Rethinking The Crypto Bridge After Year of Hacks

The crypto bridge was once heralded as the future of blockchain interoperability. Industry leaders branded these products as a means to leverage the community of one chain with the performance of another. 

But with $2 billion of assets successfully exploited from bridge attacks, many investors are doubting the performance of this technology and are demanding a better solution. Blockchain developers from the Algorand community launched a new interoperability standard called state proofs to address this problem. It casts a vision of interoperability intended to serve the needs of a blockchain ecosystem with world-wide adoption — both at the institutional and individual level.  

What is blockchain interoperability, really?

Blockchain interoperability is classically defined as a characteristic that enables communication between blockchains. But crypto bridges are not the only means of cross-chain messaging. In addition to transferring value, blockchains need ways to safely communicate sensitive information.

As it stands, large segments of blockchain ecosystems are completely siloed from each other. This creates a terrible user experience that’s analogous to being unable to send an email from a Google account to a Yahoo account.

But the proliferation of cryptocurrencies makes this fragmented iteration of the internet also like an international trading system. Noah Grossman, senior product manager at Algorand, explains this in his Algorand State Proofs Paper.

“Blockchain ecosystems are like cities: each one provides value that draws people to visit — ranging from business opportunities, community, entertainment, infrastructure, local governance, to plain personal preference,” Grossman wrote. “As the industry matures, people will have more reasons to visit different ecosystems, driving more value into cross-chain applications.”

But insecure trading routes between cities or nation states decrease economic productivity and increase distrust. One week on crypto Twitter will reveal this growing animosity between blockchain communities. If an economic commitment between parties isn’t established, then it is safe to assume the rivalries will persist. 

Why we haven’t secured true interoperability yet

Grossman states that the trustless infrastructure needed for true blockchain interoperability is missing from the market. The Solana Wormhole hack is a good example of why. It was introduced as the decentralized trustless alternative to centralized cross-chain bridges. Instead of relying on a single custodian, it used smart contract code to facilitate the transfer of value between chains. After the exploit, its model was criticized for having inherent vulnerabilities. In response to the hack Max Galka, the CEO of blockchain data analytics firm Elementus, told Cointelegraph.

“The history of smart contracts has involved a pretty consistent stream of vulnerabilities and hacks dating back to the very early days of Ethereum when The DAO was attacked in 2016. In general, cross-chain bridge contracts have large balances making them prime targets. Historically, there have always been hacks on smart contracts. I would expect that to continue.” 

The ‘smart contract’ approach to cross-chain interoperability has proven time and time again to be vulnerable to bridge exploits. For example, hackers were able to access and steal over $80 million from Qubit Finance through exploiting a similar vulnerability in the QBridge contract. 

And the custodial model, where central entities or DAOs take ownership of the assets, has proven to be even more vulnerable to attacks. For example, attackers stole approximately 173,600 ETH and 25.5 million USDC from the centrally controlled Ronin cross chain bridge. They did so by gaining access to the private keys of the bridge’s validator nodes.  

Both approaches to cross-chain bridges are fundamentally flawed because they rely on centralized intermediaries to communicate the transfer of value — whether it’s a smart contract or a human. This core flaw is why Algorand developed State Proofs.   

State Proofs: Simplifying interoperability without sacrificing security

State Proofs are cryptographically verifiable secure proofs used to validate Algorand activity, signed by a majority of the blockchain network. So, instead of relying on centralized third parties to confirm transaction data, ASPs power the layer-1 blockchain to be the ultimate source of truth.

ASPs immediate use case is to help light clients import data from other chains in a cost-effective and secure way. Bridges can then query these light clients to securely validate activity on both the Algorand and Ethereum network. Therefore, the need to trust third parties is completely eliminated.

With State Proofs, building decentralized bridges, cross-chain decentralized exchanges or even oracles becomes possible. They enable users to maintain quantum grade security from the Algorand blockchain while interacting with an interoperable blockchain ecosystem. This allows chains within the ecosystem to leverage the benefits of each other’s communities without being exposed to inconsistent security standards. Because ASPs are secured by advanced cryptography confirmed by the entire network, attempts to alter any data typically fail.

Using ASPs can bring about a wave of adoption which we have never seen before. Developers would be able to choose the right technology for them to build on, without worrying about cross-chain limitations. Additionally, with the reduced security risk, users can freely and seamlessly move their assets across blockchains.

Learn more about State Proofs — and other bleeding-edge cryptography research — at Algorand’s Decipher conference.

This content is sponsored by the Algorand Foundation.

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