchain. Contact us for a demo to learn more about how Elliptic’s enterprise-grade blockchain analytics capabilities can assist your compliance team. You can also download a copy of our 2022 Typologies Report to learn more about how cybercriminals launder cryptoassets, and how to identify related red flags.

1 RQ1: security and privacy challenges

You’ll need to trust the custodian(s) to burn your wrapped tokens and send the original coins to your address on the original blockchain. To be truly liquid, a bridge must have asset pools on both the native and non-native blockchains to make the lock-mint-burn-release process faster and easier. Binance Bridge, managed by the Binance Company, is an example of a highly centralized bridge. With this bridge, users can transfer Binance Coin (BNB) to Binance Chain, Binance Smart Chain, and other blockchains, with Binance managing the entire process. Cross-chain bridges solved the problem by making it possible to use assets on different blockchains without going off-chain.

• Along with the transfers, the cross-chain bridge development also focuses on security.
• On the other hand, the fees could have been incurred once and for all in a single bridge.
• Binance Bridge, managed by the Binance Company, is an example of a highly centralized bridge.
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• In the vast majority of cross-chain use cases, smart contracts on multiple chains are leveraged to power the minting, burning, locking, or unlocking of tokens as they move across chains.
• While each blockchain bridge is designed differently, these bridges typically allow users to lock in a certain amount of digital assets on one blockchain.

Why Use a Blockchain Bridge Instead of a Centralized Exchange?

In the bridge exploits described above, the responsibility often lies with the bridge services due to factors such as smart contract bugs, poor private key management, or vulnerable cross-chain protocols. However, even when these issues are thoroughly addressed, funds can still be stolen through BGP (Border Gateway Protocol) hijacking. Even if the Ethereum or Solana network were to suffer a 51% attack, your funds would not be stolen. A 51% attacker can only revert the blockchain or censor specific transactions; they cannot steal your assets by compromising your private key. Even if they were to revert all transactions that sent assets to you, your assets would remain safe.

Notable Real-World Cross-Chain Bridge Exploits Due to Compromised Private Keys

Instead of having one blockchain like Ethereum processing all the transactions for thousands of decentralized applications, there could be thousands of application-specific blockchains that communicate with one another. Moreover, when blockchains become able to interact with one another, independent markets and business applications that were previously considered entirely separate will be able to more easily transfer data and value. This means organizations and communities that wouldn’t typically interact with one another would be able to exchange information, leverage each other’s strengths, and cultivate innovation more effortlessly and effectively.

A Beginner’s Guide to Ethereum Layers

For example, crypto users had no problems without the knowledge of using more than one specific ‘home’ chain. In 2023, the overall value of crypto exploits dropped for more than 50% to around $1.7 billion. Within that figure, Cross-chain bridges contributed reduced to around $200 million (Multichain $125 million, Orbit chain $81 million). We mentioned about the administrators who are responsible of minting and wrapping tokens.

Blockchain Bridges by Mechanisms

While bridges are a prominent option, crypto exchanges also offer cross-chain functionality. Just as a physical bridge connects two lands, in the blockchain realm, bridges provide a conduit between different blockchains. However, just as a bridge’s stability is paramount in the real world, in the blockchain sphere, the emphasis on security for these bridges cannot be understated. In the past, hackers have destroyed dozens of “trusted” and “trustless” bridges across the nation.

They facilitate efficient asset transfers across various blockchains without loss of value. For instance, they enable transfers from Ethereum-backed assets to those backed by the US dollar, and between applications like Binance and Metamask. As mentioned above, the locked assets on bridges’ smart contracts undoubtedly appear to be honeypots for hackers. If a smart contract is poorly coded or has not undergo vigorous audits, there will be a higher chance of having loopholes that hackers could exploit.

A cross-chain bridge is a technology that facilitates the transfer of assets and data between different blockchain networks, enabling interoperability among them. As it stands, assets on-chain are not usable across different blockchains (i.e., “USDT” on Solana is not the same “USDT” on Ethereum). This functionality allows users to leverage the unique features and benefits of multiple blockchains without being confined to a single one. For instance, a user can transfer their Ethereum-based assets to the Solana blockchain to take advantage of Solana’s higher transaction speeds and lower fees. Cross-chain bridges achieve this by depositing the original assets on the source blockchain and issuing the equivalent tokens on the destination blockchain, ensuring that the total supply of assets remains constant across chains. A blockchain bridge is an essential technology in the world of digital assets, serving as a connection between different blockchain networks.

Creating secure cross-chain bridges, on the other hand, remains a difficult task in the crypto space. Crypto bridges hacks are all too common, and several Web3 users are apprehensive about using bridges after learning about million-dollar exploits. Securing blockchain bridges is a complex task that requires multiple security measures. A combination of layered security measures, code audits, the use of oracles and continuous education is key to maintaining integrity and security in the blockchain ecosystem. Blockchain is the most powerful tool that has revolutionized many sectors – finance, supply, healthcare, and law.

Polygon, a Layer 2 scaling solution for Ethereum, utilizes bridges to enable faster and cheaper transactions. Blockchain bridges are powerful tools, but they also present potential security risks. These digital vaults require multiple keys to authorize transactions, adding an extra layer of security and making it difficult for a bad actor to compromise the bridge’s funds. For example, users cannot use bitcoin (BTC) on the Ethereum blockchain or ether (ETH) on the Bitcoin blockchain. So if one user (let’s call him Billy) who holds all his funds in BTC wants to pay another user (let’s call her Ethel) for an item but Ethel only accepts ETH, Billy hits a wall.

Testing the bridge against all possible attack vectors is recommended to ensure sound verification logic. Then users can call the contract’s “burn” function, which burns the tokenized assets and releases the original assets. The entire process is coordinated trustless-ly by the smart contract, reducing third-party risk. Cross-chain bridges allow users to swap tokens across blockchains that otherwise cannot communicate. This allows users to move value across chains and provides them with more options. Crypto bridges can provide friction-free customer journeys by facilitating interoperability between different networks.

He meticulously scans liquidity pools across various chains through bridges, spotting a juicy opportunity. Ethereum yields a measly 5% on his stablecoin, while Fantom beckons with a tempting 12%. With a simple move, Bob bridges his stablecoin over, maximizes his returns, and bridges it back, pocketing the handsome interest differential.