Growth in digital asset trading highlights security risks of blockchain bridges

Source: Adobe/Wirestock

Adi Ben-Ari is the founder and CEO of the data security specialist Blockchain applied.

The exponential growth of digital asset trading on different blockchain platforms in recent years has been accompanied by the emergence of blockchain bridges, or token bridges, which create interoperability between blockchains.

These bridges have not been subject to the same technical scrutiny as blockchains themselves, and the high demand for their use has led to the proliferation of bridges with relatively weak security mechanisms introducing substantial risk in the transfer of value, and the resulting issues have fueled perceptions about the risks associated with blockchain and crypto-assets.

Blockchain bridges are applications that allow people to move digital assets from one blockchain to another, allowing crypto-assets to be used across multiple blockchains. The demand for bridges stemmed from the need to move away from the high gas fees of the Ethereum (ETH) blockchain to faster and less expensive blockchain environments. Blockchain bridge solutions enable connectivity and liquidity flows across different blockchains and are a vital mechanism in the wider crypto ecosystem.

As the market for digital assets grows, the risks associated with weak security bridges also increase.

In August of last year, the global market capitalization of cryptoassets been over $2 trillion, more than double what it was at the end of 2020. After surpassing $3 trillion at the end of October, it has now fallen back to nearly $1 trillion. Additionally, last year we saw a 1,200% growth in the total value locked in global DeFi smart contracts.

Earlier this year, two stark reminders of security flaws in some blockchain bridges were reported. The $320 million hack on the Solana (SOL) Wormhole Bridge in February and an attack on the Ronin Bridge in March showed that hackers had identified a weak link. The theft by siphoning around $600 million worth of ETH and USDC stablecoins from the Ronin network was one of the biggest heists in crypto history. The Ronin attack in particular highlights the risks of very loosely decentralized networks.

Some would say this illustrates how fundamentally flawed crypto and DeFi interoperability is, but the reality is that the technology has already evolved.

With the right approach and the application of new technologies in this particular area, it is possible to significantly reduce the risk of bridge hacks and make the process much safer.

The Solution Lies in Decentralized “Trustless” Bridges

The problem with many bridges is that they force users to trust a centralized operator, or a small number of federated operators, which undermines the security assumptions of decentralization.

Most bridges lock tokens on the source blockchain and manufacture new “wrapped” tokens on the destination blockchain. The original locked tokens remain locked as collateral until the tokens return in a reverse operation when the wrapped tokens are “burned” and the locked tokens are released. Locked token pools represent a honeypot for any hacker, and when compromised, the value of any unsaved wrapped tokens on the destination chain is called into question.

While any attack is extremely damaging to the individual bridge it targets, each further undermines trust in the whole concept of blockchain bridges with wrapped assets.

The value of assets held in bridges has grown from $670 million to more than $32 billion since the start of 2021, but the sector cannot unlock its next stage of growth without providing much more secure bridge solutions.

Providing this certainty of security, which users can truly rely on, can only be provided by “trustless” solutions. Trustless systems mitigate the security risks associated with more centralized (or even federated) bridges by removing the need for users to trust a third-party operator.

Some companies have already started providing these trustless solutions through new tools, such as Intelthe hardware security enclave (SGX) of . In addition, the Algorand blockchain (ALGO), for example, will soon be able to rely on proof of status, an immutable series of proofs that verify the status of assets held on the Algorand blockchain. This allows smart contracts on the target chain to fully verify and process transactions emanating from the Algorand chain.

Next-generation security measures will help connect on-chain assets to the wider blockchain world, allowing users to conduct cross-chain transactions efficiently, cost-effectively, and securely.

They will provide a model for other cross-chain solutions seeking to close the security gaps of more centralized systems. In addition, they will solve an urgent security problem and thus encourage more investors to use these solutions to transfer their assets from one chain to another.

They are therefore critical for the long-term viability of blockchain bridge projects.
Learn more:
– A multi-channel world is key to the success of Web 3.0 and the metaverse
– Multi-Chain Future Brings Multiple Competitors to Bitcoin and Ethereum – Analysts

– Blockchain Games in 2022: Play-to-Earn, Gamification, Interoperability and Major Publishers
– Layer 2 in 2022: prepare for rollups, bridges, new applications, life with Ethereum 2.0 and layer 3

Sylvia B. Polson