20.12.2024
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The DeFi ecosystem consists of blockchain networks that operate by their own rules and generally can’t communicate with each other. That’s where cross-chain bridges come in.
In this guide, we will discuss Bitcoin bridges and their role in the Bitcoin DeFi ecosystem.
A Bitcoin bridge, also known as a cross-chain or blockchain bridge, enables the “transfer” of value (data, messages, and digital assets) between Bitcoin and other blockchains.
That means it facilitates interoperability between the Bitcoin blockchain and other chains, even if they operate under a completely different set of consensus rules.
Interoperability is the backbone of decentralized finance (DeFi), facilitating seamless communication between independent blockchains. This vital function allows for the unrestricted movement of liquidity across otherwise isolated ecosystems, ensuring the smooth operation and growth of the DeFi space.
Bridges play a significant role in the growing DeFi ecosystem. Here’s how DeFi users can benefit from cross-chain bridges.
When the Bitcoin network is congested, transaction confirmation takes longer than usual, causing fees to shoot up. To avoid delays and high costs, you can bridge your assets to a Layer 2 protocol that offers lower fees and fast transaction speeds.
Bridges enable you to interact with the various dapps built on Bitcoin layers. For instance, if you want to earn, borrow, or trade, you can bridge BTC from Layer 1 to the Bitcoin layer the dapp is built on. You can also bridge assets across Bitcoin Layer 2 networks in search of better earning opportunities.
If you own a wrapped asset like RBTC, you can bridge it from Rootstock to Bitcoin to obtain the native digital asset. Although RBTC is backed by BTC on a ratio of 1:1, it is technically a different token “living” on the Rootstock sidechain. Therefore, if you want to own the native asset, you must bridge RBTC to BTC.
Bitcoin bridges can use asset wrapping to move assets between Layer 1 and Layer 2 networks. Wrapping entails tying the value of an asset to another.
For example, Rootstock’s RBTC is a wrapped asset pegged 1:1 to the value of BTC. The value of a wrapped asset should be exactly or nearly the same as the underlying crypto asset.
When bridging BTC from Layer 1 to Layer 2, for example, BTC is locked on the Bitcoin network, and a bridge smart contract on the source chain mints an equivalent amount of the wrapped asset. The minted asset is then released to you on Layer 2. To bridge back to Layer 1, the bridge smart contract on this network initiates a transaction to burn the wrapped asset, triggering the bridge smart contract on Layer 1 to release the locked BTC again.
Bridges leveraging the liquidity pool method typically have staking and yield farming programs where users can lock their assets in pools on both chains for a certain period in exchange for rewards. The bridge then settles bridging requests by depositing the asset into the pool on one chain and releasing the same amount of the asset from the pool on the other chain. Bridge users are charged a fee, which a smart contract distributes to liquidity providers.
Bridges using rollups require bridge participants to generate validity or zero-knowledge proofs confirming that the information relayed to the target chain is correct. If accurate, the proofs are sent to the bridge smart contract on the target chain, triggering it to send the relevant asset to your wallet.
Blockchain bridges are generally categorized as trusted, trustless, or hybrid.
Trusted or centralized bridges rely on an entity or group of people to facilitate the bridging process. Therefore, you must give up control of your funds and expose them to the security of the centralized entity. This reliance on trust creates a vulnerability, potentially paving the way for censorship or leaving bridged funds vulnerable to theft if the trusted parties act deceitfully or inrresponsibly.
Trustless or decentralized bridges use smart contracts to facilitate the “transfer” of assets from one blockchain to another. That means they don’t rely on a trusted custodian to control the assets being bridged. As a result, you are in control of your own funds and their security. While trustless bridges are superior to trusted bridges, they are difficult to build on Bitcoin because of the blockchain’s limited smart contract functionality.
Furthermore, trustless bridges are also difficult to build because of the capital inefficiency that results from requiring the verifiers of the data passing between the two chains to lock up their funds as a guarantee that they will act honestly.
Hybrid bridges combine the different aspects of trustless and trusted bridges to create a system with some centralized elements, such as centralized bridge operators and a decentralized architecture consisting of smart contracts.
