Bridge

In the context of cryptocurrencies and blockchain technology, a bridge is a method or tool that enables the transfer of tokens or data between different blockchains. Essentially, it serves as a connection between distinct blockchain networks, enabling interoperability among them.

The need for bridges arises because not all blockchains can directly interact with each other due to differences in their protocol, consensus mechanisms, and transaction formats. A bridge allows these different blockchains to communicate and transact with one another, enhancing the flexibility and scope of decentralized finance (DeFi) applications.

There are two main types of bridges:

1. Federated Bridges: These are controlled by a group of validators that approve transactions between blockchains. This system relies on trust in these validators, making it somewhat centralized.
2. Trustless Bridges: In this case, smart contracts manage the bridge, eliminating the need for trusted validators. However, trustless bridges are more complex and require more resources to operate.

Each type of bridge has its own advantages and potential security risks, and the choice depends on the specific requirements of a project.

For instance, the Ethereum-to-Binance Smart Chain bridge is a good example that allows users to swap ERC-20 tokens (native to the Ethereum blockchain) for BEP-20 tokens (native to the Binance Smart Chain) and vice versa. Similarly, the Wrapped Bitcoin (WBTC) project uses a federated bridge to bring Bitcoin to the Ethereum blockchain.