In the old movie "District 13" dystopian Paris was divided into isolated blocks with huge walls. Each quarter had its own course of life which was totally different from neighboring. In some way it reminds the current state of things in the blockchain industry: there are a lot of networks, each of them, like Ethereum, Solana, and Cardano could have different protocols, qualities, and dApps.
But each blockchain could have its own advantages which users of other blockchains would like to try to. So, there is a fast-emerging need in transferring tokens and coins across various blockchains. For example, you plan to invest in a liquidity pool on a different blockchain, move assets from a sidechain to the mainnet, or transfer crypto to a friend/seller who uses a different network. How to do this?
Let's take a closer look at each method of token transfer.
The simplest method that comes into mind is to use a crypto exchange. But it really takes a lot of time and effort. For example, we want to exchange ETH for MATIC. For this you have to:
Atomic swaps help to quickly exchange two separate coins running on different blockchains. It applies time-locked smart contracts to allow users to exchange currencies straight from their crypto wallets.
How does it work? Let's put it very simply and imagine that Rick wants to exchange a pizza for a burger, and be 100% sure that there will be no fraud. For this, he puts the pizza into transparent box A, and his friend Morty, who finally has agreed to share food, puts the burger into transparent box B. Both boxes are locked with the same cipher, issued by Rick. If he uses the cipher, it will become known to Morty.
The exchange has happened, each party has the needed box and can ensure that there is the food they expected. After that Rick uses his cipher to open box B, which automatically provides Morty the code to open his box A and enjoy the pizza.
Of course, it's a very simplified explanation and the hard reality of atomic swaps is far more complicated (just kidding, atomic swaps make our life better). In the "blockchainian" language boxes are called HTLC – Hashed Timelock Contract, burgers and pizzas represent coins, and cipher is used for Preimage – the key that simultaneously unlocks the smart contract for both parties.
One of the main features of atomic swaps is that if one of the parties doesn't approve the transaction during a certain amount of time – the whole deal is canceled, so the risks are low. Actually, the term "atomic" is responsible for that – it means that the deal can be done only on defined terms or there is no deal at all. 0 or 1, nothing more.
Smart contracts allow the creation of digital assets which price is pegged to the price of another asset: a cryptocurrency, stock, or US Dollar. So, you will not have the original asset itself, but an analog that has the same value. Such assets are called synthesized.
In terms of transferring tokens, synthetic assets allow buying the representation of the native token of blockchain A on blockchain B, and its price will be the same as the original one. For example, you want to "transfer" Solana tokens to Ethereum. For this, you use a derivatives liquidity protocol to issue a synthesized SOL token on the Ethereum blockchain. The price of this token is tied to the price of SOL, but it could be freely used in the ERC-20 network.
If we use a metaphor from fantasy fiction, the blockchain bridge is kind of a portal between parallel worlds. It allows you to easily transfer tokens, coins, and NFTs from one blockchain to another. Both can have different rules, governance models, and protocols, but the bridge provides a dependable way for interoperation.
For now, the blockchain bridge is the best way found to solve the issue of interoperability between blockchains. It allows to seamlessly transfer tokens from one blockchain to another and make use of dApps hosted on other networks. Imagine that you have ETH, but you want to invest it into a new and very profitable DeFi service on Solana. You can't interact with Solana dApps using Ethereum tokens, but token bridges solve this problem.
In short, blockchain bridges allow users to access the benefits of other blockchains without sacrificing the advantages of the host chain.
How do blockchain bridges work? Actually, the assets are not transferred from blockchain "A" to blockchain "B", as you could think. Instead, it uses the "lock and mint" process. The bridge locks the assets in a smart contract on blockchain A and mints an equal amount of assets on blockchain B. When the user wants to redeem the tokens, the same amount of them are burned on blockchain B and the original tokens are unlocked. It prevents the assets from using on both chains at the same time.
Another way that a token can be transferred via the token bridge is by using liquidity pools.
It could sound a bit complicated, but from a user's point of view, it's very simple. For example, Allbridge.io helps to transfer both native and wrapped tokens just in a few minutes:
Surely, everybody will choose his or her own way, depending on goals, time, and budget. However, the most accessible and modern way is to use our blockchain bridge. It combines the best from the transfer methods we mentioned above and allows you to access the advantages of other blockchains in a few clicks.