Cryptonomics: How To Work The Binance Bridge

As blockchain technology and adoption advances, the need for cooperation and interoperation between different platforms is ever more necessary. Token bridges will be an essential way of networking the different blockchains.

By
Ahamdi Abarikwu
on
February 6, 2021
Category:
Cryptonomics

Introduction

Blockchain technology has forever transformed virtually every sphere of human activity, whether realized or not, but, there remains a major drawback: the lack of interoperability amongst the existing blockchains. Each blockchain has its own consensus mechanism and protocol that exists in operational isolation from others. This means that if a decentralized application (dApp) is developed on a particular blockchain, and there are no cross-chain solutions, it is extremely difficult for the dApp to use features from any other blockchain. This significantly limits the capabilities that a developer can build into a dApp as numerous blockchains serve variety users. The attempt to resolve this problem led to the creation of Bridges and other cross-chain solutions.

What is the Binance Bridge

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In the context of blockchain technology, a bridge refers to any link that connects two or more blockchain platforms, enabling them to interact with each other and mutually exchange data, crypto assets and other information.

In October 2020, the crypto exchange giant, Binance, launched its own bridge. Originally called the Panama Project, Binance Bridge was created for users of Binance Chain, Binance Smart Chain, Tron, and Ethereum DApps. This cross-chain solution allows users to move data, assets, and liquidity across four different blockchains.

Mechanics of the Binance Bridge

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To utilize a non-native crypto-asset – one from a different blockchain- a bridge makes use of the wrapping technique. Wrapping an asset simply means transforming it from its native form on the originating blockchain to a form usable on a different blockchain. 

A wrapped asset derives its value from the native asset, maintaining 1:1 value transfer at the point of wrapping. This peg its typically enforced through collateralizing the native asset for the wrapped one. Once wrapped, these assets are tradable just like any other token, and they can be unwrapped at any instant whilst retaining their value after being unwrapped.

The Binance Bridge defines its wrapping/unwrapping process as “Peg-in” and “Peg-out”. Peg-in is the service that enables the swapping of native tokens from another blockchain into their equivalent Binance-Chain form. On the other hand, a “Peg-out” does the reverse process of changing the pegged tokens back to the original form of their originating blockchain. 

Wrapping and unwrapping of crypto assets using the Binance Bridge are not as vague as it sounds. A user only needs to set a few parameters, while the Binance Bridge handles the technicalities. One beauty of the platform is that having a Binance account before you can use the bridge is not mandatory; all you need to have is any supported blockchain address. This encourages wider user-adoption since the bridge is permissionless. To help you get started in Binance Bridge, see this brief user-guide and watch a video demonstration here

For those who wish to learn more about wrapped assets check out the following article:

Cryptonomics: Wrapped Tokens Explained

Assets wrapped using the Binance Bridge adopt the BEP2 token standard (for Binance Chain) or BEP20 token standard (for Binance Smart Chain). As of the time of writing, the Binance Bridge is cross-chain compatible with Ethereum’s ERC20 and Tron’s TRC20 token standards. 

Benefits of the Binance Bridge 

The bridge makes it possible for holders of crypto on different blockchains to securely move them over to the Binance ecosystem. Both the Binance Chain and the Binance Smart Chain offer users a plethora of different utilities.

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For instance, while transaction fees on the Ethereum blockchain are typically high, transaction fees on the Binance Chain are significantly cheaper. Bridging to the Binance Chain, therefore, offers an alternative for those who would want to avoid high transaction fees. On top of this, the BSC offers users access to DeFi protocols with minimal fees and network congestion.

Concluding Thoughts

As blockchain technology and adoption advances, the need for cooperation and interoperation between different platforms will become necessary. Bridges will be an essential way of networking the different blockchains, and the Binance Bridge is expected to grow this utilization.

Check out the Binance Bridge HERE.


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Ahamdi Abarikwu

Ahamdi Abarikwu is an Electrical Engineer and a lover of anything crypto. He is also an avid writer, proofreader and editor. He loves to play Scrabble in his spare time. He hold bags mostly in BabyDoge, CSM (Crust Storage Network), and JulD.

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