The growth in digital asset trading underscores the security risks of Blockchain Bridge

 

Adi Ben-Ari is the founder and CEO of Applied Blockchain data security specialist. The exponential growth of digital asset trading across various blockchain platforms in recent years has been accompanied by the emergence of blockchain bridges, or token bridges, creating blockchain interoperability. These bridges are not subject to the same technical controls as the blockchain itself, and the strong demand for their use has led to the proliferation of bridges with relatively weak security mechanisms that pose significant value transfer risks, and further problems increase the perception of blockchains as cryptocurrency risks.

Blockchain Bridge is an application that allows people to move digital assets from one blockchain to another, enabling the use of cryptocurrencies across multiple blockchains. The demand for the bridge stems from the need to transition from the high Ethereum (ETH) blockchain gas fees to a faster and cheaper blockchain environment. Blockchain bridging solutions enable connectivity and liquidity flow across multiple blockchains and are an important mechanism in the wider crypto ecosystem.

As the digital asset market grows, so do the risks associated with low security bridges. As of August last year, the global market capitalization of cryptocurrencies was over $2 trillion, more than double what it was at the end of 2020. After surpassing $3 trillion at the end of October, it is now back at nearly $1 trillion Dollars. In addition, over the past year, we have seen a 1200% increase in the total value of global DeFi smart contracts.

Earlier this year, two powerful reminders of vulnerabilities in some blockchain bridges emerged. The $320 million Solana Wormhole Bridge (SOL) hack in February and the Ronin Bridge attack in March showed that hackers had identified vulnerabilities. The theft by taking approximately $600 million in stablecoins ETH and USDC from the Ronin network was one of the largest thefts in cryptocurrency history. The Ronin attack specifically highlights the risks of networks with very little decentralization. Some would say that this highlights just how fundamentally lost crypto and DeFi interoperability is, but the truth is that the technology has advanced.

With the right approach and the use of new technologies in this particular area, it is possible to significantly reduce the risk of bridge hacking and make the process much more secure.

The solution lies in a decentralized “unreliable” bridge

The problem with many bridges is that they require consumers to trust a centralized operator or a small number of federal operators, undermining assumptions about decentralized security. Most bridges lock tokens on the source blockchain and clamp the new “wrapped” tokens into the target blockchain. The initially locked token remains locked as collateral until the token is returned in the reverse operation, when the wrapped token is “burned” and the locked token is released. Locked token pools are a copper receptacle for any hacker, and if they are compromised, the value of unsupported wrapped tokens in the target chain will be questioned.

While each attack severely damages the targeted individual bridge, each additional attack undermines the credibility of the entire asset-wrapped blockchain bridge concept. The value of assets held in bridges has grown from $670 million to more than $32 billion since early 2021, but the industry cannot embark on the next phase of growth without providing much safer bridge solutions. Providing these consumers with truly reliable security can only be guaranteed by “unreliable” solutions. An unreliable system reduces the security risks associated with a more centralized (or even integrated) bridge by eliminating the need for users to trust third parties.

Several companies have started providing this hopeless solution through new tools such as the Intel Hardware Security Enclave (SGX). In addition, the Algorand blockchain (ALGO), for example, will soon be able to rely on government tokens, a consistent set of tokens that verify the status of assets stored on the Algorand blockchain. This allows smart contracts on the target chain to fully verify and fully process transactions from the Algorand chain. Next-generation security measures will help connect chain assets to the wider blockchain world, enabling consumers to perform chain transactions efficiently, cost-effectively and securely.

They will provide a roadmap for other cross-chain solutions looking to close the door on more centralized system security. Moreover, they will solve pressing security issues, thereby encouraging more investors to use this solution to transfer their assets across the chain. Therefore, they are critical to the long-term viability of blockchain bridge projects.