Are Bridges Solving the Interoperability Problem?
October 12 2021 - 9:10AM
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The blockchain landscape is as vast as it is diverse. Filled with a
rapidly growing number of tools, platforms, and protocols, each
designed to boost the utility of cryptocurrencies and provide value
to users. But in this complexity, a major obstacle has emerged.
Blockchains simply can’t interact with one another. Ethereum,
Binance Smart Chain, Solana, Terra, and dozens more blockchains are
effectively operating in isolation, due to a lack of in-built
interoperability. This has had a knock-on effect of dividing the
blockchain community, who often need to pick and choose which
platform to get to grips with and support. As it stands, to
interact with services on multiple blockchains, users would need to
have at least a basic understanding of how that platform works,
hold a wallet, and own at least some of its native assets.
Understandably, few individuals and businesses want to go through
the hassle of familiarizing themselves with multiple platforms.
Over the years, a range of options has been pushed as potential
solutions to this challenge. These include interoperability
solutions like Polkadot, which enables interblockchain
communication by connecting distinct blockchains through a central
relay chain. As well as Cosmos’ interblockchain communication
protocol (ICP), which allows homogeneous blockchains to exchange
data and value by providing a single standard for communication.
Image credits: Cosmos But despite this, some of the earliest and
least complicated solutions are providing to be the most effective.
We’re talking about bridges — deceptively simple platforms that
allow users to easily move their assets from one blockchain to
another (a process known as bridging). The way these platforms work
is typically relatively simple. Let’s say you want to move 500 USDT
from the Ethereum network to Avalanche. You’d select your bridge,
choose your input (Ethereum) and output networks (Avalanche),
select the asset (USDT) and amount (500, enter your output address
(your Avalanche address) and initialize the bridge. The bridge
smart contracts would then burn 500 USDT on Ethereum, and mint 500
USDT on Avalanche — effectively moving 500 USDT between chains
without running the risk of accidentally doubling the total amount
of USDT in circulation. Other bridges, such as Celer’s cBridge,
keep liquidity pools on each chain rather than burning tokens. When
a user bridges their assets, their funds on the origin chain are
simply added to that chain’s asset pool, while the equivalent
amount of funds on the destination chain are released to their
address. This effectively accomplishes the same thing, without
requiring token burns (a feature not all blockchains support). The
platform is able to support trustless any-to-any liquidity
transfers across close to a dozen networks (including Ethereum,
Polygon, Binance Smart Chain, Arbitrum, and Avalanche) and has seen
its use soar in the last four months, climbing from $10m total
volume in its first month to over $10m per day in October —
demonstrating the rapidly increasing demand for cross-chain
liquidity. The team behind the platform is now finishing up v2.0 of
cBridge — bringing with it increased liquidity, more chains,
improved benefits for liquidity providers, and more. Other
platforms, including the PancakeSwap bridge, Terra Bridge, and even
Binance’s bridge platform have also seen a dramatic uptick in use
over the past several months, as an increasing number of users look
to interact with projects and services building on alternate
blockchains. By effectively solving the liquidity issue by allowing
users to move their assets from one blockchain to another at low
cost, without requiring a steep learning curve or excess capital,
cross-chain bridges are quickly becoming the go-to solution for
those looking to regularly interact with multiple blockchains. And
given their rapid adoption in recent months, it looks likely that
they will continue to gain momentum in the months and years ahead
as more people recognize the benefits of utilizing multiple
blockchains.
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