Saturday, September 23, 2023
HomeBusinessWhat Are Crypto Bridges and How Do They Work? - PLC Ultima

What Are Crypto Bridges and How Do They Work? – PLC Ultima

Consider the following scenario: You are a US citizen traveling to Europe. Although you have USD, you must spend EUR. You can utilize a currency exchange for a nominal cost to convert your USD to EUR. However, what do you do if you wish to carry out a comparable exchange on the blockchain? A blockchain bridge would be employed to link the two distinct networks.

Bridges built on the blockchain function exactly like the ones we are familiar with. A blockchain bridge connects two blockchain ecosystems and enables communication across blockchains by transferring assets, much like a real bridge connects two actual locations. PLC Ultima offers detailed information on a Blockchain bridge in this article.

What Is a Blockchain Bridge?

As of writing, separate blockchains are unable to connect. Although it is simple to move money within a blockchain’s ecosystem, developers have needed help finding safe ways to connect several networks. Blockchain bridges allow cryptocurrency to be sent between at least two different blockchains. A crypto bridge’s function is to enable asset transfers between blockchains.

Why Do We Need Bridges?

Every blockchain has its restrictions. For instance, you may easily use ETH to pay for transactions on dApps built on Ethereum, such as Uniswap and Aave. However, their Ethereum-based assets remain inaccessible on rival blockchains like Solana. Instead, you’d have to go to a centralized cryptocurrency exchange (CEX), purchase SOL tokens from Solana, then transfer them to a Solana-compatible wallet.

All blockchains have unique rules and consensus procedures, preventing native communication between them and limiting the free flow of coins. Blockchain bridges enable the exchange of data and tokens between them.

PLC Ultima observes that crypto bridging offers a wide range of advantages. One is that you can bridge tokens with cheaper costs and quicker transaction times from one blockchain to another. You will receive greater value from your cryptocurrency without losing any. In Defi applications, blockchain bridges can help lenders and borrowers to change tokens to their preferred blockchain.

Types of Blockchain Bridges

There are two types of Blockchain bridges: Trusted Bridges and Trustless bridges.

Trusted Bridges

In trusted bridges, users primarily rely on the reputation of the bridge operator. They¬† are dependent on a central system or entity for operation, and because the creators of a protocol directly hold the crypto belonging to each user, trusted bridges are also known as “custodial bridges.”

Trustless bridges

On trustless bridges, Users don’t need to be concerned about a third-party risk from a centralized organization. Trustless bridges rely on autonomous smart contracts to complete transfer requests rather than manually overseeing cryptocurrency transactions.

PLC Ultima elaborates on the various Blockchain architectures with examples from everyday life ( in this case, airport checkouts). To grasp the complexities of crypto bridges, consider yourself at the security checkpoint at an airport. In there are two types of checkpoints: Manual and self-check-in

Before giving out the boarding card, officials at manual checkpoints manually verify all the information on your ticket and your identity. You enter your flight information there, and if everything is correct, you are given the boarding card. The self-check-in does not require an official. Rather you do it yourself.

PLC Ultima compares the trusted bridges to manual checkpoints because the officials who carry out activities are the trusted model. As a user, you have faith that the authorities will use your data responsibly. Self-check-in is comparable to a trustless paradigm because it eliminates the operator and runs entirely on technology.

How Do They Work?

According to PLC Ultima, most cryptocurrency bridges encrypt your initial investment and create a new token on the target chain. Nevertheless, your coin will be a “wrapped” replica of the original in the new blockchain.

For instance, you will get the “wrapped ETH” token when you send ETH to Solana via a bridge. Wrapped tokens are replicas of the original token with the same market value as the underlying asset. They increase liquidity across Web3 by enabling users to use cryptocurrencies on non-native blockchains.

RELATED ARTICLES

Most Popular

Recent Comments