Content
- Discover the Benefits of Layer-1 Blockchain Interoperability Protocol.
- The Cross-Chain Interoperability Protocol (CCIP)
- Vulnerabilities in Cross-chain Bridge Protocols Emerge as Top Security Risk
- Most Popular Blockchain Bridges
- Blockchain Bridges: A Deep Dive into Cross-Chain Interoperability
- What are the Risks of Using Cross-Chain Bridges?
It’s thus no surprise that many of the most significant blockchain hacks are bridges hacks, with over $2.5B losses. For example, when the Ren protocol was acquired by Alameda Research, the fate of Ren became intertwined with Alameda’s, leading to concerns as Alameda folded. To learn more about bridges and what does bridge mean in crypto their risks, read, for example, Ethereum’s introductory page or Chainlink’s, and Binance Research’s report Decoding Cross-Chain Interoperability. Users deposit assets into a pool on one blockchain and receive an equivalent value on another blockchain. Instead of individual copies, the liquidity pool method envisions a constantly flowing river of cross-chain value. Upgradability is important in a security context because if the upgrade process is not secure, it can introduce a potential attack vector.
Discover the Benefits of Layer-1 Blockchain Interoperability Protocol.
Crypto bridge hacks are far too common, and many Web3 users fear using bridges https://www.xcritical.com/ after hearing about million-dollar exploits. Not only are bridges a profitable target, but they also tend to have many weak spots. Cross-chain bridges aren’t as battle-tested as blockchains like Bitcoin (BTC).
The Cross-Chain Interoperability Protocol (CCIP)
It is an independent blockchain network that supports smart contracts and data privacy by default, and it is capable of interoperability within the Cosmos network using Interblockchain Communication protocol (IBC). Manta Network is a project on Polkadot aiming for developing a privacy-preserving protocol for the DeFi stack on Polkadot. It offers two smart contract layers, the Decentralized Anonymous Payment (DAP) protocol and the Decentralized Anonymous Exchange (DAX) protocol. DAX is based on zk-SNARK and an automated market maker (AMM), and allows the user to anonymously trade private tokens on the platform [10, 34]. Polkdaot has another on-going project called Phale which aims for building trust in the computation cloud.
Vulnerabilities in Cross-chain Bridge Protocols Emerge as Top Security Risk
These multi-chain platforms enable the transfer of assets like cryptocurrency and tokens between major blockchains. A blockchain bridge operates by either using a Wrapped Asset Method or a Liquidity Pool Method. The Wrapped Asset Method involves representing an asset from one blockchain as a token on another blockchain, maintaining its original value.
Most Popular Blockchain Bridges
Further, the introduction of smart contracts has brought programability, which allows users/organizations to build their own applications on top of Blockchain. This allows users to complete transactions or data exchange without the need of any centralized and trusted third-party authority [7]. To transfer tokens cross-chain, many bridges lock tokens on the source chain and mint derivative or wrapped tokens on the destination chain representing the locked tokens. A hack of the locked tokens or an infinite mint attack on the wrapped tokens can make all wrapped tokens worthless and expose entire blockchains to risk. Crypto bridges were originally intended to make sending tokens between blockchains seamless and safe.
Blockchain Bridges: A Deep Dive into Cross-Chain Interoperability
For the asset exchange protocol, the locked assets will mint new coins or compute the same amount as the out-of-range blockchains. However, bridges also introduce a major security risk as they often lock funds and have the capability to mint tokens. A bug in a bridge could potentially allow an attacker to steal the locked funds or mint as many tokens they want.
What are the Risks of Using Cross-Chain Bridges?
Some blockchain bridges, such as “Cross-Chain Bridge” and Synapse Protocol, adopt different approaches. For instance, there are liquidity pools for WETH on BNB Chain, Polygon, and so on. Did you know that besides the transfer of assets bridges also facilitate the exchange of data between different blockchains? Read on to discover the inner workings of cross-chain bridges and everything you need to know to transfer cryptocurrency across blockchains safely. Security plays an essential role in decentralized projects, as people should be confident in their assets.
What makes cross-chain bridges so vulnerable?
Cross-chain ridges have brought higher interoperability to the blockchain industry and created a better experience for blockchain users and developers. Still, interoperable blockchain platforms have problems to solve, including growing centralization, security risks, liquidity issues, and more. The best thing about cross-chain bridge attacks is the opportunity to learn about new ways to improve web3 security. More hacks would emerge and pave the path for introducing viable improvements to the web3 landscape.
Block Finality: Securing Crypto Transactions.
Blockchain bridging is considered safe as it uses smart contracts to ensure the integrity and security of the transfer of assets between different blockchain networks. These blockchain or crypto bridges usually use a multi-signature system, which requires multiple parties to approve and verify the transfer of assets. Additionally, most blockchain bridges are built on decentralized networks, which means that there is no central point of failure, and the network is more resistant to hacking and other types of attacks. Cross-chain bridges are software-based interoperability solutions that are designed to enable seamless interactivity between blockchains. Simply put, they employ smart contracts to enable the transfers of assets and data between different blockchain networks that would otherwise operate in isolation.
Educating users about verifying addresses, double-checking transaction details, and opting for trusted bridge operators empowers them to navigate the interoperable landscape with awareness and caution. These are just a few of the transformative advantages offered by blockchain bridges. In the following sections, we’ll delve deeper into the specific types of bridges available, their diverse functionalities, and the exciting potential they hold for revolutionizing the financial landscape. Due to that, it is vital for users to do their due diligence before interacting with any bridging ecosystem, which includes checking the documentation, the code and the maturity of the system. This is a means of protecting their crypto while the developers find a solution to overcome the limitations of current blockchain bridging protocols.
