What Is A Crypto Bridge? Types, Options, Benefits & Risks
Key Takeaways
- Bridging lets you move crypto to a lower-cost blockchain or a blockchain supported by an app you want to use.
- Trust-based bridges are run by people or organizations, while trustless bridges use computer programs to handle the cross-chain exchange.
- In many cases, you’ll get an equivalent token rather than the same crypto you deposit into a bridge.
If you’ve ever tried to do anything at all on the Ethereum network, you already know that gas (network fees for transactions) can be more expensive than fueling up the Lambo. Yikes! What’s up with that, Vitalik?
That’s why Layer 2 (L2) blockchains exist. Layer 2 networks help scale Layer 1 networks like Ethereum, so more transactions can make it through the clogged network pipes. Layer 2s bundle and compress transactions before passing the tidy package off to the Layer 1 network, which then handles security.
You can think of Layer 2s as a Sunday-morning highway with exits for the Layer-1 city. By comparison, Ethereum is more like a rush-hour city street, filled with stop lights and taxi drivers and jaywalking pedestrians.
L2 networks let you hold Ethereum (ETH) assets and make transactions but cost much less than using Ethereum. They’re faster too. Move your tokens, sign a smart contract, etc. You can do the same thing, spending less time and money doing it. Nifty.
But how do you move your ETH tokens from the Ethereum network to a Layer 2 chain, like Arbitrum or Optimism, or Coinbase’s upcoming Base L2 network? Or what if you wanted to use Bitcoin on the Ethereum network? Well, you use a crypto bridge.
What Is A Crypto Bridge?
Glad you asked. Like a bridge in the analog world, a crypto bridge allows passage from here to there. In this case, we need to cross digital space to move crypto from one blockchain to another. Bridges do that, but there’s a cost — kind of like paying a bridge toll. But even with the cost, it’s usually worth it because everything is cheaper on the other side of the bridge.
It’s like moving from the city to the suburbs. You can still do most of the things you can do in the city, but the cost of living is lower, and there’s less traffic.
Bridging from Ethereum to Ethereum-compatible Layer 2s is one common use of a bridge. But you can also use crypto bridges to move assets across completely unrelated networks, like Ethereum to Solana or Bitcoin to Ethereum. Whoa.
Best Crypto Bridges
Some bridges serve a specific purpose, like bridging network A to network B (and nothing else). Others let you choose from multiple networks. There’s a proper tool for every job. Here are some top choices to consider.
- Arbritrum Bridge: Best For Moving ETH To Arbitrum
- Polygon Bridge: Best For Moving ETH To Polygon
- Portal Token Bridge: Best For Solana And NFTs
- Across: Best For Fast Transfers
1. Arbritrum Bridge: Best For Moving ETH To Arbitrum
Abritrum has become a hotbed of DeFi action because it handles its Layer 2 responsibilities with less help from Ethereum. The result is much lower transaction costs than Ethereum. The costs also can be as much as 90% lower than similar L2s like Optimism. Abritrum also supports native ETH, so you don’t need to wrap and unwrap. If you need to bridge to Arbitrum, it’s often best to go directly to the source. Good news: Abritrum has its own bridge.
Pros
- No minimum amount
- Arbitrum bridge automatically calculates the maximum transfer amount with fees
- Lower bridging transaction fees compared to Optimism Bridge
Cons
- Withdrawals can take seven days or longer
- Only supports Ethereum and Arbitrum networks
2. Polygon Bridge: Best For Moving ETH To Polygon
Like Arbitrum, Polygon is known for fast and affordable transactions and Ethereum compatibility, making it a top pick in the DeFi space. Polygon offers two bridges, one for standard wallets and a second for the Gnosis Safe multi-signature wallet, both of which are in-house projects. Most users choose the easy-to-use standard bridge, which supports the popular ERC-20 tokens and ERC-721 non-fungible tokens (NFTs).
Pros
- No minimum amount
- Polygon bridge automatically calculates the maximum transfer amount with fees
- Support for Gnosis Safe
Cons
- Higher bridging fees compared to Arbitrum, although on par with Optimism
- Only supports Ethereum and Polygon networks
3. Portal Token Bridge: Best For Solana And NFTs
Some days you need to move ETH to Solana, and other days you need to move ETH from Abitrum to Optimism. Portal Token Bridge can handle either transaction with ease — and can even move ERC-721 NFTs between supported networks. It’s like a Swiss Army knife for crypto. Support for 22 blockchains in total make it easy to accomplish most cross-blockchain transfers.