Since trusted bridges are too centralized and fully trustless bridges are hard to build, hybrid bridges have become a compromise for developers wishing to build reliable systems for exchanging value across chains. In the spectrum between trusted and trustless, these hybrid solutions fall somewhere in the middle.
Now that you have a better understanding of blockchain bridges, here is a summary of their pros and cons:
Now, let’s take a look at examples of cross-chain bridges for Bitcoin.
RBTC is a sidechain bridge that connects Bitcoin to Rootstock. It permits the easy “movement” of BTC from Layer 1 to the sidechain and vice versa. Once on Rootstock, you can use your RBTC to interact with various Bitcoin dapps like the Sovryn decentralized exchange, where you can trade, earn, and borrow money. RBTC is backed by BTC 1:1.
sBTC is a trustless bridge that enables the “transfer” of Bitcoin from Layer 1 to the Layer 2 Stacks network. The bridge relies on a decentralized set of signers who operate it in exchange for Bitcoin rewards. sBTC is part of the Stacks Nakamoto upgrade, whose rollout began in April 2024. sBTC is pegged to BTC 1:1.
WBTC is a trusted bridge for “transferring” BTC from Bitcoin to Ethereum and back. After bridging to Ethereum, you can use your WBTC to interact with the many DeFi dapps on this chain and its Layer 2 protocols. The Bitcoin that backs WBTC on a ratio of 1:1 is held in custody by the centralized entity, BitGo.
The Wanchain Bridge is a two-way bridge that enables the bridging of assets between multiple chains. For instance, you can bridge BTC to and from Ethereum, Telos, Cardano, BNB Chain, Wanchain, and a few other blockchains. Wanchain is a Proof-of-Stake Blockchain focused on interoperability.
tBTC is a trust-minimized bridge created by the Threshold Network. It is used to “move” BTC back and forth between Bitcoin and Ethereum. tBTC is operated by trusted participants known as signers and is pegged to Bitcoin’s supply on a ratio of 1:1.
BitcoinOS brings a near-trustless bridging system that doesn’t rely on an honest majority. Instead, it uses an honest singleton system where only one honest participant is required to maintain security and integrity.
BitcoinOS achieves this with validity proofs, which a single participant can use to prove that a transaction is illegitimate and prevent it from being confirmed.
Once launched, this Bitcoin rollup bridge will allow you to “move” BTC and other Bitcoin native assets from Layer 1 to BitcoinOS and back. BitcoinOS is a superchain of interoperable rollups built on Bitcoin.
Buy SOV to participate in Sovryn’s Bitocracy and have your say in the new era of Bitcoin.
Bridging crypto is only as safe as the tools or entities put in place to facilitate cross-chain “transfers.” If the bridging smart contracts aren’t properly audited for bugs, then your funds could be stolen. On the other hand, a trusted bridge operated by dishonest custodians can fail and lead to the loss of assets. So, only use a bridge that has taken the necessary cautionary steps to ensure the safety of your funds.
For the first time, a near-trustless rollup bridge will be developed on the Bitcoin blockchain, allowing you to “transfer” assets from Layer 1 to Layer 2 and vice versa. This bridge will be introduced by BitcoinOS, which is currently under development. Experts predict that rollups will come the closest to realizing fully trustless blockchain interoperability.
Bridging enhances user experience since people can move funds across chains to access cheaper transaction fees, various decentralized applications, and fast transaction speeds. This is important for the growth of DeFi, which can’t thrive in a space with siloed ecosystems that can’t communicate with each other.
The length of time it takes to bridge crypto assets will depend on the transaction confirmation times of the blockchain networks involved and the traffic they are experiencing. Generally, it should take several minutes to an hour to complete bridging. However, do your due diligence before bridging any asset to avoid surprise delays.
No. You cannot bridge ETH to BTC since there’s no smart contract support on Bitcoin to represent a wrapped Ethereum asset. Nevertheless, you can bridge WBTC, an ERC-20 token, from Ethereum to Bitcoin using bridges like Wanchain. WBTC is a wrapped asset that Ethereum’s DeFi market uses to tap into Bitcoin’s liquidity.
