Bridging is an activity where cryptocurrencies are transferred from one blockchain to another. This transfer takes place mostly in two methods: lock and mint or burn and mint.
Bridging and Its Needs
Bridging essentially helps you transfer crypto from one chain to another. This allows you to reap the benefits of both chains.
This is different than swapping where you exchange one crypto with another without changing its blockchain.
The need for bridging arose when there was a need for one asset (say from Ethereum) on a different blockchain (say Polygon). This need might be due to multiple reasons.
- Arbitrage: There may be better interest rates or better pricing for a certain asset in another blockchain.
- Cheap Transaction Costs: For example, transacting on Ethereum is more expensive than transacting on Polygon, hence, if I want to use crypto for everyday use, Polygon makes a lot more sense for me than Ethereum.
- Better Safety: Say a crypto was launched on Arbitrum but a user wants to transfer their holdings to Ethereum because they hold it in larger numbers. That user can utilize bridging to transfer these crypto holdings.
- Presence of Certain Dapps: A few dapps may be active only on a specific blockchain and it may ask you to bridge assets like NFTs or ETH from another blockchain. This generally happens with new blockchains.
Types of Bridging
While bridging, the primary requirement is that the net value of assets on both chains (origin and destination) remains the same before and after the bridging. This ensures that there is no excess supply in either chain. Excess supply results in inflation and reduces the token value.
Typically there are two types of bridging that we commonly see:
- locking crypto on one blockchain and minting it in the destination blockchain.
- burning the crypto on one blockchain and minting it on the destination blockchain.
Lock and Mint: Temporary Transfer
In this type of bridging, cryptocurrencies (or NFTs) on one blockchain (Chain A, say Ethereum) are locked and an identical number of coins on the new blockchain(Chain B, say Polygon) in minted. Both coins have the same value, symbol and name.
For example, USDT (ERC-20) can be bridged between Ethereum and Polygon very easily. This can also be done for assets that are previously not present on the new chain (here Polygon).
This process ensures that when the user wants to get their tokens back on the original chain (Ethereum), they can directly lock crypto on chain B (Polygon) and unlock them on chain A (Ethereum).
Burn and Mint: Permanent Transfer
In this method, cryptocurrencies are burnt on Chain A (say Ethereum) and minted on Chain B (say Polygon). This is more of a permanent transfer since a user cannot redeem or recover burnt tokens.
Burning is a process where crypto tokens are permanently moved to a dead address from which it can never be recovered. This removes them from circulation. A dead address does not have a private key, or the private key is destroyed after it is created.
However, there is an indirect way to undo this process i.e., burning or locking the cryptos again on Chain B and minting them again on Chain A. This process, however, consumes more gas fee, i.e., for burning and minting.
