Here is a rundown on how NFT bridging works and whether you can trust NFT bridges with your investments.
In February this year, a non-fungible token (NFT) project called Satoshibles was launched. The project is inspired by Bitcoin’s pseudonymous creator, Satoshi Nakamoto. At this point, it is common knowledge that most NFTs are on the Ethereum blockchain. But, the developers of the project wanted to create Satoshibles on the Bitcoin blockchain to honor Nakamoto’s legacy.
To make the most of the NFT community on Ethereum as well as allow transactions in Bitcoin, the developers created the StacksBridge. This bridge allows buyers to switch between holding their NFT on Ethereum and the Bitcoin-based blockchain platform Stacks. With this, Satoshibles has become the world’s first NFT project to bridge between Ethereum and Bitcoin. But what is “bridging” and how can NFTs shift between blockchains? Let’s find out!
NFT/ blockchain bridges explained
The Satoshibles example gives us a basic understanding of what NFT bridges do—they connect two different crypto networks and allow NFTs to be transferred between them. Even though different crypto networks have their own protocol, bridges facilitate secure transactions between the connected blockchains.
Essentially, when using an NFT bridge, a user would deposit their NFT into a smart contract on network X and get the deposit confirmed by signatures from the oracles (data feeds that connect the Ethereum blockchain to real-world information). These signatures allow the NFT holder to use the same smart contract to create a duplicate of their NFT on network Y. If the user wants the original NFT back, they need to send their duplicate NFT on network Y over to the bridge where it will be burned. They then need to ask the oracles for signatures to authenticate the burning, after which the NFT on network X will be released.
Types of bridges
NFT bridges can be divided into two broad categories—trusted bridges and trustless bridges. Trusted bridges are ones that are overseen by central authorities for their operation. Users trust these bridges with their funds based on the reputation of the authority that controls them. Trustless bridges are based on smart contracts and algorithms as opposed to centralized authorities. In a trustless bridge, the level of security is the same as the underlying network.
The easiest way to understand the difference between the two is to imagine yourself in a grocery store. When you are done shopping, you have two options—you can either ask a cashier to check out your groceries or go through self-checkout. The cashier route (which requires third-party involvement) is the trusted system, and the self-checkout is the trustless system.
How can these bridges be used?
The core tenant of the crypto world is decentralization. However, as these decentralized blockchain networks continue to get bigger, they have remained cut off from one another. Bridges can connect different networks and enable the advancement of blockchain technology, allowing different crypto networks to build on each other’s strengths.
This could also be a great step in furthering decentralized finance (DeFi) by facilitating greater liquidity and increasing the user base through cross-platform interoperability. NFT bridges would make it possible for users and creators alike to list their NFTs on multiple marketplaces, irrespective of the blockchain network they cater to.
Risks posed by bridges
For all the positives of NFT bridges, they certainly do not come without their fair share of risks. Interacting with a bridge poses the risk of coming across a faulty smart contract, which could end up making users lose their funds. Another risk you could possibly face is malicious attacks or errors in code, which could adversely affect the functioning of the bridge. Not just the bridge but a particular blockchain can also come under cyberattacks, which is an added financial risk to the user.
Trusted bridges have additional risks, such as a risk of censorship, where bridge operators could theoretically stop you from transferring funds using the service. Operators could also collude to steal user funds. Since bridge mechanisms are still under development, there are chances that all of the risks associated with their use/operation are yet to be discovered.
Besides StacksBridge, there are other bridges that have been trying to increase interoperability between crypto networks. These include the Plasma NFT Bridge (Polygon to Ethereum or other ERC tokens and vice versa) and the Wormhole NFT Bridge (Solano to Ethereum and vice versa). Of these, the Wormhole bridge lost more than US$320 million in a hack in February this year. The Plasma bridge narrowly escaped losing US$850 million to a bug in October 2021, which was luckily fixed in time. Both of these examples show that there is a need for further development of bridges before they can become a trusted system for cross-network interoperability.
Header image courtesy of Freepik