Content
Blockchain bridges employ advanced mechanisms to ensure secure and efficient cross-chain interactions. These methods vary but primarily include the Wrapped Asset Method and the Liquidity Pool Method. The goal of active transaction monitoring https://www.xcritical.com/ is to detect and react to anomalous behavior of a cross-chain bridge in real-time. When implemented properly, active transaction monitoring acts as a robust tool for detecting anomalous activity and immediately taking the necessary preventative measures to avoid a hack or exploit. To summarize, it’s essential to perform rigorous testing against potential attacks and pay special attention to the most common security vulnerabilities in bridges. In fact, there has been an incident where the attacker successfully bypassed the transfer record verification due to a misconfiguration.
Why does Blockchain Technology need Bridges?
Another significant issue is that most DeFi still lack supervision and KYC (Know-Your-Customer) documentation, making it simple for hackers to escape legal repercussions. Although the authorities are able to identify the hackers, there is no established legal system to bring them to justice. My dedication to advancing technology and my ability to lead and inspire people help our clients achieve their ambitious goals. My work continues to push the boundaries of what’s possible, setting new standards for innovation and security in the industry. For additional information what does bridge mean in crypto about token pools, you can refer to the Chainlink documentation.
Are Blockchain Bridges Safe? Why Bridges Are Targets of Hacks
Secondly, rapid coin swapping helps hackers to avoid having transactions reversed. While transactions in certain cryptoassets such as Bitcoin and Ethereum are irreversible, issuers of certain tokens – like stablecoins – are able to reverse transactions and recover funds. While the former has a centralized authority, the trust-less bridges work in a decentralized format. The blockchain application provides a user-friendly interface to enable a seemingly easy transfer. So, if users wish to port funds, they can experience the features of multiple blockchains. Suppose Alfred, an experienced trader holding various tokens, faced a challenge transferring ethereum (ETH) to Kevin on a different blockchain.
Custodial vs Non-custodial Bridges
They function using various on-chain and off-chain validations and therefore have different security vulnerabilities. Another common type of attack on cross-chain bridges refers to validator takeover. In such types of attacks, the bridges rely on validators for voting on approval of transfers.
How to Ensure Blockchain Bridge Security
Most of the time, the conversion of assets on bridges requires lower transaction fees than other platforms. Finally, running an active bug bounty program can incentivize the identification and reporting of potential security vulnerabilities. By rewarding those who find and disclose such issues responsibly, blockchain projects can add an extra layer of security review, leveraging the collective power of the community to help secure their platforms. A reentrancy attack occurs when, during the execution of a function, an external call is made, and the state of the contract has not yet been updated. This allows the attacker to reenter and execute the function multiple times in a single transaction. In the context of bridges, this can lead to funds being illicitly withdrawn multiple times, causing substantial losses.
Key Components: How Bridges Work
It allows for the transfer and sharing of information, assets, and smart contracts across various blockchain ecosystems. This enables isolated blockchains to communicate with each other, thereby overcoming their inherent limitations and enhancing the interoperability of the blockchain space. On the other hand, a “trustless bridge” is a platform that needs smart contracts and algorithms to store assets and complete transactions. The advantage is that users do not need to worry about risk coming from third parties or mediums because they have full control over their assets.
Know Everything About Escrow Smart Contract
It is safe to say that bridges alone are not the interoperability solution of the future. The current Web3 ecosystem is ever-expanding, especially with the availability of new blockchains, each with its own utility. While adoption is perpetually increasing, the challenges of blockchain interoperability and scalability remain. With a scattered ecosystem full of blockchains taking a siloed approach, the need for networks to communicate becomes imperative.
But if an exploit causes the 100 ETH locked on the Ethereum side to be stolen (i.e., sent to the attacker’s address), the 100 wETH on Solana becomes worthless as it is no longer backed by anything. Since those asset withdrawal transactions by attackers are regarded as legitimate transactions on both blockchain networks, there is no way to revert them. Crypto bridges connect blockchains so users on one network can participate in the activities of another, enabling crypto users to utilize their holdings outside native chains. Crypto enthusiasts employ them to avoid using a centralized exchange to make transactions. The smooth transfer of assets between blockchain networks is made possible by cross-chain technology, which lowers traffic and gas costs. Additionally, it makes it easier for developers from different networks to work together to create new user platforms.
To guarantee a smooth user experience and prevent congestion, bridges must tackle scalability and high availability. This means efficient bandwidth management, regular DDoS vulnerability assessments, guaranteeing constant availability of relay/validation services, and implementing robust failover procedures for validator failures. By addressing these elements, bridges become resilient arteries, handling increasing demand while ensuring uninterrupted cross-chain activity. To illustrate, the Ronin Bridge protocol relied on nine validators — four of which were held by the Sky Mavis team. To maintain its security, the Ronin Bridge requires the majority of these validator nodes (five or more nodes) to initiate any withdrawal or deposit. However, because the attackers were able to compromise all four nodes the Sky Mavis team controlled, they only needed a single additional node to take control.
- The project team implemented a protocol upgrade a few days before the hack, which involved changing a variable.
