What Are Cross-Chain Bridges and How Do They Work? Blockchain technology is fundamental to the existence of cryptocurrencies. Since Bitcoin’s beginnings in 2009 until the present day, more than 1,500 cryptocurrencies have flourished. Alchemy asserts that there are over 125 Layer 1 and Layer 2 blockchains, despite the fact that blockchain is a solitary data transfer type.
Cross-chain bridges were developed to bridge the gap between these several blockchains and the vast diversity of cryptocurrencies utilised to facilitate unique trade-offs, security guarantees, and scalability. Cross-chain bridges improve the interoperability of the cryptocurrency industry and enable users to transmit cryptocurrency from one chain to another. Follow For More Updates at Worldrapiddnews.com
Prior to the development of cross-chain bridges, it was impossible to use Bitcoin on the Ethereum blockchain or vice versa. This prevented cryptocurrency users from operating on many blockchains, similar to how credit cards operate with numerous suppliers.
Reportedly, a cross-chain bridge joins distinct blockchains and enables the transfer of assets and data between them. In turn, this facilitates user access to additional protocols. Previously, ETH holders wishing to transfer their assets into Polygon were had to use a centralised exchange such as Coinbase or Binance.
Cross-chain bridges, on the other hand, function by “wrapping” tokens in a smart contract and issuing native assets usable on another blockchain. Wrapped BTC (wBTC), for example, is an ERC-20 token that uses BTC as collateral. Before getting wBTC tokens on the Ethereum network, users must deposit BTC on the Bitcoin blockchain,” the Alchemy study noted.
Cross-chain bridges like as Binance Bridge, Celer cBridge, Multichain, and Wormhole are popular.
In recent years, however, these cross-chain bridges have attracted the attention of hackers and money launderers swarming the cryptocurrency industry.
RenBridge reportedly laundered approximately $540 million (about Rs. 4,290 crore) over the past two years. Elliptic reported in a recent study that the platform is a decentralised application (dApp) that enables the minting of actual BTC, ZEC, and BCH on Ethereum as an ERC20 token (renBTC, renZEC, renBCH).
Layer-1 blockchain Harmony’s Horizon Bridge was compromised for around $100 million in June (roughly Rs. 780 crore). Harmony’s blockchain bridge enables users to move digital assets between various blockchains, including the Binance Smart Chain, Ethereum, Bitcoin, and Harmony networks.
In January, thieves stole $80 million (approximately Rs. 630 crore) from Qubit Finance’s bridge; a month later, they stole $320 million (approximately Rs. 2,510 crore) from the Wormhole bridge; and in March, they stole $625 million (approximately Rs. 4,725 crore) in Ether and USDC from Axie Infinity’s Ronin bridge.
According to the Elliptic research, decentralised cross-chain bridges like RenBridge offer an unregulated alternative to exchanges for transferring wealth between blockchains, posing a problem. A network of thousands of pseudonymous validators known as “Darknodes” processes the transactions on these cross-chain bridges.
These bridges are exploited by malicious actors who deposit their tokens from one chain to the bridge and then receive the corresponding token in another chain. Earlier in July, the Financial Action Task Force (FATF) published a special study stating that illicit operations employing cross-chain bridges will become a regulatory priority as the second half of 2022 approaches. The Financial Action Task Force (FATF) is the global standard-setter for anti-money laundering and countering the financing of terrorism (AML/CFT) initiatives.