Bridges definition: Mechanisms that facilitate interoperability between blockchain networks, enabling users to transfer data and assets between blockchains.

A bridge, in the context of cryptocurrencies, refers to a technological mechanism or protocol that connects and facilitates the interaction between two or more blockchain networks.

A blockchain bridge serves as a digital connector that bridges the gap between separate blockchain ecosystems. This allows assets and data to flow seamlessly from one network to another, fostering collaboration and utilization of each network's unique features.

Its purpose is to enable the transfer of assets, data, or information across different blockchains, enhancing interoperability and expanding the possibilities for decentralized applications (dApps) and decentralized finance (DeFi) ecosystems.

Bridges serve several essential purposes within the cryptocurrency ecosystem, including interoperability, asset transfers, and DeFi capability.

By facilitating communication between disparate blockchains, bridges enhance interoperability, enabling different networks to work together efficiently. This interoperability opens up opportunities for cross-chain applications and services.

Moreover, bridges enable the transfer of digital assets from one blockchain to another, making it possible for users to utilize assets across different networks. For example, a bridge can allow the movement of tokens from one blockchain to another to access specific features or services.

Bridges are vital for the DeFi space, where different protocols and applications often operate on separate blockchains. A bridge allows assets to move between these ecosystems, enabling users to participate in a broader range of financial activities.

An example of a large unidirectional bridge is Wrapped Bitcoin (WBTC). WBTC is an example of a bridge that facilitates the movement of Bitcoin onto the Ethereum blockchain. This allows users to interact with Bitcoin on Ethereum-based dApps and protocols. WBTC is a one-way bridge. This means investors may send BTC to the Ethereum blockchain to convert into an ERC-20 stablecoin, but not the other way around. Other bridges are bidirectional or two-way, for example, Wormhole allows transfers to and from multiple blockchains.

Bridges have significant implications for the expansion and evolution of the cryptocurrency ecosystem. They break down the silos that can exist between different blockchains, fostering collaboration and innovation across networks. By enabling assets to move between blockchains, bridges enhance the utility of cryptocurrencies and drive the adoption of decentralized applications.

Moreover, bridges contribute to the development of a more interconnected and robust decentralized finance ecosystem. As DeFi protocols continue to emerge on various blockchains, bridges play a vital role in ensuring that users can freely move assets and participate in the DeFi activities of their choice.

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Michelle Legge
By Michelle LeggeHead of Crypto Tax Education
Updated Nov 9, 2023
This article has been fact checked and reviewed as per our editorial policy.