What is blockchain bridge?
To grasp the concept of a blockchain bridge, it’s important to have a basic understanding of what a blockchain is. Blockchains like Bitcoin, Ethereum, and BNB Smart Chain are prominent ecosystems that rely on different consensus protocols, programming languages, and system rules.
A blockchain bridge serves as a protocol that connects two separate blockchains, both economically and technologically, enabling seamless interactions between them. Think of these protocols as physical bridges linking different islands, where each island represents a distinct blockchain ecosystem.
The purpose of blockchain bridges is to facilitate interoperability, allowing digital assets and data hosted on one blockchain to interact with another. Interoperability plays a crucial role in the internet’s functioning, where machines worldwide utilize a standardized set of open protocols to communicate with one another. Similarly, in the blockchain space, which comprises various distinct protocols, blockchain bridges are vital for enabling efficient exchange of data and value.
How do blockchain bridges work?
The primary use case for a blockchain bridge often revolves around token transfers. Let’s consider an example where you wish to transfer your bitcoin (BTC) to the Ethereum network. One approach would involve selling your BTC and purchasing ether (ETH), but this incurs transaction fees and exposes you to price volatility.
Alternatively, you can utilize a blockchain bridge to achieve this objective without selling your cryptocurrency. By bridging 1 BTC to an Ethereum wallet, a blockchain bridge contract will lock your BTC and generate an equivalent amount of Wrapped BTC (WBTC), an ERC20 token compatible with the Ethereum network. In this process, the desired amount of BTC is secured within a smart contract, while the corresponding tokens are issued or minted on the destination blockchain network.
A wrapped token represents a tokenized version of another cryptocurrency. It maintains a peg to the value of the underlying asset it represents and can typically be redeemed (unwrapped) for the original asset at any given point.
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