What Are Blockchain Bridges and Why Do They Keep Getting Hacked?

There are one-way (unidirectional) bridges and two-way (bidirectional) bridges. A one-way bridge means users can only bridge assets to one destination blockchain but not back to its native blockchain. To understand what a blockchain bridge is, you need to first understand what a blockchain is.

Risks of Blockchain Bridges

The bottom line is that crypto as a whole takes a reputational and financial hit every time an exploit makes waves. The answer is to learn from the mistakes hackers teach us time and again, becoming more proactive in our efforts to prevent repeat performances. The backend server needs to validate the structure of the transaction’s emitted event, as well as the contract address that emitted the event. If the latter is neglected, an attacker could deploy a malicious contract to forge a deposit event with the same structure as a legitimate deposit event. To enhance the security of bridges, it’s valuable to understand common bridge security vulnerabilities and test the bridges for them before launch.

How $323M in crypto was stolen from a blockchain bridge called Wormhole

You can find a few blockchain bridge projects making their way towards popularity. The bridges provide seamless transactions between popular blockchain networks. In addition, every bridge has a different approach to operations based on its time. Therefore, you are more likely to identify profound variations in the transfer times for every bridge. Blockchain technology has covered quite an extensive journey since its introduction to the world in 2008 with the Bitcoin whitepaper.

Additionally, it makes it easier for developers from different networks to work together to create new user platforms. Cross-chain technology encourages quicker transaction processing times and immediate token exchanges from the user’s perspective. This allows for more cross-chain transactions and the ability to access different DeFi services on different chains, leading to more innovation and growth in the DeFi space. Trustless bridges are much more complicated on a technical level than some custodial bridges. This type of bridge can include many ins and outs across the blockchains they operate. As such, trustless bridges have faced many different attacks and exploits in recent years.

Exploring Various Ecosystem dApps

A blockchain bridge is a protocol connecting two blockchains to allow interactions between them. If you own bitcoin but want to participate in DeFi activity on the Ethereum network, a blockchain bridge enables you to do so without https://www.xcritical.com/ selling your bitcoin. Bridge services “wrap” cryptocurrency to convert one type of coin into another. So if you go to a bridge to use another currency, like Bitcoin (BTC), the bridge will spit out wrapped bitcoins (WBTC).

Risks of Blockchain Bridges

Various newer blockchains based on different consensus protocols came into existence shortly afterward. Bridges have rightly earned a reputation as Web3’s weak link after a string of exploits this year. Cross-chain bridges make interoperability within the blockchain sphere possible. They enable protocols to communicate with one another, share data and build exciting new use cases that are helping propel Web3 into new frontiers. But as this month’s BNB Smart Chain exploit reminds us, they are vulnerable to attack. Immediately tracing and labeling funds in the Chainalysis platform can make the difference in preventing bad actors from cashing out their ill-gotten gains.

Defining bridges in blockchain

This can be problematic since passing the zero address to the function can bypass the whitelist verification even if implemented incorrectly. If the backend server does not verify which address emitted the event, it would consider this a valid transaction and sign the message. The attacker could then send the transaction hash to the backend, bypassing verification and allowing them to withdraw the tokens from the target chain. The attackers also need victims to approve the bridge contract to transfer tokens using the function “transferFrom” to drain assets from the bridge contract. The other token issuance method some bridges employ is known as the “liquidity pool method”. This process works similarly to liquidity farming and relies on network participants to succeed.

  • A blockchain bridge facilitates the conversion of one native asset from one blockchain to its equivalent on another blockchain.
  • Just a few years ago, centralized exchanges were by far the most frequent targets of hacks in the industry.
  • The most common example in practice is when users leverage centralized exchanges to swap or bridge their own tokens.
  • In the case of this bridge hack, it seems attackers used social engineering to trick their way into accessing the private encryption keys used to verify transactions on the network.
  • But as this month’s BNB Smart Chain exploit reminds us, they are vulnerable to attack.

Wrapped asset bridges facilitate the transfer of non-native assets between blockchains. A great example would be Wrapped BTC, which mints WBTC on Ethereum for trading and DeFi purposes. Bridges use wrapped tokens, which lock tokens in one blockchain into a smart contract. After a decentralized cross-chain oracle called a “guardian” certifies that the coins have been properly locked on one chain, the bridge mints or releases tokens of the same value on the other chain. Wormhole bridges the Solana blockchain with other blockchains, including those for Avalanche, Oasis, Binance Smart Chain, Ethereum, Polygon, and Terra. Non-custodial bridges operate in a decentralized manner, relying on smart contracts to manage the crypto locking and minting processes, removing the need to trust a bridge operator.

Blockchain bridges by mechanisms

The subsequent rise in the number of cryptocurrencies and development of blockchain networks with programmability, such as Ethereum, have created a completely new ecosystem. Blockchain promises the value of decentralization and freedom from the control of any individual or institution. However, majority of blockchain networks exist in the form of isolated communities with their own economies. Therefore, blockchain bridges have become one of the inevitable necessities for the decentralized application ecosystem. Blockchain bridges play a crucial role in achieving interoperability across different blockchain networks.

Risks of Blockchain Bridges

Under this type of bridge, members are obliged to cede control of their assets to a governing body. However, there are not as many reliable services available today, which could force users to trust smaller and less-known companies. One of the most popular trusted bridge initiatives is Wrapped Bitcoin (wBTC), which allows sBitcoin users to pursue the opportunities of Ethereum.

Custodial vs Non-custodial Bridges

Interoperability has the potential to be the catalyst for Internet innovation. Improving blockchain networks’ interoperability and their widespread adoption depends on using blockchain bridges. The number https://www.xcritical.com/blog/what-is-a-blockchain-bridge-and-how-it-works/ of users, bridges, and overall transaction volume on these bridges have all increased exceptionally. As the Internet transitions to Web3, the blockchain bridge will also keep expanding in the future.

Risks of Blockchain Bridges

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