- A “trusted bridge,” also known as a “custodial bridge,” is a platform that requires third parties to conduct transactions or one where the protocol owner will act directly as a transaction inspector and custodian for users.
- In this case, the hackers stole USDC stablecoin tokens from the Ronin Bridge and moved the funds to their own wallet (represented by the Lazarus Group label on the graph).
- Encouraging collaboration and communication between bridge developers, security researchers, and blockchain communities fosters knowledge sharing and the development of robust cross-chain security solutions.
- The most common example in practice is when users leverage centralized exchanges to swap or bridge their own tokens.
- It can be noticed that there are vulnerabilities where the primary papers do not provide a proper solution.
In the traditional protocols, there were various intermediaries in the transfer process. However, crypto traders can quickly send assets within the blockchain ecosystem via these bridges. In August 2023, the Exactly Protocol, a decentralized credit market, fell victim to a bridge exploit, resulting in a loss of $12 million. The attacker’s method involved leveraging an exploiter contract to draw funds from Ethereum, channeling them through the Optimum network, and then back to Ethereum.
However, if there is a vulnerability during the on-chain validation process, the attacker can cause severe damage. For example, if a bridge uses Merkle tree to validate the transaction record, an attacker can generate forged proofs. This means they can bypass proof validation and mint new tokens to their account if the validation process is vulnerable. Blockchain bridges are fundamental to achieving interoperability within the blockchain space.
The token transfer is the most widespread and pivotal application for a blockchain bridge. For instance, you might want to send your Bitcoin (BTC) to the Ethereum network. However, you would be subject to price volatility and transaction costs while using a blockchain bridge cuts down on exorbitant fees. Crypto mixers do as advertised; they receive cryptoassets from multiple users and then redistribute them – providing new coins to each user. As a result, the original source of a users’ funds is no longer discernible once they’ve sent their funds through a mixer; the mixing service obscures the transaction trail on the blockchain. Mixers therefore are helpful tools for criminals seeking to hide the illicit origin of their cryptoassets.
Consequently, bridges offer an attractive target for hackers looking to exploit vulnerable concentrations of crypto. Indeed, so far in 2022, cybercriminal thefts from bridges have totalled more than $1 billion – with two of the three largest thefts now attributed to North Korea. Lastly, since DeFi is largely unregulated and doesn’t require KYC (know-your-customer) documents, it’s easier for bridge hackers to avoid legal repercussions. Even if authorities track down a hacker, there’s no clear regulatory framework to deal with cross-chain bridge hacks. As the name suggests, the crypto exchange Binance has complete control over its proprietary crypto bridge.
We aim at summarizing the state-of-the-art of vulnerabilities in existing interoperable blockchain networks and research gaps in the field of related challenges. MLR is a form of Systematic Literature Review (SLR) which includes grey literature (GL), while a typical SLR use academic peer-reviewed papers only. Generally, GL is any information (not published in books or scientific papers) produced by the private industry or practitioners that is not controlled by any peer-review or publisher [19]. In this MLR, we focused on answering the following research questions and followed the process proposed in [19].
Attempting to deposit ETH using the ERC-20 deposit function can result in the loss of these funds. Bridges take different approaches toward handling native tokens and utility tokens. For example, on the Ethereum network, the native token is ETH and most utility tokens adhere to the ERC-20 standard. These newly minted tokens are compatible with Ethereum, so you can use them however you like. But until vulnerabilities are addressed and hacking slows, we’re here if you need us.
However, it is limited only to swapping and bridging tokens which requires trust in a centralized custodian. Read the What is a cross-chain bridge, Trade-offs, and Risks sections to learn more about bridges and trust assumptions in their designs. After you read these sections, you will have a better understanding of bridge risks and which aspects you should evaluate when using a bridge. First and foremost, the implementation of multilevel security that includes both the protocol layer and the application layer is crucial. The use of consensus algorithms such as PoW (Proof of Work) or PoS (Proof of Stake), and regular software updates help minimize the risk of 51% attacks. Bridge security in the blockchain ecosystem is therefore of enormous importance.
The infamous 2016 DAO attack on Ethereum, which resulted in the theft of 3.6 million Ether, was a type of reentrancy attack. Even though errors cannot be entirely prevented, what should be done primarily for the blockchain bridge’s security is probably to strictly check the source code before implementing it in order to reduce some critical flaws. Hackers may discover a way to attack if there is a small error or incorrect code. With bridges, you easily move your tokens between chains, accessing new markets and opportunities. For instance, you could directly exchange your Avalanche-based tokens for Polygon-based tokens without going through a centralized exchange. Among its cons is relying on centralized custodians to hold the locked assets, which demands a degree of trust.
Such attacks can destabilize bridge protocols, leading to significant financial implications for users and stakeholders. A “trusted bridge,” also known as a “custodial bridge,” is a platform that requires third parties to conduct transactions or one where the protocol owner will act directly as a transaction inspector and custodian for users. Using a trusted bridge has the disadvantage of putting the assets under third-party supervision, making them an easy target for hackers since the custodian serves as a medium.