What is a Bridge?

By March 24, 2020DApps
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There are 2,957 cryptocurrencies in existence as of October 2019, many of them operating solely on their respective blockchains. Until recently, these blockchains did not have a way of interacting with one another–what happens on bitcoin’s blockchain stays on bitcoin’s blockchain, and so on. Blockchains like Bitcoin, Ethereum, Binance, and Tron all have the same basic features, but they also boast their own unique features, such as improved scalability and varying transaction speeds.

If these chains were able to communicate, then the broader cryptocurrency market would experience an assortment of benefits. Beyond interoperability, the crypto-markets would see enhanced liquidity and increased adoption of crypto amongst the public. While the crypto landscape was not designed with interoperability in mind, there are tools that exist to enable cross-chain interactions: we call these tools “bridges.”

What is a Bridge?

In the crypto world, a bridge is a protocol that allows cryptocurrencies that were built on two separate chains to interact with one another. Currently, respective blockchains operate in silos, so users can only exchange bitcoin for bitcoin on its own blockchain. A bridge, on the other hand, permits users to send Bitcoin to the Ethereum blockchain, and more.

The Advantages of Interoperability

Cross-chain communication is advantageous because many DApps are built exclusively on Ethereum. With a bridge in play, it doesn’t matter if a user does not hold any Ethereum-based altcoins and wants to use DApps because they can use their bitcoin to do so. A bridge will also allow them to take advantage of Ethereum’s reduced costs and faster transaction settlement times.

The crypto landscape’s exclusivity is one of its most significant barriers to mass adoption. Observers interested in using blockchain technology do not know where to begin due to an abundance of separate chains that cannot communicate with one another. There are so many distinct blockchain ecosystems that it limits the user pool. For instance, without interoperability, there might be 100 chains with 10 users, but if these chains were able to communicate with one another, there could essentially be one chain with 1,000 users. Countless businesses would gladly implement blockchain into their daily operations, but because the majority of blockchains are not interoperable, businesses often steer clear of them.

Another option for businesses is using open-source code to build a blockchain. In these cases, most companies turn to Ethereum. However, Ethereum has its drawbacks. The network becomes congested as more and more people turn toward Ethereum, which directly impedes an organization’s scalability. For example, Ethereum can only handle 15 transactions per second, whereas Visa can process 24,000. Three years ago, a decentralized application called “CryptoKitties” generated so many transactions that it bottlenecked Ethereum’s network, nearly bringing it to a halt.

Ethereum’s throughput and that of other chains are so poor that there is no way to build efficient consumer-facing applications. A company cannot satisfactorily apply blockchain technology if it does not permit the transactions the business creates per day. For instance, a ridesharing service would never work on blockchain as it exists because the network wouldn’t be able to handle the number of requests that come in at any given time.

Without bridges, neither bitcoin users nor companies with native Ethereum-based tokens can move them between higher-performing chains. They can relocate the entirety of their assets from one network to another, but the costs of doing so are cumbersome, and most private users and organizations would likely prefer flexibility instead of an all-or-nothing approach.

As such, individual users and businesses are hesitant to adopt blockchain because the inability to use cryptocurrencies outside of their native chains makes using and implementing the technology more trouble than it’s worth. For example, an ordinary business can experiment with setting up a blockchain protocol—and then what? They can only transact with customers who already use the same network. Bridges that enable interoperability would make using cryptocurrencies and blockchain more appealing to people who would otherwise find it limiting.

Building Bridges

Fortunately, bridges are not only hypothetical. A company named Swingby created a protocol called Skybridge that facilitates non-custodial token swaps amongst all ECDSA-based blockchains. Native cryptocurrencies do not have to be constrained to their respective blockchains and their accompanying caveats anymore. The organization notes that Bitcoin and Binance exchanges are now possible, and bidirectional swaps between Tether and Binance’s stablecoin are soon to follow.

The Skybridge serves to make the crypto world more liquid. Freeing tokens to move between their native chains allows more money to enter the market. For instance, if bitcoin’s price is particularly high one day and users would like to trade, they can do so on a non-bitcoin blockchain with faster transaction speeds and lower costs. And thanks to the Skybridge’s pegged one-to-one swaps, they will still receive price exposure to bitcoin.

Bridges Bring Benefits

Blockchain technology is meant to be decentralized, but networks’ inability to interact with one another creates a walled-off ecosystem where unique cryptocurrencies are only valuable in specific environments. Bridges, thankfully, enable cross-chain transactions that make cryptocurrencies more liquid and reduce the congestion of popular chains. Cryptocurrency should not be difficult to use, so with bridges in place, more people and businesses will be able to participate in the blockchain industry.

Disclaimer: Blockmanity is a news portal and does not provide any financial advice. Blockmanity's role is to inform the cryptocurrency and blockchain community about what's going on in this space. Please do your own due diligence before making any investment. Blockmanity won't be responsible for any loss of funds.

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