What is a Cross-Chain Bridge?

A cross-chain bridge enables exchanging information, cryptocurrency, or NFTs from one blockchain network to another. It allows the flow of data and tokens across what would otherwise be siloed sets of data on different blockchains.

With fiat currency, there are many established ways for individuals and businesses to exchange money, creating a globally available and interoperable system of financial payments. Those systems include financial institutions, banks, and credit cards that handle foreign exchange. In the world of blockchains, a cross-chain bridge serves a somewhat analogous purpose.

Exchange across different blockchains for cryptocurrency is possible without a cross-chain bridge, but it is expensive and more time-consuming. Without the use of a cross-chain bridge, users have to first convert a cryptocurrency token into a fiat currency, which often involves fees. In a cross-chain bridge, users must use the currency to get the other desired type of cryptocurrency, incurring more fees and taking time.

One characteristic of a cross-chain bridge is that it enables users to exchange one cryptocurrency for another without first changing it to fiat currency. Cross-chain bridges aren't limited to just cryptocurrency value transfer either. An effective cross-chain bridge can also enable the transfer of smart contracts and NFTs from one blockchain environment to another.

There are several approaches to enabling transfers with a cross-chain bridge. One common method is using a wrapped token issued by the cross-chain bridge provider platform. With a wrapped token, the value of one token from a specific blockchain network can be encapsulated inside another token. Wrapped tokens are typically based on the ERC-20 technical specification for an Ethereum network. For example, WADA is an ADA token wrapped with an ERC-20 Ethereum smart contract.