These validators do not belong to either of the two blockchains’ validator sets and they also have their trust assumptions irrespective of the underlying blockchains. Cross-chain bridges do not transfer your Bitcoin from the Bitcoin blockchain to the Ethereum blockchain. Instead, the bridge will generate tokens equivalent to your BTC but can be used on the Ethereum blockchain. Smart contracts are designed to keep track of everything you send and receive.
The project team implemented a protocol upgrade a few days before the hack, which involved changing a variable. This change resulted in all messages being automatically deemed proven, thus allowing an attacker to submit an arbitrary message and pass the verification process. When a user intends to transfer their ETH to another chain, they must first deposit it into the bridge contract. To achieve this, the user simply attaches the ETH to the transaction, and the amount of ETH can be retrieved by reading the “msg.value” field of the transaction. If the backend server does not verify which address emitted the event, it would consider this a valid transaction and sign the message.
- In Cosmos, Secret Network is introduced as a base-layer blockchain network built using the Cosmos SDK.
- This image above illustrates funds from the hack of the Axie Infinity Ronin Bridge being laundered through a DEX.
- Also, by staying informed and taking precautions, cryptocurrency users can reduce their risk of falling victim to crypto bridge hacks and other types of crypto theft.
- In August 2023, the Exactly Protocol, a decentralized credit market, fell victim to a bridge exploit, resulting in a loss of $12 million.
- This token can then be transferred across the bridge and ‘unwrapped’ back into the original asset.
- With a simple move, Bob bridges his stablecoin over, maximizes his returns, and bridges it back, pocketing the handsome interest differential.
This is why cross-chain bridges offer unparalleled benefits in promoting connectivity between blockchains, enabling both users and builders to make the most of the expanding Web3 ecosystem. For example, Interchain Security Hub is introduced in Cosmos to share its set of validators with participating (child) chains. Motivated by the limitation given by [51], this paper focus on security, privacy and vulnerabilities found in interoperable blockchains. The former is used to analyze current state-of-art regarding security and privacy issues in interoperable blockchains while the latter is used to help us better understand these issue due to lack of research in this field. We developed three research questions and build our search term to seek answers to these questions using various resources. This set was reduced to 16 and 30 in scientific and grey literature respectively after paper filtering.
But a slightly different mechanism happens when you bridge tokens back to the original blockchain—for example, exchanging WETH on Cardano for ETH on Ethereum. The best type of blockchain bridge for a particular application will depend on a number of factors, such as the security requirements, the scalability requirements, and the cost. The fundamental purpose is to overcome the otherwise isolated ecosystems of individual blockchains, offering a way to leverage the unique advantages of multiple systems in a cohesive manner. Additionally, some bridge projects have created open-source code to demonstrate transparency and build credibility. It is also a vulnerability, as it allows hackers to investigate, imitate, and attack those bridges. Bridges combine different blockchain protocols and components like building blocks, enabling exciting new cross-chain applications and services that were previously impossible.
Cross-chain technology encourages quicker transaction processing times and immediate token exchanges from the user’s perspective. Ethereum’s layer-2 scaling solution Arbitrum has a native trustless bridge where users can transfer digital assets between the two chains. The competing smart contract blockchain Polkadot also has a trustless “Snowbridge” that helps users transfer tokens between Polkadot and Ethereum. A cross-chain bridge is a software protocol with an inherent mechanism that facilitates the seamless transfer of data and assets across distinct blockchain networks. It aims to establish a conduit for executing cross-chain transactions within the ecosystem, enabling users holding various crypto tokens to transfer them effortlessly between disparate networks. Prominent examples of cross-chain bridge development include the Binance Bridge, Polygon Cross Chain Bridge, and Avalanche Bridge.
Whatever benefits bridges bring to blockchain have so far come at a very steep price. Thankfully things have gone well for EVM-compatible networks like Polygon, Arbitrum, Optimism, and Pulsechain. At its core, the bridge is a dApp built on one blockchain (sender) that verifies and sends tokens to your other address in the second chain (receiver). But if there were a seamless bridge between both chains, it would speed up dApp development on the new chain, attracting more users, and also reduce congestion from networks like Ethereum. For the same reason crypto investors diversify their assets, it’s wise to diversify balances across different chains. Maybe Ethereum Mainnet becomes congested during the next Bitcoin halving, which could mean 10x more fees and transaction time.
However, every new cross-chain bridge attack example reflects the severity of the impact of security vulnerabilities of cross-chain bridges. As a matter of fact, cross-chain bridges were responsible for almost 69% of all the crypto funds stolen in 2022. Here are some of the notable types of vulnerabilities in crypto bridge security. With layer 0 blockchains, you would have to reconfigure different wallet connections. On top of it, you would have to work with new gas tokens that could create friction for new users. Therefore, the demand for cross-chain protocols has consistently dominated the market.
Thus, local verification is mostly used in cross-chain liquidity protocols involving liquidity pools that exist independently on each chain. Despite an additional trust assumption, external verification is currently the only practical way to perform cross-chain contract calls between certain types of blockchains while still providing trust-minimized guarantees. It’s also a highly generalized and extensible form of cross-chain computation that is capable of supporting more complex cross-chain applications. External verification is where a group of validator nodes are responsible for verifying transactions.