Blockchain bridges: how the smart contract piñata works, and why bridges keep getting hacked Attack of the 50 Foot Blockchain

In economics, non-fungibility means that an item is unique, like an original work of art or a restaurant meal. Fungible items are those that are interchangeable with identical goods – such as gold or tins of beans. NFTs are the product of a technology protocol, published on the Ethereum blockchain in September 2017, that allows for the creation of certifiably singular digital assets. Each NFT is tied to a different identifier, making each token non-fungible and unique to its owner. A developer can create a contract where every token holds a different value, so someone can create a digital asset they can prove is theirs, and sell it for real money.

Now that most of the blockchain protocols are autonomous ecosystems with independent economies, cross-chain communication becomes an unavoidable need. Having separate rules and technologies, they need bridges to be interconnected. Therefore, it is essential to understand what is a blockchain bridge. The bridged ecosystem is more cohesive and interoperable, opening up opportunities for better scalability and efficiency. The search for a safer and more reliable design continues with multiple attacks on cross-chain bridges.

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The bridge program notices, and creates a wrapped-ETH on the other blockchain. Blockchain bridges are functionally wildcat banks, but on the blockchain — they hold cryptos, then issue tokens as banknotes backed by those cryptos. Finance is full of paper representations of assets, and paper representations of paper representations. In fact, real-world equity stocks in the US work a bit like wrapped cryptos. So the attacker got into Ronin and just told the bridge to give them all the cryptos.

This way you can easily transfer tokens and leverage the high transaction flexibility of multiple blockchain networks. Bridges are required because there are thousands of blockchains, many of which are not connected in such a way that assets and information can seamlessly move between them. Therefore, as applications and use cases develop on different blockchains, it is becoming ever more important for assets and data to need to move between them. One way for safer digital asset transfers is to use a ‘burn and mint’ flow so that only one version of the token exists at any time. The token is burned on the origin chain, and then minted on the destination chain. This can work if the bridge owner controls both sets of token contracts on the origin and destination chain.

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DeFi is correctly viewed as a piñata — you whack it in the right spot, and a pile of crypto falls out. This is because smart contract programming is brittle and demanding, but all the incentives are time-to-market — so you should expect sloppy work at every stage. Blockchain bridges validate, regulate and authorize quick micro transactions at feasible and nominal gas fees.

Cross-chain bridge hacks account for 69% of hacks in 2022 so far, according to Chainalysis, with more than $2 billion stolen, and the very idea of cross-chain security coming under scrutiny. I have considerable experience with communication networks, but I find it hard to grasp exactly what information is flowing ‘twixt the different entities in a blockchain system. This applies to single-application bridges too, like what is a blockchain bridge Sky Mavis’s Ronin. If you can believe Sky Mavis, the company literally didn’t notice for six days that their backing reserve had been stolen. This has left the already poor play-to-earn gamers in Axie Infinity utterly screwed — they’re paid in the wrapped tokens, which can’t be redeemed because there’s nothing left to redeem them with. The company says it will make up the stolen coins — though it’s not clear how.

I recently used it to bridge Salona…

Really impressed by the quality of service and ABR bridging experiance. We recommend researching a wide range of sources before using these services. The Fintech Times is the world’s first and only newspaper dedicated to fintech. Tyler PatheTyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications. Once the initial attacker had proven this was possible, others quickly joined in — creating what has been called the first ever decentralized looting event.

This is a tactic commonly seen in large hacks, where thieves seek to avoid seizure of stolen assets such as stablecoins, which can be frozen by their issuers. Within hours, the majority of the tokens taken from FTX were swapped for ETH through decentralised exchanges. In November 2022, just 24 hours after filing for Chapter 11 bankruptcy in the US,FTX’s wallets were drained of $477 million in cryptoassets, through what were believed to have been a series of “unauthorised” transfers. The newly-minted BNB tokens were then exchanged for other assets both on and off the BNB Smart Chain, including on Ethereum, Polygon, Fantom, Avalanche, Optimism and Arbitrum. The year 2022 was another landmark one for the digital asset industry. Not only has the price of cryptocurrencies such as Bitcoin careened like a rollercoaster, but the market has also been subjected to a barrage of crypto hacks, cybersecurity breaches and frauds.

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In August 2022, Nomad – a bridge network allowing users to convert their assets across blockchains – was exploited for over $156.4 million. Now, hardly a week goes by without some https://xcritical.com/ sort of crypto hack making the news. In just October 2022 alone, blockchain security firm Peckshield estimated that there were at least 44 exploits involving 53 protocols.

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• A bridge involves multiple steps to transfer information from a source blockchain to the desired blockchain.
• A federated blockchain bridge facilitates communication and interoperability between two or more blockchain networks that employ different consensus algorithms.
• You use your Bitcoin to create WBTC that are pegged to the value of the opposite person’s currency during currency transfer.
• Pendulum’s Forex-optimized app ecosystem enables seamless integration into global banking with full compliance, merging TradFi and DeFi within a scalable blockchain ecosystem.

In August 2021, Poly was hacked for “$611 million” in various tokens, mostly illiquid minor altcoins and wrapped cryptos. The attacker was quickly tracked down; they claimed they did the hack just to show it could be done, and gave back most of the coins. So you set up your DeFi protocol on some less-clogged blockchain — maybe even a centralised chain, like Binance Smart Chain — and you use “wrapped tokens” representing ether, or bitcoins, or tethers, or USDC.