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digital
daily

digital daily: Burnt Bridges

Burnt Bridges. Money is being lost on digital “bridges.” What are they, and how does it change future innovation? Bridges are communication layers that transfer value between two blockchains not designed to work together. Why bother? Because network effects become doubly powerful when connected. Users with assets on one chain seek to use their digital assets to earn high yields, access applications and pay lower transactions fees on another. Enter bridges, applications currently satisfying the too-good-to-be-true trilemma of cheap, quick, and easy. However, it comes at the cost of security. The fine folks at Finematics illustrate misconceptions perfectly here. What appears seamless is really a delegation of trust to a few individuals between blockchains. This is why bridges are being hacked -- they are the weakest link and a $35 billion honeypot. With each loss of funds, faith in bridging erodes. Should we stick to a single chain? Ethereum is built for this. Its ecosystem expands with layer-2 networks that share security with the main network. In the long run, bridging is a solvable problem. New security tools are in development now (here). But network effects manifest in the short term. It is a race for trust. Will users continue to risk their funds between chains as bridge security improves? Or will activity accrue irreversibly to Ethereum before bridges are ready? Any loss of capital slows the integration of new technologies. It comes at a time when Ethereum is readying to showcase its scalability post-merge. The race is on.

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