Pros
- No minimum amount
- Support for 22 blockchains
- Support for NFT transfers on supported networks
Cons
- Can be more difficult for beginners
- No support for Coinbase Wallet
- Fees paid with funds in the destination wallet
4. Across: Best For Fast Transfers
Across Bridge uses liquidity pools to manage cross-chain transfers but draws primarily from one pool. But liquidity pools can lead to slippage (pricing mismatch) if demand surges. Across uses some clever tricks to avoid this, such as scanning incoming activity on the chain that would allow the swap without dipping into pools. Across also uses relayers, investors who can “fill orders” faster than the blockchain in many cases.
Pros
- Slippage-free transfers
- Lower cost bridging compared to Arbitrum Bridge and others
- Faster transfers due to relayers
Cons
- Faster transfers due to relayers
- Polygon outgoing transfers not supported
How Do Crypto Bridges Work?
Crypto bridges, sometimes called blockchain bridges or cross-chain bridges, usually work by freezing the asset you want to exchange and issuing or distributing equivalent tokens on the destination blockchain. What you’ll usually get in exchange is a “wrapped” token. Wrapped tokens represent the real coin or token but can be used on other blockchains.
For example, if you want to move some ETH to the Solana blockchain, the bridge freezes the ETH you deposit. This makes the original ETH unusable and prevents the supply from increasing when you’re issued equivalent tokens (Wrapped ETH or WETH) on the Solana blockchain.
There are two primary ways to bridge tokens:
- One method mints new tokens in exchange, like BTC and WBTC, a tokenized version of Bitcoin.
- The other swaps tokens from liquidity pools that hold both assets, like Cross Chain Bridge. Liquidity pools are markets where you can swap an apple for an orange or Crypto A for Crypto B in this case.
Most bridges use the first method. The original asset is frozen, and you’ll get an equivalent token in exchange. Your bridged tokens are backed by the original (now-frozen) coins or tokens.
The whole process usually takes about 10 to 20 minutes, although the pool-funded method can take longer. If the pool is empty, you’ll have to wait for someone to deposit enough tokens to cover your needs.
When bridging tokens back to the original blockchain (like WETH on Solana to ETH on the Ethereum blockchain), the token is exchanged for the original cryptocurrency, and the token is burned (sent to an unusable wallet address), avoiding inflation.
Benefits & Risks Of Crypto Bridging
Blockchain bridges let you use your crypto in new ways, but they also come with some risks.
Crypto Bridging Benefits:
- You can use your cryptocurrency on other blockchains. So, you have some Bitcoin but want to play on decentralized finance (DeFi) apps? A bridge lets you convert your Bitcoin to Wrapped Bitcoin, a token that’s widely used in DeFi apps. Or, you can move your ETH from the Ethereum chain to the Polygon chain, another widely used network. You get the idea: You can use Crypto A on Network B.
- Bridging is often less expensive than selling your crypto. Think about the steps involved with selling ETH to buy tokens on another blockchain. You have to send your ETH to an exchange, sell it, buy something else, and then send the new tokens to a wallet — paying fees every step of the way. Bridging saves time and money in many cases.
Crypto Bridging Risks:
- Hackers looooovve bridges. The lion’s share of hacking-related losses result from bridge hacks. It’s not that they happen daily; it’s that they’re often BIG numbers when they do happen.
- Coding bugs can lead to losses. Many bridges are built with smart contracts, which are just computer code. The possibilities for problems are endless, ranging from frozen assets to runaway minting that sends token values to pennies. It’s the chaos theory at work. Anything can happen.
- The bridge people might take your crypto. In the next section, we’ll cover trust-based bridges, which are bridges run by people or organizations. Sometimes people aren’t as trustworthy as we’d like to believe. While not a common problem, the crypto you deposit might not come out on the other side. It’s a possibility.
