The public’s interest in cryptocurrencies increased sharply in recent years. As such, the number of blockchain-related projects has grown in tandem with the public’s interest. This growth has caused massive public adoption, which has put some stress on prominent blockchains.
On Ethereum, (ETH) fees began to soar, and the average transaction speed slowed. Slow speeds & high tx fees affected Ethereum’s usability for many users, and teams sought to develop a solution. As an answer to Ethereum’s limitations, different groups developed scalability solutions. These solutions include L1 solutions to rival Ethereum or L2 solutions built on top of Ethereum’s L1.
As of 2022, there are five different blockchain ecosystems within the ten most popular cryptocurrencies by market cap. The growing number of blockchains, both L1 and L2, may have solved the scalability problems but created some new issues. It has complicated user interaction with blockchain technology, especially for less tech-savvy individuals.
The growing number of blockchains has also caused difficulties for crypto projects. Each blockchain varies in transaction fees, speed, programming language, and adoption/popularity.
Before developing and popularizing cross-chain bridges, crypto projects would need to select their blockchain wisely. Choosing the wrong blockchain could doom a crypto project or token.
Cross chain bridges open a new world of opportunities for crypto projects. Bridges provide interoperability to partially or fully port tokens’ circulating supply to another blockchain. Porting may affect transaction fees and speed and expose a token to new audiences.
What are Cross Chain Bridges?
Bridges that support multiple blockchains are sometimes called cross chain bridges. Cross chain bridges are a protocol that connects two or more different blockchain ecosystems. It facilitates the exchange of information and assets between blockchains, usually in the form of tokens.
There are many reasons for crypto projects to consider cross chain bridges.
Exposure to different blockchain ecosystems can be very beneficial for projects. Each blockchain has a diverse community of developers, investors, and users. Porting a crypto project gains exposure to a new community that may not have been aware of the project otherwise.
Tx Fees & Speed
Fees and transaction speed are other considerations for projects. While, on average, gas transaction fees tend to cost around a few USD, prices can be much higher at times of extreme stress. According to BitInfoCharts, in May 2022, ETH transactions cost over $180 in gas fees for the blockchain. When fees reach local highs, average transaction speed usually slows down.
Another primary justification for bridging tokens is access to Dapps exclusive to a specific chain.
Some Dapps or decentralized applications are exclusive to a particular blockchain. A primary justification for bridging tokens is to access these Dapps to expose their token to a new community. One essential type of Dapp for many crypto projects is DEXs or decentralized exchanges. Most DEXs are currently exclusive to a specific blockchain. A crypto project may receive more exposure and higher trading volumes by porting tokens.
Porting a token can also create exciting arbitrage opportunities across different DEXs. The tokens' price will likely differ from DEX to DEX as each market is different. Each DEX has other buyers and sellers, which may lead to changes in trader sentiment towards a token.
Common Risks with Cross Chain Bridges
The cryptocurrency industry is relatively new in its entirety, and cross chain bridges are much more so. When engaging with new technology, there are always some risks involved.
Blockchain technology is software, so issues such as bugs or human error can pose security risks. If these bugs or errors affect the smart contract within the bridge, it is referred to as a smart contract risk. The point of failure doesn’t need to be necessarily the smart contract itself. Hackers can exploit other aspects of the bridge and its code in what is called technology risk.
Developers can minimalize both smart contract & technology risks by conducting regular security audits.
Custodial bridges, known at times as trusted bridges, also pose some risks. There is the censorship risk, in which the bridge’s operator may limit or stop the user’s ability to port tokens altogether. Another risk is known as the custodial risk. The third party needs to be well-reputed and trusted not to run off with funds.
Custodial & Non Custodial Bridges
Cross chain bridges tend to fall into two distinct categories. Custodial bridges and non custodial bridges.
Non custodial Bridges
Non custodial bridges are trustless and operate only via algorithms and smart contracts. Their security is similar to that of its underlying blockchain. Users of non custodial bridges also tend to retain control of the tokens.
Several prominent non-custodial bridges experienced hacks which resulted in massive losses of funds. Hacks include Harmony’s Horizon bridge which lost ~$100 million in cryptocurrency in June 2022.
Custodial bridges, on the other hand, require a trusted third party. Users must relinquish their tokens' control to the third party to port them to a different blockchain. As such, trust is required, and the third party needs to be highly reputable.
Is ChainPort the Bridge for your Token?
ChainPort is a custodial bridge that places a unique emphasis on security and interoperability. 95% of all funds are securely stored in cold storage wallets provided by top blockchain security experts. Security features include Fireblocks MPC and Gnosis-safe multi-sig. In addition to this, ChainPort has undergone multiple security audits. ChainPort’s vast array of security features and unique architecture ensure the safety of funds.
Interoperability is also a top priority for ChainPort. Users can port their tokens to all the leading blockchain ecosystems securely in a permissionless manner.
Join the 140 different crypto projects and port your token with ChainPort’s cross chain bridge!
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