Why are bridges important in the blockchain industry?

October 18, 2022

A blockchain bridge, also known as a cross-chain bridge, connects two separate blockchains and ensures the rightful flow of cryptocurrencies between them. Bridges easily allow users to convert one cryptocurrency to another without the need for an exchange. Glitter Finance is designed to facilitate interoperability between Algorand and other Layer 1 blockchains.

Cross-bridge transactions are the future

Alongside the increased popularity of cryptocurrencies, there has been a massive increase in the volume of cross-bridge transactions involving a wide range of tokens. There are now thousands of blockchains offering a range of services and each has different advantages. A user may use one blockchain for lending, one blockchain for NFTs and another for saving. The rise in the number of Layer-1 blockchains being used has brought attention to the need for bridges.

Glitter Finance has launched a bridge from Solana to Algorand and received a grant to establish a cross-chain bridge between five ecosystems. These bridges allow the end-user to seamlessly migrate assets from one ecosystem to another.

Let’s take a closer look at the types of bridges, the benefits of bridges and the risk of using bridges for DeFi users.

How do Blockchain Bridges work?

If you want to convert one cryptocurrency to another, you will need to use an exchange and convert your crypto assets on their trading platform. For example, if you want to convert your ALGO  to SOL or a target cryptocurrency on a trading platform, you will use an exchange that manages your crypto assets for you and requires you to prove your identification. This compromises not only the complete ownership of your assets but also the anonymity promised by Web3.

With Blockchain bridges, you will not need an exchange as they enable you to transfer tokens and also convert smart contracts and send data. Through a blockchain bridge, owners of a cryptocurrency can transfer that crypto to and from another chain.

In order to convert your specific crypto assets to another set of crypto assets, cross-chain bridges work by exchanging information remotely or locally. They communicate and share value with other networks. These are known as unidirectional bridges. Bi-directional bridges allow users to freely convert assets to and from blockchains. With the Rainbow bridge between NEAR and Ethereum any developer working on NEAR has access to all the assets on Ethereum, and developers who build on Ethereum can move performance or gas-fee critical parts to NEAR while keeping their Ethereum user base.

The benefits of cross-chain bridges for DeFi users

Cross-chain bridges solve various problems within the DeFi ecosystem by allowing communication between blockchains. They have numerous advantages that allow users to quickly and efficiently transfer their assets between multiple networks.

Glitter Finance has been awarded a grant by the Algorand foundation to develop a cross-chain bridge between five blockchain ecosystems: Algorand, Solana, Cudos, and Cosmos. Glitter Finance will first create a bidirectional bridge between Algorand and Solana.

The core benefits of blockchain bridges include allowing users to easily transfer assets, enabling cross-chain collateral, ensuring greater scalability and making the transaction process between blockchains more efficient which is particularly important for gaming and eCommerce in blockchains.

Though cross-chain bridges provide you with a lot of benefits, they also entail risks as discussed in the next section.

Top risks associated with using blockchain bridges

  • Bridges often lack security and are open to exploitation. 
  • Bugs in the code
  • Technical failures
  • Malicious attacks
  • Censorship risks
  • Custodial risks from bridge operators

Glitter Finance Bridges

Glitter Finance acts as an interoperability protocol between Algorand and other blockchains/protocols by allowing users to send tokens on Algorand to Glitter Finance. This allows for easy integration with smart contracts, decentralized exchanges (DEX), or wallets that are interoperable with our service.

Glitter Finance will bridge Algorand, Solana, Cudos and Cosmos, to open up a world of possibilities in the DeFi ecosystem. Furthermore, Glitter Finance will also add more bridges to expand and lead the frontier for innovation in decentralized finance.

Sources:

https://medium.com/@Glitter-Finance/how-glitter-finance-bridges-algorand-to-the-defi-ecosystem-af387400b6c4

https://www.blockleaders.io/news/why-are-bridges-so-important-to-defi

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