Bridges are the infrastructure that allow users to exchange assets between different blockchains, the digital database underpinning major cryptocurrencies. When a bridge service swaps one coin for another, it “wraps” the currency so that it will function on the other blockchain.
A wrapped coin does not become another currency altogether — “it just looks like it,” Tom Robinson, chief scientist at blockchain analysis firm Elliptic, told CNN Business. Instead, a “token” is issued to represent the new coin on the different blockchain. “I deposit my Bitcoin in the bridge. In return for doing that, I receive a Bitcoin token on the Ethereum blockchain, and then I can transfer that Bitcoin token, which is what is known as a wrapped asset, through the Ethereum blockchain,” explains Robinson.
To support these wrapped coins, bridge services hold large reserves of various coins. “You need to trust the bridge really has the assets that are backing those tokens,” said Robinson. “They have huge amounts of assets that back those wrapped tokens.”
These coin reserves are attracting the attention of hackers and turning blockchain bridges into prime targets for heists, according to Elliptic. “They’re just huge honeypots. They just hold huge amounts of crypto assets, and so they are very obvious targets,” said Robinson.
In the latest example, hackers reportedly stole cryptocurrency valued at $190 million from cryptocurrency bridge provider Nomad, according to blockchain security and data analytics company Peckshield. (Nomad has not confirmed the total amount lost.)