DeFi cross chain bridges
Using DeFi cross chain bridges you can transfer tokens and other assets from one chain to another
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Blockchain Bridges, and Why are they Important for DeFi
What exactly is a Blockchain Bridge?
Acting like the bridges in real life, blockchain bridges (also called cross-chain bridges) connect two different blockchains, making it possible to send cryptocurrency from one chain to another. An obvious example would be sending Bitcoin (BTC) to the Ethereum (ETH) blockchain. The bridges offer a compatible way for the networks to interact with each other, even if two blockchains in question are not fundamentally similar: they even can feature different protocols, rules and governance models.
Bridges enable smart contracts, token transfers and make overall data exchange between the blockchains possible. This is crucial, since this way the bridges solve what used to be one of the main issues in the world of cryptocurrency: the problems with interoperability between various chains. With the increased usage of blockchains, cryptocurrencies and DeFi solutions, as well as a wider range of use cases provided by such technologies, the importance of the blockchain bridges is as high as ever.
How do Blockchain Bridges Work?
Blockchain bridges have many conceptual similarities to the Layer-2 network solutions with the main differences being:
- The bridges prioritize interoperability, while the layer-2 networks prioritize speed;
- The cross-chain bridges are not built on top of existing blockchains.
The bridges actively share data between separate networks locally or remotely. The blockchain bridges actively involve using smart contracts. For example, during the token transfer procedure, one smart contract locks a certain amount of currency a user wants to send, while providing an access to the currency they want to receive. No tokens get moved anywhere and there is no change in the amount of circulating tokens. Transferring tokens is not the only use case of cross-chain bridges. They can operate with any type of data: smart contract calls, sending decentralized identifiers and even off-chain data.
There are two main designs of bridges: trust-based (also called custodial or centralized ones) and trustless (decentralized or non-custodial). The difference lies in who controls the tokens. The trust-based ones are often used as a fast, intuitive and efficient way to operate with the tokens and the trust relies on federation, while the trustless ones offer decentralization, superior user control without the need to trust a single entity and behave much closer to the real blockchains.
The Benefits of Cross-Chain Bridges
The blockchain bridges offer several benefits:
- Provide interoperability between two separate blockchains even if they have different protocols and rules;
- Minimize traffic on congested blockchains (for example, Ethereum), or redistribute it;
- A user does not have to rely on cryptocurrency exchanges. The bridges are a more private solution and also avoid high exchange fees;
- Significant scalability;
- Enable dApps that utilize advantages of different blockchains, offering more flexibility to developers;
- Being an efficient way to transfer tokens, assets and data, the bridges are exceptionally important for DeFi gaming purposes and Ecommerce in the world of blockchains;
- Eliminate the need for other intermediaries for data exchange and communication between the chains;
- Contribute to minimizing the duopoly of Bitcoin and Ethereum, thus playing a role in market stability and giving other blockchains a chance for wider adoption.