True Decentralization

Decentralization as the solution to cross-chain security breaches January 2022 sent a shockwave to cryptocurrency enthusiasts when a cross-chain bridge hack caused a $4.4 million heist. Unlike other cryptocurrency breaches such as Poly Network and Bitmart, in which more than World Bank's financial aid to Sri Lanka was stolen, the money stolen was small, and it went under the radar. 

However, no matter how small it is, it doesn’t erase the underlying problem of its occurrence– another cryptocurrency protocol bridge is hacked. Within two weeks, $425 was slushed away by hacking bridge protocols. All these security breaches are coming after $612 million was stolen from Poly Network hacked in August 2021 – only that the hacker gave it back.When we thought we had seen the end of blockchain hacking, $624 million suddenly left the purse of Axie Infinity’s Ronin Network when Ronin Bridge was targeted, allowing the hacker to pull out the fund between the Ronin network and Ethereum. This heist pointed out something – passing funds between two different blockchains posed a lot of risk for both parties. Therefore, cross-chain may not be the future of blockchain interoperability. This ~heist also holds the legs of crypto teams running towards a centralized blockchain ecosystem that decentralization cannot be ridden off yet.But what is a bridge, and why is it the target of hackers? Running transactions on Ethereum is slow and expensive for most play-to-earn games. Sky Mavis, the company behind Axie Infinity, realized this and developed a parallel network or sidechain  – Ronin, in 2020. Ronin works by locking up funds in smart contracts on a chain and issues the funds to another token in a wrapped form. A bridge is what links a blockchain to another, let’s say Ronin to Ethereum. Therefore, Ronin is linked by a bridge to Ethereum to execute transactions for Axie Infinity – Axie infinity players transfer money in their Ethereum wallets to play the game via the ronin network. The burning question is, why is the bridge an easy target for hackers? This is easy to understand when we know how a bridge works – a token is locked on one blockchain and wrapped through bridges to send to the recipient blockchain. Thus, hackers target the large fund locked up on a bridge. In the case of Ronin attackers, they correctly got five of the nine validator keys to secure the network and withdraw cryptocurrency – they hold the majority of the keys and pulled the fund into a rogue Ethereum network. 

However, this is not the first attack on a bridge; as mentioned earlier – Wormhole bridge in February caused a loss of $311 million. You may be thinking, why should we use a bridge protocol. This way, more decentralized apps (Dapps) are sprouting up on different blockchain networks. There needs to be interoperability among networks for lending platforms to complete transactions, reduce transaction costs for users, provide swift transaction processing, and provide a better user experience. Thus, bridge protocols become the solution to allow users to trade assets directly between blockchains without delay and additional expense of using another network.  

A bridge is like a third party that receives money from a blockchain and transfers it to another – this is like the work of a bank.For now, we may need to stay in our chain. Cross-chain Bridge is a connection that allows digital asset trading from one chain to another. But how do we solve the problems of networks with different protocols, governance structures, and rules? These, among others, are problems bridges solve to facilitate chain interoperability. However, hackers are exploiting these bridges to steal billions of dollars  – pointing to the failure of cross-chain in securing transactions. This issue echoes the voice of Ethereum founder, Vitaline Buterin, describing his feelings on the limits of cross-chain bridges. “The fundamental security limits of bridges are a key reason why, while I am optimistic about a multi-chain blockchain ecosystem … I am pessimistic about cross-chain applications.”It becomes apparent that cross-chain transactions are risky, unlike transactions within an individual ecosystem. If there is a 51% attack on a blockchain and the fund is drained, recipients on the other end of the bridge will be affected as the contract is left siloed – holding a token not backed by anything  – is like holding an empty shell of an egg. 

Imagine if 100 chains are linked together; hacking the bridge of one chain would threaten the entire blockchain ecosystem. Although, Buterin conceded that he didn’t foresee all these problems soon, as cryptocurrency held in bridges increases, the lust to attack bridges increases. Decentralization may solve the problems. Looking for solutions for asset security in cross-chain led to another point – the attack on bridges and other shortcomings of cross-chain pointed towards another possibility – one shared by crypto idealists, bitcoiners, and even Ethereum lovers. The solution may be decentralization to achieve success in the crypto ecosystem. However, decentralization does not augur well with ideologists and political powers, which they see as a way to pull power away from institutions and middlemen and empower the common man.  

Another issue decentralization faces is that many emerging crypto projects throw decentralization to the wind – establishing the notion that people do not care about decentralization but swift and cheap transactions, which are features found wanting on Ethereum. Additionally, some also believe, like other technologies, blockchains are corruptible. However, true decentralization happens to be the solution to solve the security breaches of multichain. Ronin was vulnerable despite its swift transaction processing  – processed over 500% more than Ethereum at its peak; it uses a proof-of-authority model where nine validators secure the network. After the attack, Binance disabled their bridge to and from Ronin as a precaution, and Block explorers like Etherscan annotated the hacker's wallet  – these are panic decisions further reiterating the failure of cross-chain bridges. Ethereum is slow in processing transactions, and more centralized chains are developed due to necessities. Still, if we have learned anything from Ronin's attack, true decentralization remains important for the interoperability of blockchains.  Borrowing a word from Kadan Stadelmann, the chief technical officer at the Komodo, “What we ultimately need is true decentralization. For example, instead of relying on one or two trusted bridges that have a single point of failure, it would be better to work towards a future where we have numerous bridges that are secure, trustless, and censorship-resistant."  

Therefore, decentralization runs through a decentralized autonomous organization (DAO) will guarantee through interoperability of blockchain networks.