The cryptocurrency ecosystem is prone to hacks, scams and attacks from cybercriminals. Last year was no different. The investors in this space have lost a lot of money thanks to crypto bridges, which are among the most crucial parts of the ecosystem. Unsurprisingly, cryptos such as Ethereum have fallen victim to some of the biggest heists in history. Unfortunately, cybercriminals are continually targeting crypto bridges as they pose the best avenue to get to investors. So, what exactly are they? How do they work? Please read on to find out the answers to these and much more.
What are Crypto Bridges?
A crypto bridge is a system that allows crypto users to transact within the blockchain. Therefore, the software allows users to send coins from one blockchain to another. Hence, it is essential in crypto to enable cross-communication. It connects networks to ensure that tokens are swapped quickly.
As much as this system makes it easier and enhances the exchange process, it is not protected. Initially, the intention of having the crypto bridges was to make the exchange within the networks seamless and safe. Unfortunately, they have proven to be a major concern since 2020. There were reports of hackers draining billions of dollars from numerous crypto bridges.
This, therefore, puts crypto lovers at risk of losing their assets worth billions of dollars. The blockchain industry has experienced a lot of hacks and scams. However, crypto bridge hacks comprise a major percentage. For instance, in 2022, a total of $1.3 billion was stolen due to the crypto bridge.
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Nonetheless, the incidents of breaches in the crypto bridges are so high that it constitutes 69% of the crypto funds stolen in 2022. Therefore, with such massive cybercriminal attacks on bridges, their level of security is low.
Types of Crypto Bridges
The following are the two types of crypto bridges;
- Trusted Bridges
This type of bridge involves a third party who is the digital asset’s central custodian.The system’s leaders have direct custody over each user’s cryptocurrency. This means that the company in charge has total control and overseas the users’ digital assets once locked in the system.
The beauty of using a trusted bridge is that the company or organization that acts as the custodian is most likely insured against hacking. Therefore, it will distribute the funds from the insurance company among the users.
- Trustless Bridges
In this case, there is no involvement of a third-party company or a centralized organization to watch over the bridge. On the contrary, the process is automated, and smart contracts are used to manage the transfers. Moreover, crypto users have total control over their digital assets. Therefore, there is no risk of mishandling cryptocurrency by a third party.
Unfortunately, if a trustless bridge falls victim to hacking, e.g. compromised algorithms, the users will lose all their digital assets.
How Does Crypto Bridging Work?
Users of a crypto bridge lock their initial tokens in the system. This way, the wrapped tokens are minted on another blockchain. As much as the wrapped tokens are a version of the original token, they still possess similar market value to the original coin. They also have increased liquidity, meaning people can now use cryptos on a non-native blockchain.
A crypto bridge, e.g. trustless bridge that uses smart contracts, is automated, meaning that there is no human intervention in swapping tokens. Therefore, an investor deposits token into the smart contracts. After this, the crypto will be minted on a new blockchain as a wrapped token (a synthetic version of the original token), which can then be traded on a different network.
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Are Crypto Bridges Safe?
As mentioned earlier, crypto bridges have been a major target of hackers. They pose a lot of security risks. Hackers target this technology to a great extent. Therefore, as much as the value of assets in the crypto space is high, their safety is not guaranteed. The crypto bridges are not secure. Besides, unlike crypto exchanges, bridges are not regulated. Therefore, the fact that they are ungoverned means they can be used to commit crimes such as money laundering.
Research the protocol you want to use before using a crypto cross bridge. Exercise caution when using bridges.
Why are Crypto Bridges Vulnerable to Hacks?
Crypto bridge hacks are continually increasing because bridges as a target are very profitable. Hackers can get up to billions of dollars, if not millions, from a successful crypto bridge hack. However, the fact that crypto bridges contain a lot of cryptos isn’t the only reason crypto bridge hacks are common.
Their vulnerability can also be linked to their engineering. For instance, the developers haven’t perfected the blockchain codes. Thus, it is not surprising that cybercriminals with extensive knowledge of blockchain coding can manipulate the bridge’s smart contracts, resulting in the loss of funds. Besides, some brides use open-source codes for transparency. Unfortunately, cybercriminals can also review and manipulate open-source codes in software.
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There are other cases portraying the system’s weak spots. For example, in one crypto bridge hack, the hacker got the passwords of some accounts. With the passwords, they could go ahead and withdraw the funds. Therefore, the bridge required several validators to approve the transaction in this case.
Once an account’s passwords and private keys are compromised, the hackers can do much with the funds locked in the system. In other crypto bridge hacks, the hackers don’t require any complex programming skills to access the system and withdraw funds.
Moreover, the crypto bridges are unregulated, meaning the hackers can go without legal consequences. Nonetheless, no framework exists showing how authorities can handle such hackers.
Final Remarks
Crypto bridges are an essential part of the crypto ecosystem. They ensure a fast and seamless transfer of tokens within blockchains. However, the major concern is how safe they are. This is linked to the increasing reports of crypto bridge hacks that lead to billion-dollar losses. However, this doesn’t mean crypto enthusiasts cannot use the protocols. Importantly, always be cautious and keen before locking your cryptocurrencies in a bridge.
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