Let’s say you’re wanting to go and spend a week in Italy with your wife and her family. In fact, my wife actually is Italian, and I would absolutely love to go visit her father’s family in Sardinia, he says it is beautiful over there, especially the beach. 

You put together a todo list to make sure that all the important items that need to be done beforehand are completed. For the sake of this article, there is one thing left, exchanging currency. 

In most countries this is easy because there’s already a system set up where you can go to a kiosk or to a bank and exchange your dollars easily for the Euro, but what do you do when you want to say trade your bitcoin for Ethereum or your Ethereum for Matic? Well that is the dilemma but more on that in this article!

Welcome to Whiteboard crypto where we spend a lot of time and resources creating these amazing articles and animations so you can sit back, relax, and understand the topic with the help of our analogies, stories, and examples. 

What is a Blockchain Bridge?

A blockchain bridge is a connection that allows the transfer of tokens or data from one chain to another or the ability to interact with another chain's dapps.

Before we get into this, you need to realize something very important.

All Coins have their own blockchain. Tokens, instead, are virtual versions built on a coin’s blockchain

Note: If you don’t want to read through this article, we have created an animated video that you can watch below instead. 

Let’s break this down. There are many different cryptocurrency networks.

For example, there is the Ethereum network, Solana Network, Binance Smart Chain network, xDai network, Cardano network, Polygon network… you get the picture.  These coins have their own networks. 

The Ethereum’s network is obviously built using Ethereum as the main coin, and so on for the other networks. However, you can have Ethereum on the Binance Smart Chain. You can have Ethereum on the Polygon network. These coins can be represented as tokens on other coin’s networks. 

So now that you know each coin has it’s own network, and that each coin can be represented on another coin’s network… you can hopefully understand the reason for a blockchain bridge. 

Let’s go over a very simple example as to why you would want to use a blockchain bridge. AAVE is a very popular lending and borrowing platform that allows you to lend out your cryptocurrency in turn for earning interest on it. If I lend out Ethereum on the Ethereum network, I can earn .50% right now. However, if I lend out Ethereum on the Polygon network, I can earn 3%. 

So if I take my Ethereum on the Ethereum network, move it over to the polygon network, I can get a polygon representation of the Ethereum coin and use it on AAVE so I can earn higher interest. 

Or maybe I want to move my Tether from Polygon to Ethereum. Or maybe I want to move my USDC from BSC to Polygon. All of this can be done through a blockchain bridge. 

Why are Blockchain Bridges Needed? 

Benefits of Blockchain Bridges

Now the big question, why are blockchain bridges needed?  Well, bridges are currently needed for 3 big reasons.

1. Native Tokens

The first is that most ERC20 tokens that you buy right now are native to the Ethereum network.

This means even if you buy Polygon on Coinbase, they give you an Ethereum version of polygon, instead of the actual polygon token on the polygon network. In other words, major cryptocurrency brokers literally do not sell native tokens, they sell tokens on the Ethereum network. 

2. Transaction Fees

The second big reason you would switch your native ETH on the Ethereum network to the Polygon network is because a transaction on the Ethereum network costs $2 right now, while a transaction on Polygon is so cheap, you could perform 50,000 transactions for $2 right now. Polygon was created as a way to scale Ethereum, however it currently doesn’t have the security Ethereum does, because by nature it is a bit more centralized. 

So bridges are needed so regular people can more easily access new networks, they are also needed because some networks are cheaper, faster, or safer…

3. Progression

And lastly we need bridges for progression. In the current state, the responsibility is on each of the different blockchains to innovate, solve security issues, and be able to scale.

For example, what Bitcoin brings to the table, Ethereum can’t really use and make better. 

This is where bridging will come in, it’ll turn cryptocurrencies into more of a team sport working all together to make crypto a more all-around solution to the problems it’s trying to solve.

The issue with Bridges

One of the issues with bridges is that they cannot be 100% trusted. Unlike a decentralized application, which uses code as it’s backbone, a blockchain bridge generally must have an entity or person behind it. In other words, a majority of the bridges currently being used are centralized. 

Along with that, another issue they have is that they are quite slow. Some transfers take minutes, others take hours, and some even take days. As an alternative, most transactions on any of the big networks can be completed in less than 10 minutes.

How do Blockchain Bridges Work?

There seems to be 2 main ways a bridge works.

We’ve done some research, and if you find a 3rd way, drop a comment below and we’ll cover it!

1. Bridges are Centralized 

Bridges are Centralized

The first, is very centralized, and it is essentially an extension of any other exchange. In a sense, there is a large pool of Ethereum Tether, and a large pool of Polygon Tether. Both are tether representations on their respective networks. Sometimes, instead of a pool, it’s a company or a person.

Now, when you go to deposit your Ethereum Tether, it gets added to the pool, and then the centralized authority will send you an equivalent amount of Polygon Tether, which gets taken from the pool. Of course, your fee is taken out and given to the centralized authority or the liquidity providers, but it is usually a small fee and you’re happy paying it. You must trust that the central authority doesn’t steal your money in the process. 

Along with that, this method only works if people keep trading back and forth. I ran into this problem when I tried to transfer some of a stablecoin from Binance Smart Chain to the polygon network, and the polygon network had no stablecoin to give to me. The pool was empty. I literally had to wait around 4 hours for someone to give the pool what I needed. 

2. Smart Contracts

Smart Contracts in Blockchain Bridges

The second way is through smart contracts. When you go to “bridge” your crypto, your current asset is actually “Frozen” through a smart contract. Once your assets are frozen, you’re then given a copy of that token on the new network you wish to move to.

The smart contract literally mints you more of that token. And it is okay doing so, because it knows you burned, or froze, it on the other network. It should be assumed that this smart contract method is usually used for coins that don’t have their own smart contract capability.

For example, Bitcoin, Bitcoin Cash, and Dogecoin are 3 big coins that people love investing in, but don’t have the ability to do things like invest in Aave. Instead, you can get representations of these coins on a network that does allow smart contract, like Ethereum. renBTC is an Ethereum token that allows you to hold a token that is pegged to bitcoin’s price, but gives you the capability to do things like lend it and interact with other decentralized Apps. 

Crypto Bridge Examples:

  • xPollinate
    • xPollinate is powered by two companies that are unaffiliated with the blockchains they allow you to bridge too. They are probably in it to collect fees paid by the traders. This is actually the bridge I mentioned earlier that had 0 liquidity. Though they only let you currently bridge between 4 different chains: xDai, Matic, Phantom and Binance.
  • Matic Bridge
    • This bridge was developed by the matic team to help get more people onto the true Polygon network. 
  • Binance Bridge
    • This bridge was created by the Binance company to also help onboard people from other cryptocurrencies to move to the Binance Smart Chain.

There are many other bridges, but we highly recommend to check reviews and do your own research on the bridge before sending the bridge your assets and hoping they get sent back on the secondary network.

One quick trick is to google “xPollinate reviews reddit” and you’ll get a ton of personal reviews. If xPollinate decides to start scamming or rugpulling, it’ll quickly show up on reddit. 

Finishing Up

Alright grandchildren, now that we tried to educate you on the topic of crypto bridges, we want to hear from you! Have you guys used any crypto bridges before and if so what was your experience? Let us know in the comments below!

As always, thanks for watching our videos, we hoped you enjoyed it, we really hope you learned something, and most importantly we hope to see you in the next one!

About the author 

Whiteboard Crypto Team

We are a team of blockchain enthusiasts dedicated to creating high-quality resources for anyone wanting to learn about the space. In fact, what inspired us was our grandparents - they didn't understand crypto. We aim so create all our content so that even they can understand it!

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