Interoperability remains a persistent issue in the world of gazillion blockchains and interesting protocols and projects. The need for interoperability leads to many practical problems, one of which comes down to token liquidity and crypto swapping between blockchains.
Moving tokens from one blockchain to another has become a crucial part of the DeFi sector. It allows users to use these tokens on different chains than their native ecosystem. However, most blockchains are closed systems and thus aren’t directly compatible with each other. The problem can be compared to using a European power plug in the United States — it’s just not going to fit. At least, not without an adapter.
Within DeFi, these adapters — better known as bridges — can be found everywhere. With bridges, users lock tokens on one blockchain to unlock wrapped versions of them on another chain. These wrapped tokens can then be used in whatever DApp on that blockchain.
One caveat of this approach is that bridges form a significant attack vector. Hackers could exploit a vulnerability and steal all locked tokens on one side or simply create large amounts of wrapped tokens. One such attack targeted the Wormhole bridge, in which hackers managed to steal 120,000 wrapped Ether worth $321 million. This vulnerability applies to other centralized platforms as well.
In an ideal world, intermediaries are no longer needed. It’s one of the key reasons Satoshi Nakamoto invented and developed Bitcoin (BTC). They wanted to make it possible to exchange value without needing a bank or payment provider to serve as the middleman. With the help of a blockchain, Nakamoto made it possible to make a digital transfer of value as straightforward as handing over a $1 bill directly into
Read more on cointelegraph.com