Counterstake and More: Learn to Transfer Crypto with Bridges

Before starting, let’s keep in mind the definition of a traditional “bridge:” a structure designed to attach and cross over two (or more) previously unconnected places. It’s not that different in the crypto world, because, in reality, all distributed ledger platforms are isolated from the others. They have their own assets and features and, if we want to connect them, we’ll need a digital bridge.

This means that you simply can’t send, for instance, Bitcoin to Ethereum, Ether to Bitcoin, or GBYTEs to Ethereum. Not directly, at least. If you try to send an asset from A chain to B chain without a bridge in the middle, your wallet simply can’t do that. Luckily, bridges are here to make the connection possible.

They’re protocols or platforms that enable seamless and secure interoperability between different networks, facilitating the transfer of digital assets across numerous ecosystems. With its help, you could use a native asset from the A chain in the B chain without issues —to take advantage of liquidity mining or P2P contracts, for example.

Let’s dive a bit more into these platforms.

Types of bridges in crypto

If we consider their inner workings, we can separate cross-chain bridges into three main types: Lock and Mint, Burn and Mint, and Lock and Unlock. In the "Lock and Mint" model, users secure tokens on the source chain, and equivalent tokens are minted on the destination chain. Conversely, in the reverse direction, burning these ‘wrapped’ tokens unlocks the ‘originals’ on the source chain.

The next approach, "Burn and Mint," involves burning tokens on the source chain and re-issuing (mining) them on the destination chain. Meanwhile, "Lock and Unlock" allows users to lock tokens on the source chain and unlock them from a liquidity pool on the destination chain, with liquidity on both sides being supported by monetary incentives to providers.

In other words, an action in the A chain (lock or burn/erase tokens) must be performed and proved to some actors on chain B, for them to create (mint) or unlock B-compatible tokens in the same amount locked or burned by the A-chain user. So, we can say they’re not the same coins from the beginning, but an equivalent in the destination network. Of course, users can recover the “original coins” in the A chain as well by reversing the process.

Cross-chain bridges and decentralization

Now, if we consider the amount of external control or involved middlemen in the process (centralization), we can classify cross-chain bridges into trust-based and trustless. Trust-based bridges rely on user trust in a federation or custodial entity, operating in a centralized manner and keeping control of user funds. While quick and cost-effective for large transactions, their focus on transaction speed may compromise safety, fraud prevention, and regulatory exposure.

In contrast, trustless bridges operate on programmable agents (smart contracts, autonomous agents, chain code, etc.), offering a higher level of decentralization and user control over their own funds. These bridges, while providing more regulatory freedom, available chains, and flexibility, may face challenges due to the potential vulnerabilities of their code.

On the other hand, centralization levels vary among trust-based bridges, where the size of the group determines centralization. Examples like Binance Bridge exhibit high centralization with a single custodian, posing a single point of failure. Multi-signature schemes mitigate risks, but collusion or compromise remains a concern.

Light client-based bridges verify transfers using light clients of source chains, avoiding central parties. However, challenges arise in implementing these bridges, making them difficult to scale. Economic incentive-based bridges, exemplified by protocols like XClaim and TBTC, prioritize security through collateralization. Yet, high collateral requirements may lead to increased fees, potentially impacting competitiveness. It’s important, then, to find a balance without losing control.

Counterstake Bridge

Counterstake is a user-friendly and decentralized cross-chain bridge available to import and export digital assets from and to the Obyte ecosystem and EVM-based networks. It’s a trustless and economic-incentive-based bridge that applies its novel method to be secure and cost-effective without sacrificing user control. The key to its operation is in the name itself: counter-stake.

Users initiate the process by locking their native assets, such as GBYTE, on the asset’s home chain (Obyte in this example). Then, an equivalent amount of the same token is claimed on the foreign chain, like Ethereum, through an equivalent stake in the foreign chain's native asset.

Next, there’s a challenging period of three days where participants can challenge the legitimacy of the claimed funds by counter-staking 1.5 times the original stake. This back-and-forth process can continue for many days (in very rare cases), until one side has a stake 1.5 times greater than the other side and it stays unchallenged, determining the validity of the claim. The protocol incentivizes honest participation by offering rewards to those supporting legitimate claims.

Indeed, even if a whale (rich holder) stakes against a legitimate claim, the increasing length of challenging periods, the community input, and the public nature of the involved crypto networks would lead to the whale losing all the staked funds. That’s why, in practice, most challenging periods end without a challenge, after only three days, and the coins are claimed without further issues. Users can be self-claimers and pass through the challenging period, or speed this up by using the services of an assistant.

Exchange quickly with assistants

Crossing this bridge doesn’t have to take days for average users. It could be quicker with the help of assistants. Acting as a facilitator, the assistant helps users by claiming transfers on their behalf, and immediately delivering the claimed coins to the user with a deduction for a predetermined reward.

To utilize an assistant's services, users indicate the reward they are willing to pay when sending a transfer. This reward should cover network fees on the destination chain and compensate the assistant adequately for the associated risks and capital locked in claims. Assistants, whether operating individually or in pooled setups, also function as watchdogs, challenging fraudulent claims and aiding users in expediting their transfers securely.

All of this happens in the background, though. When using the Counterstake Bridge, average users will see a simple interface including “You send [X coins on A chain],” “You Get [X coins on B chain],” the assistant’s predetermined reward for that amount, and a space to fill in the Obyte or MetaMask address to receive the funds.

It’s important to note that, for now, Counterstake only works with the Obyte wallet (for Obyte-based tokens) and MetaMask wallet (for Ethereum-based and BSC-based tokens). To use the bridge, you’ll need both wallets installed. Once the funds have been sent through the above interface, you can check their whole path on the same website: Sent – Mined – Claimed – Claim Confirmed.

“Claim Confirmed” means that an assistant has received your money and sent the coins to your wallet. You don’t need to do anything after sending the transfer. Just wait between 20 – 30 minutes to receive your assets on the destination chain. It may also happen that the available assistants don’t have the amount you need at the moment, so you can choose between self-claiming or waiting for them to refill their pools.

Participate in Counterstake Governance

Since no central party is behind Counterstake, the same users are in charge of decisions —if they want to participate. They can shape and adjust critical parameters, including the stake growth factor for consecutive challenging periods, the initial stake value, challenging periods for regular and large transfers, the threshold for deeming a transfer large, minimum stake, and the price oracle used.

Two programmable agents, the export agent on the home chain and the import agent on the foreign chain, each have their governance modules. Token holders on the home chain vote on export agent parameters, while holders of the minted token on the foreign chain vote on the import agent parameters.

This decentralized governance employs challenger voting, allowing active participants to make prompt decisions without requiring quorums. Participants actively engage in shaping the protocol's dynamics, ensuring adaptability and responsiveness to the evolving needs of the Counterstake Bridge ecosystem.

In the realm of crypto bridges, the Counterstake Bridge stands out for its trustless and decentralized approach. Offering secure and transparent cross-chain transfers, the protocol's unique features ensure versatility, user-friendliness, and reliability.