What is a Blockchain Bridge? - Crypto in Plain English - Episode 142 - by cryptohunt.it

What is a Blockchain Bridge?

Welcome to the cryptohunt jam where we spend one minute a day to explain crypto. In plain english.

Today: What does a blockchain bridge do, and how does it work?

The problem those bridges are trying to solve is almost as old as money itself. Imagine traveling to a different country and trying to spend the bills in your wallet at a restaurant. It will most likely not accept it and demand payment in their own local currency.

That's why you can exchange money, say from your US Dollars to Euros or the other way around. But how does this work?

It's all about collateral, or creating a reserve. An exchange kiosk at the airport would take your US Dollar and put it in the vault, then give you Euro in exchange. Your dollars are now the reserve that backs the Euros you've been given.

Of course, because there are many people going to the same kiosk every day, your exact Dollar bill may end up in a different person's wallet, but the principle remains the same.

Crypto bridges do the same thing. Because blockchains are separated, normally there would be no way to use, just as an example, Bitcoin on Solana. But people may want to do that, because they like Bitcoin, but want to take advantage of faster transactions on the Solana technology.

The bridges will take your Bitcoin, and put it in a sort of digital vault. The technical term is literally "locking them up". In return, they'll create a new token that operates on Solana, representing the value of a Bitcoin. Let's call it SolanaBit. Anyone with a SolanaBit can go back to the bridge and free their Bitcoins in exchange for letting them invalidate the SolanaBit.

And there are billions of coins locked up in vaults because they have been transferred over to other blockchains. But before you do that, know that there are big risks too - like any vault, if the bridge has security flaws, someone could break into it. The Wormhole Bridge lost $325m Ethereum in a hack just recently for example.

And that's what a blockchain bridge does! If you use then, use them with caution!

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.