GM DOers! 🚀
Arbitrum is now enjoying the perks of native USDC. 🚀
But to understand what that means and why it matters, we need to talk about bridges. 🌉
Just as your aunt’s laptop, secured with her cat’s name as a password, is prone to being hacked, so are the bridges in the world of crypto (PSA: this is very important to understand if you are playing in the web3 sandbox).
In fact, last year, out of the 10 largest crypto hacks and exploits that amounted to $2.1B in stolen assets, 6 were due to bridge hacks. 😲
Some notable instances include:
- The BNB chain bridge, which lost $500M (most of it was recovered)
- The Nomad token bridge exploit, with losses amounting to $190M
- The Ronin bridge hack, which experienced a staggering loss of $612M.
These exploits have, understandably, created a sense of unease among web3 users, many of whom are now hesitant to bridge their assets across different chains. 😬
It’s why many didn’t get an Arbitrum airdrop → they were too afraid to bridge even though there’s a HUGE difference between how the bridges that were exploited work vs how L2 bridges work.
So there’s definitely a problem. However, we can see light at the end of the tunnel with Circle’s release of native USDC on Arbitrum. 🤩
Why?
Because they’re now changing the way we bridge our tokens, offering a much safer and quicker way.
In this article, I am going to teach you:
- How bridges typically work
- How Circle’s new and innovative way is supposed to work
- What are the benefits of this move
So let’s get into it. Stick around until the end, especially if you have any USDC on Arbitrum. I’ll tell you what you need to know about migrating your tokens to native USDC.
By the way, bridging assets to various chains will be completely hidden to the average user in years to come (aka web3 mullet).
So understand that this won’t matter to the masses, however, currently this is interesting to us because we are early and still building the underlying infrastructure that will enable billions to use web3 seamlessly in the future.
Let’s get into it.
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How Do Bridges Work and What’s Cross-Chain Transfer Protocol? 🌉
Blockchain bridges enable the transfer of assets and data between different blockchain ecosystems, either via the wrapped asset method or the liquidity pool method.
In the wrapped asset method, a user's native asset on Blockchain A gets locked up and an equivalent amount of a wrapped asset is issued on Blockchain B.
This process is like when you go bowling. The bowling alley takes your own shoes and gives you bowling shoes (see these as bridged assets), which you can use. When you’re done, you return the bowling shoes and take back your own shoes.
The liquidity pool method works a bit differently. Instead of locking and wrapping assets, these bridges use liquidity pools - somewhat similar to currency exchanges.
When a user wants to transfer an asset from one chain to another, the bridge uses its pool to send the required funds to the user.
Regardless of the method, the central issue lies in the fact that assets must be locked up or controlled by another party during transfer, creating potential weak points for attackers.
This has made both types of bridges prone to hacks, as evidenced by several incidents in the past.
When it comes to Layer 2 bridges (bridges between Optimism and Arbitrum for example), they work slightly differently and are much safer than the Layer 1 bridges explained above.
We won’t get into the technicalities of how it works. All you need to know is that all these L2 platforms share the same underlying security from the Layer 1 Ethereum blockchain, which makes it safer than bridging between different Layer 1 blockchains.
Still, there are some risks with L2 bridges too. Risks that CCTP wants to mitigate. Let’s see how:
Meet Cross-Chain Transfer Protocol (CCTP) 🤝
To overcome these vulnerabilities, a new solution is being introduced by Circle (the company behind USDC), called Cross-Chain Transfer Protocol (CCTP).
This will be live on the 27th of June!
CCTP offers a safer and more efficient method for transferring assets across chains.
It operates by burning native USDC on the source chain and minting an equivalent amount on the destination chain.
It’s essentially teleporting assets from one blockchain to another.
This process eliminates the need to lock up assets, reducing the security risks associated with conventional bridges.
Here’s a simplified breakdown of how CCTP works:
- USDC is burned on the source chain: Users initiate a transfer of USDC from one blockchain to another through an app, and the specified amount of USDC is burned on the source chain.
- A signed attestation is fetched from Circle: Circle witnesses the burn event on the source chain and provides an attestation or authorization to mint the equivalent amount of USDC on the destination chain.
- USDC is minted on the destination chain: Using Circle's attestation, the app triggers the minting of USDC on the destination chain, sending the new USDC to the recipient's wallet.
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