Cryptocurrencies are only possible because of blockchain technology. More than 1,500 cryptocurrencies have flourished in the ecosystem since the launch of Bitcoin in 2009. There are approximately 125 Layer 1 and Layer 2 blockchains, according to research firm Alchemy, despite the notion of blockchain being a single sort of data transport. Cross-chain bridges were developed to connect the numerous cryptocurrencies utilised for providing specialised trade-offs, security guarantees, and scalability with these various blockchains. In essence, cross-chain bridges increase the level of interoperability in the cryptocurrency industry and enable users to transmit cryptocurrency between chains.
People could not utilise Bitcoin on the Ethereum blockchain or vice versa prior to the creation of cross-chain bridges. This prohibited users of cryptocurrencies from operating on numerous blockchains in a manner similar to how different issuers' credit cards operate.
Independent blockchains are allegedly connected by a cross-chain bridge that permits the exchange of data and assets. Users can then readily access additional protocols as a result of this.
Previously, using a centralised exchange like Coinbase or Binance was required for an ETH holder who wished to convert these assets into Polygon.
On the other side, cross-chain bridges function by "wrapping" tokens in smart contracts and releasing native assets that can be used on other blockchains.
One ERC-20 token that uses BTC as collateral is wrapped BTC (wBTC). Before acquiring wBTC tokens on the Ethereum network, users must first deposit BTC on the Bitcoin blockchain, according to the Alchemy study.
Popular cross-chain bridges include Wormhole, Multichain, Binance Bridge, and Celer cBridge.
But as hackers and money-launderers have increasingly gravitated toward the cryptocurrency industry, these cross-chain bridges have attracted their interest.
RenBridge is accused of laundering more than $540 million (approximately Rs. 4,290 crore) during the past two years. According to a research by Elliptic in a recent study, the platform is a decentralised application (dApp) that permits the minting of actual BTC, ZEC, and BCH on Ethereum as an ERC20 token (renBTC, renZEC, and renBCH).
Harmony's Horizon Bridge, a Layer-1 blockchain, was compromised in June for about $100 million (roughly Rs. 780 crore). Users can move digital assets between a variety of blockchains via Harmony's blockchain bridge, the most famous of which being the Binance Smart Chain, Ethereum, Bitcoin, and Harmony networks.
Hackers stole $80 million (approximately Rs. 630 crore) from Qubit Finance's bridge in January, $320 million (approximately Rs. 2,510 crore) from the Wormhole bridge in February, and $625 million (approximately Rs. 4,730 crore) in Ether and USDC from Axie Infinity's Ronin bridge in March.
According to the Elliptic research, decentralised cross-chain bridges like RenBridge present a problem since they offer an uncontrolled alternative to exchanges for transferring value between blockchains. A network of tens of thousands of anonymous validators known as "Darknodes" processes transactions on these cross-chain bridges.
By depositing their tokens from one chain to the bridge and subsequently obtaining the equivalent of a parallel token in a different chain, malicious actors take use of these bridges.
In a special analysis released earlier in July, the Financial Action Task Force (FATF) predicted that as 2022 enters its second half, regulatory attention will shift more and more toward illegal operations employing cross-chain bridges.
The FATF is the organisation that develops international standards for AML/CFT (anti-money laundering and countering the financing of terrorism) practises.
