Thinking about Layer 2 protocols from a “bridge” perspective

The security/threat models for “bridges” vary.

Thinking about Layer 2 protocols from a "bridge" perspective
  • Security/threat models for “bridges” vary –

Solutions to enhance network scalability through off-chain protocols have created a buzz in the cryptocurrency community. Such solutions allow the vast majority of transaction processing tasks to be moved from the Layer 1 blockchain to the off-chain system, bypassing all the expense and latency issues of the Layer 1 blockchain.

What is a “bridge”?
In this article, I want to discuss a component that is very fundamental to all off-chain protocols. This component is often overlooked, but is critical to asset security: the “bridge” serves as the foundation for all off-chain protocols.

The role of a “bridge” is to hold assets on the Layer 1 blockchain while issuing them on another (external) service. It defines the asset custodian and the conditions for unlocking the assets.

In short, Layer 1 blockchains (such as Ether) use “bridges” when connecting to other systems. All “bridges” perform similar operations.

Deposits. A user can deposit funds to a “bridge”, which maps this asset to another system in equal amounts.

Update the user’s balance. The “bridge” receives an update notification of the account balance and uses it for the withdrawal process.

Withdrawal. The user can withdraw funds to the Layer 1 blockchain via the Bridge, while destroying the corresponding balance on the other system.

The most common type of “bridge” (and few people notice them) is the Single Organization Bridge.

Thinking about Layer 2 protocols from a "bridge" perspective
  • The vast majority of cryptocurrency exchanges are “bridges” –

If we consider only the definition of “bridge”, we can say that a cryptocurrency exchange is an off-chain protocol. Users can lock their funds within this protocol, avoiding gas fees and network latency during transactions, and then finally withdraw the balance to the Layer 1 blockchain.

In addition to single-organization bridges, there are two other types of bridges that rely on multiple custodians.

Multi-organizational bridges. Locked funds are hosted to a fixed set of independent participants (K/N).

Cryptographic economic bridges. Locked funds are held in trust for a dynamic set of participants, depending on the asset weights of these participants.

Note that for all three types of “bridges” mentioned above, they cannot verify on the Layer 1 blockchain that the account balance data on their object system is correct (or that the liabilities within their object system exceed the assets held by the “bridge” ). The custodian needs to verify that each withdrawal is not in conflict with its object system. They ultimately decide whether to release the funds and who the recipient is.

Side chains and “bridges” are independent of each other
The above discussion focuses on the use of “bridges” to direct users to escrow services such as cryptocurrency exchanges. “Bridges” also have an increasingly popular application scenario, namely, interconnecting blockchains (which, incidentally, is the origin of sidechains).

Thinking about Layer 2 protocols from a "bridge" perspective
  • Bridges” and side chains are independent of each other in terms of security –

Some of the existing “bridge” projects are listed below.

WBTC: Single-organization bridge that transfers BTC to Ether.

Streaming Network or RSK: Multi-organizational bridges that transfer BTC to/from other blockchains by federated members who have deployed a Hardware Security Module (HSM).

Polygon Bridge: cryptographic economic bridge in which the verifier needs to reach a consensus on the account balance of all Polygon users periodically by virtue of no less than 2/3 + 1 of the total pledge, and the user can withdraw the funds to Ether based on the consensus. (In practice, Polygon is ultimately controlled by a small multi-signature contract, but the focus here is on its long-term goals).

Rainbow Bridge: A cryptographic economic bridge in which the bridge contract is a light client that verifies changes in the state of another blockchain. It does not verify the validity of the other blockchain, and the security of the asset ultimately depends on the ongoing state change of the other blockchain (guaranteed by cryptographic economic mechanisms).

Most importantly, each bridge has its own security model and is independent of the blockchain network. We can further elaborate with a simple example WBTC.

BitGo Trust is responsible for holding the locked BTC and issuing an equivalent amount of WBTC on Ether. smart contracts on Ether track the balances of all accounts involved in WBTC transfers. Users need to trust that BitGo will honor the account balances recorded in the smart contract.

In the case of WBTC, we need to consider the following points.

A single custodian. WBTC bridges rely on a single custodian to ensure their integrity. The custodian can either over-issue WBTC on Ether or refuse to return BTC.

Independent security model. Ether’s security model is independent of Bitcoin, and WBTC Bridge’s security model is independent of both blockchains.

Use of Ether as a sidechain. In implementing cross-chains from Bitcoin to Ether, transactions are moved off-chain.

All three types of “bridges” mentioned above have in common that they do not verify the integrity of the sidechain and have no automatic contingency plan to protect funds in case the custodian (or the sidechain) drops out. They conceive their own security models, rather than relying on the security model of the Layer 1 blockchain on which they are hosted.

