The days when ‘crypto’ just meant Bitcoin and Ethereum (and maybe a couple of Ethereum-based tokens) are long gone. Now, every new token, NFT, or project you are interested in is more likely to be based on its own blockchain or a layer 2 network solution.
In fact, many popular applications that originally launched on Ethereum and have served Ethereum users for years are now adding support for alternative chains like Polygon, Arbitrum, Optimism, and others. That’s because these networks offer significant advantages over Ethereum for the end user, including faster transaction speeds and lower network fees.
Even if you’re a newbie who is just starting out, as long as you want to do anything with your crypto besides holding it, you need to learn about the multichain ecosystem and how crypto can be moved across networks.
What is multichain?
Let’s revisit the concept of multichain before moving on to bridging. Multichain means that there are multiple blockchains (also referred to as ‘chains’ and ‘networks’) currently available in the crypto space, and the interaction among them is much more active than it was in the past.
Previously, fans of different cryptocurrencies lived in their isolated ‘maxi’ camps. The big question was which blockchain would be the ‘killer’, making all others obsolete. Now, it’s clear that the future of crypto will be defined by the use of many networks that will serve specific purposes.
This means that crypto wallets are also changing to allow for the seamless management of crypto on different chains. If you don’t have a wallet that supports a wide range of networks natively in one easy interface, check out MEW’s browser extension Enkrypt.
What is bridging?
Bridging is the process of moving crypto tokens from one blockchain network to another. The concept is simple – the tricky part is understanding when and why you need to bridge assets, and then keeping track of which tokens are on which network.
Any network that supports tokens and applications (aka an EVM network) has its own native currency, which is also used to pay network fees, aka ‘gas’. For Ethereum, the native currency is ETH. For many layer 2 networks like Arbitrum and Optimism, the native currency is also ETH, because these networks are built on the basis of Ethereum. However, the layer 2 ETH is not the same as the Ethereum ETH, strictly speaking. In order to get Arbitrum ETH or Optimism ETH for paying gas on those networks, you would need to bridge the ETH from Ethereum to Arbitrum or Optimism.
Some alternative networks like Polygon or Avalanche have their own native currency: MATIC for Polygon and AVAX for Avalanche, in this example. However, just like layer 2s, they support the bridging of ERC-20 tokens from Ethereum. You’ll just need to buy or bridge their native token to cover transaction fees on that network.
How does bridging work?
Let’s take a specific example. Maybe you want to trade tokens on a DEX, but you don’t want to pay the high Ethereum gas fees every time. You could bridge your ETH and tokens to Arbitrum, or any other network that supports low-fee trading of Ethereum tokens. You’ll pay Ethereum gas fees once to bridge your crypto (for each token separately), but once you’ve moved everything over, you’ll be able to trade with very low fees as long as your tokens remain on the layer 2 network. If you ever need your crypto on the Ethereum mainnet again, you can always bridge back.
Or, let’s say you want to collect NFTs, but the minting costs on Ethereum are making you hesitant. Many NFT projects now offer minting on layer 2 networks precisely because they want to lower the costs of minting for their fans. All you would have to do is bridge ETH or the relevant native token to that network from Ethereum, and you’ll be ready to start minting and trading NFTs with much lower fees.
One important thing to keep in mind is that your wallet address remains the same on all Ethereum-compatible networks and layer 2s. So while you are using the same wallet, you need to be on the correct network to see the tokens and NFTs specific to that network. That’s why having a wallet like Enkrypt that displays multiple networks clearly in the same interface can help you keep your multichain assets straight.
How is bridging different from swapping?
When you trade tokens, it’s possible to swap them within the same network, and across different networks. For example, you can trade ETH to another token on the Ethereum network, like DAI or USDT, or to a currency on a different blockchain, like ETH to BTC. In-network swaps can be done through decentralized exchanges (DEX), while cross-chain swaps may require centralized exchanges (CEX). However, you don’t need to worry about the distinctions between them or about sending you crypto to an exchange if you’re using a noncustodial wallet that integrates both types of swaps, like MEW or Enkrypt.
Cross-chain swapping sounds a lot like moving crypto between networks, so what makes bridging different? When you swap, you are trading one cryptocurrency for another, subject to the current market exchange rate. You are giving away ETH from Ethereum, and getting Bitcoin on the Bitcoin blockchain. It’s like exchanging your dollars for a foreign currency when you travel.
With bridging, you are transferring the same crypto onto a different network – like into a parallel universe, if you will. There is no exchange rate. You are paying network fees for the operation, but you are getting the same amount of the same token on the other network. Now you get to use your crypto in this parallel universe where the cool kids hang out, and everything is cheaper and faster. It’s like taking your dollars to a different city or state with a much friendlier cost of living.
What are the benefits and risks of bridging?
Returning to the multichain concept for a moment, why are there so many networks anyway? Why can’t all cryptocurrencies and applications live on the same blockchain?
Blockchains are resistant to change, for good reason. The immutability of the blockchain is exactly what makes it such a reliable ledger of transactions. Billions of dollars of value are now locked on the biggest blockchains, so any changes to the way a blockchain operates need to be carefully deliberated and executed.
The biggest blockchains are built for security, rather than for speed or flexibility. Most projects that are building in crypto today need more scalability and customized features than Ethereum allows. That’s why so many teams in the space are developing alternative networks and ecosystems that allow applications to innovate and grow.
The benefits to the users are clear: more variety and creativity in the applications that are available, lower fees, and faster transaction speeds. What about the risks? The multichain space is still young and mostly ‘in beta’, so it’s smart to approach it with caution.
Anything that involves smart contracts on the blockchain involves some inherent risk, because as users we put our crypto in the hands of the smart contract developers. Here, the same advice applies as anywhere else in finance and tech – never invest more than you are prepared to lose.
Try out bridging for yourself
Of course, the best way to understand anything is to try doing it yourself. You will need a good multichain wallet (check out Enkrypt browser extension for this), some ETH, and an adventurous spirit. Most cross-chain bridges work in a similar way, but take a look at our guides for bridging to Canto, to Base, and to zkSync Era for a place to start!