- Bridging might trigger a taxable event. Those rascals at the IRS see bridging and similar swaps as the disposal of property. You gave someone your crypto in exchange for different crypto. As a result, you might have to pay capital gains tax on the asset you deposit to the bridge (assuming you had a gain). Consider the potential tax cost before you start clicking on shiny buttons.
- Bridged tokens can diverge in price from the underlying asset. For example, it isn’t uncommon to see a price difference between BTC and WBTC, although it’s usually $15 or less.
- Bridging exposes you to network risks. Let’s say you bridge ETH to WETH on Solana, and then Solana goes down (again). Your tokens are trapped for the duration. If people lose faith in the network, you might also see a sizable difference in the cost of your wrapped ETH tokens compared to ETH.
Types Of Blockchain Bridges
Both centralized and decentralized crypto bridges work using the same general mechanics: freezing assets and sending equivalent tokens to the destination blockchain. But one approach uses people, and the other uses computer programs to make the magic happen.
- Trust-based or centralized bridges have intermediaries, meaning people, a company, or a federation in the middle of the transaction. This bridging method is “trust-based” because you’re trusting people to handle the exchange without making mistakes, mismanaging funds, or taking your crypto. In some cases, like WBTC, you can’t even bridge tokens directly. Instead, you have to go through an approved merchant.
- Trustless or decentralized bridges use smart contracts (computer programs) to lock the deposited asset and issue equivalent tokens on the destination blockchain. This method is called trustless because you don’t have to trust anyone at all. The code is usually open source, so anyone can peek under the hood to see what’s really going on in there — much like the Ethereum team did with the Optimism Bridge here.
Trust-Based Bridges
- Run by people or an organization
- Must deposit crypto assets and wait for the transaction to complete
- Bridge operators can decline transactions, censoring your wallet address or geographic location
- Uses a custodian to hold the deposited crypto
Trustless Bridges
- Run by smart contracts
- Keep your crypto in your wallet until the smart contract executes
- Typically, any wallet address can interact with the bridge
- Deposited crypto is locked by a smart contract
There are also one-way and two-way bridges.
- Uni-directional bridges only let you send tokens one way.
- Bi-directional bridges let you move the tokens back as well, but this might take a while — maybe even days.
Research the bridge before you deposit your tokens. It’s better to know your withdrawal options beforehand.
Are There Any Bridge Alternatives?
Depending on what you need to do, you might not need to use a bridge. Here are some bridging options that won’t require a crypto Ph.D.
- Buy on an exchange and send your tokens directly to an L2 blockchain. If you want ETH on Arbitrum, you can buy ETH on Coinbase Advanced (with lower fees) and then send your ETH directly to your Arbitrum wallet address with lower-than-Ethereum Arbitrum fees.
- Send your tokens to an exchange and withdraw them to your preferred network. For example, if you already have tokens, you might be able to send ETH or other tokens to an exchange using the Ethereum network and withdraw on Arbitrum.
- Swap tokens on your preferred network. As an example, if you prefer using Polygon and already have some crypto on Polygon, you can use Uniswap or a similar decentralized exchange to swap to WBTC, ETH, or other popular tokens.
Note: Always check compatibility before sending tokens to another network. You could lose your funds if you send tokens to a network that doesn’t support the tokens. Typically, you’ll get a warning message.
To Sum It Up
It’s a big crypto world — and it’s only getting bigger. Bridges offer a handy way to move your crypto to another blockchain where you might be able to do more things or save some money on frequent activities. Consider your options when bridging, though, because it can take up to a week to bridge back to the original blockchain.
Frequently Asked Questions
You can use crypto bridges to move between popular networks like Bitcoin, Ethereum, and Solana. But most of the activity centers around ERC-20 Ethereum-compatible tokens.
Most bridge transactions go off without a hitch, but there are risks. Centralized bridges or trust-based bridges bring the risks that come with any organization. They’re run by people who might make mistakes or may be dishonest. Decentralized (trustless) bridges run on computer programs, which may have bugs or could be hacked.
In addition, the bridged tokens don’t always track the base coin or token in value. The difference in price can add up if you’re working with large amounts of crypto.
The safest bet is probably to use a well-established bridge, like those covered above. Across Bridge offers support for several blockchains.
Costs vary by bridge and by network traffic. We saw rates of just over $2 up to $14 to bridge a small amount of ETH across blockchains.