Wait, what does the Layer 2 protocol have to do with “bridges”?
The scalability promise of Layer 2 is to move transaction throughput from the Layer 1 blockchain to the off-chain system. The role of the “bridge” is to hold assets and map them to another system.

However, unlike all of the “bridges” mentioned above, the Layer 2 protocol seeks to provide the same level of security for the funds in its custody as the Layer 1 blockchain, and it cannot rely on a set of custodians (or another off-chain system) to protect the funds.

This requires an entirely new type of “bridge”: the

Layer 2 bridges. The funds are hosted on the Layer 1 blockchain, and the “bridge” must be able to confirm that the Layer 2 protocol is not broken. In the worst case scenario, the “bridge” will self-enhance the Layer 2 protocol until all funds can be withdrawn.

The Layer 2 Bridge is the most robust of all Bridges.

The Layer 2 Bridge does not rely on a set of custodians to secure the funds, and the Layer 2 Bridge must ensure that everything is in order in the off-chain system before releasing the funds. If for any reason a Layer 2 bridge believes that the off-chain system is compromised, it can completely bypass another network.

Thinking about Layer 2 protocols from a "bridge" perspective
  • Some of the companies working on developing Layer 2 bridges and building new blockchain networks – that’s why Layer 2 protocols are so exciting that they are willing to spend years working on Layer 2 solutions.

That’s why the Layer 2 protocol is so exciting that these companies have been willing to spend years working on Layer 2 solutions. These companies are all striving to be the first to launch the Layer 2 protocol. The race is primarily focused on how to implement a secure Layer 2 bridge (and not necessarily how to implement another blockchain network).

This is a good opportunity to further explore the technical aspects and definitions of a “bridge”. We have made it clear that a “bridge” must have a way to determine that the Layer 2 protocol is not broken. The circumstances under which the Layer 2 protocol is broken can be grouped into four categories.

Data availability. “How can the Bridge ensure that all data from another blockchain network is publicly available so that users can independently recompute the Layer 2 database?

State transition integrity. How do we make “The Bridge” believe that all state transitions in the Layer 2 network are legal and valid?

Withdrawal Integrity. In the event of a Layer 2 network breach, how does The Bridge ensure that all honest users can get their money back?

Protocol activity. When the Layer 2 protocol is suspended or dropped, how does the Bridge ensure that transactions can still be executed?

Of course, these questions must be addressed. At the same time, the bridge cannot re-execute all transactions in real time because the bridge contract has much fewer computing resources than the off-chain system. Otherwise, it would not be a scalable solution.

Solving these problems is like falling down a deep rabbit hole of on-chain challenges, proof of fraud, proof of validity, publishing transaction data to the Layer 1 blockchain (rollup), and more.

While our article will not focus on the solutions, we want to emphasize that all solutions are different. Some of the Layer 2 protocols to be deployed will not meet the above security objectives. In fact, they cannot be called Layer 2 protocols because of the lack of a Layer 2 bridge.

There is no right or wrong “bridge”

Thinking about Layer 2 protocols from a "bridge" perspective
  • All “bridges” will help us get to the moon – as discussed in this article.

As discussed in this article, there are four types of “bridges” in total. They can lock money within a blockchain and map it to another off-chain system (or even another blockchain).

Custodial bridges. The first three types of “bridges” focus on determining which custodians control the locked assets. The role of the custodian is to verify that the off-chain system is correct before allowing users to retrieve funds held in the “bridge”. The Custodial Bridge assumes that the integrity of the off-chain system is a client-side issue and that the custodian has sufficient arithmetic power to handle it. While there are additional measures to reduce the custodian’s responsibilities or to introduce cryptographic economic incentives to encourage custodians to comply with the protocol, the bridge protocol cannot fully bind the custodian. There have been several instances of bridges losing user assets (e.g. MtGo exchange), because the integrity of the bridge is ultimately dependent on trust.

Layer 2 Bridges. The “bridge” completely replaces the custodian to hold the funds and verify the integrity of the off-chain system. The core problem is that the Bridge must ensure that the off-chain system has not been compromised. At the same time, it lacks the arithmetic power to independently verify each transaction (otherwise it would not be a scalable solution). In addition to the huge technical challenges it poses, the Layer 2 bridge has a high cost. In order to convince the Layer 1 blockchain that the off-chain system is legitimate and complete, the Layer 2 bridge would incur ongoing economic costs. Ultimately, however, it is the “bridge” that becomes the custodian of the funds, while the operator of the off-chain system has no right to custodianship.

In short, do users really care about Layer 2 bridges? Should we extend Ether’s security model to off-chain systems? The jury is still out on these questions. I think these four types of “bridges” are here to stay, because they are important in increasing user adoption.

I want every user to pay attention to the “bridges” and think about which category of “bridges” their favorite protocols employ. This helps users better understand how the protocols they are using are protecting their money.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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