Let's say you live in India and are traveling to Singapore. In India, we use Indian Rupees (INR) while in Singapore they use Singapore Dollars (SGD).
So you could convert some money from INR to SGD using a bank. Or you could use an international card that enables you to pay in SGD when you are in Singapore.
This is simple in the world of banks. But a lot more difficult in the world of Blockchains.
Ethereum Mainnet and Terra are two independent Blockchains. They have different rules and consensus mechanisms. The native token of Ethereum Mainnet is ETH while that of Terra is LUNA.
Now suppose that you have a bunch of LUNA on Terra, but want to use it on the Ethereum Mainnet. How do you do that?
That's where a Blockchain Bridge comes into the picture.
A Blockchain Bridge enables the movement of assets between blockchains
You could use the Terra Bridge to buy Wrapped Luna (WLUNA) which is an ERC-20 token native to the Ethereum Mainnet.
In simple terms, here's how a typical bridge works:
It receives one type of crypto e.g. LUNA.
It locks this LUNA as a deposit.
It "mints" an equal amount of another crypto e.g. Wrapped LUNA and releases it on another blockchain e.g. Ethereum Mainnet.
Trusted v Trustless Bridges
Bridges can be Trusted or Trustless.
A Trusted Bridge depends upon a central entity and you lose control of your cryptos when you use it. A Trustless Bridge operates using smart contracts and you remain in control of your cryptos.
The top 10 Bridges
The top Bridges and their Total Value Locked (TVL) are:
WBTC (WBTC): $11.19 billion
Multichain (MULTI): $5.07 billion
Portal: $4.18 billion
hBTC (hBTC): $1.54 billion
JustCryptos (JST): $1.2 billion
Terra Bridge: $1.08 billion
RenVM (REN): $928.46 million
cBridge (CELR): $749.69 million
ChainPort: $207.42 million
Allbridge (ABR): $207.25 million
(Source: defillama.com)
Hacking Bridges
Because bridges hold a ton of crypto, they are juicy targets for hackers. And because writing the code for bridges is insanely complex, hackers are having a field day plundering them.
When a bridge gets attacked, the hacker withdraws crypto from one side of the bridge, e.g. Wrapped LUNA, without depositing anything on the other side e.g. LUNA.
One of the biggest crypto attacks took place in March 2022 when the Ronin bridge, built for Axie Infinity, was hacked for $600+ million in ETH and USDC.
Ronin worked "off-chain" - it interfaced with the blockchain but existed on external servers that were not a part of the blockchain. It relied on 9 validator nodes, of which 5 nodes were needed to validate transactions. The hackers exploited code vulnerabilities and also used social engineering.
Another major Bridge hack targeted Wormhole which supports 6 blockchains - Terra, Solana, Ethereum, Binance Smart Chain, Avalanche, and Polygon. The cost of the hack was $325 million.