Blockchains are the introverts of networking systems. Their inability to connect with users and apps outside their native ecosystem presents an enormous challenge to the industry, for developers and users alike. But we don’t have to wait on mainnet upgrades from Satoshi and Buterin to bridge the gaps; 3rd-party solution Wormhole is already here.
Wormhole is one of the latest bridging protocols to launch in 2021. It is a cross-chain tool that connects high-value blockchains such as Ethereum, Solana, Terra, Binance Smart Chain, and Polygon. Investors have propelled its growth as a result of growing demand for quick and cheap asset transfer between various crypto ecosystems. The demand for high-quality bridging products is so high that Wormhole reached an $850 million TVL in the span of five months.
Wormhole is a generic message passing protocol that interacts with different blockchains. Its network monitors chains for messages emitted by smart contracts, which it then sends to a target destination – forming a cross-chain bridge.
Its basic design enables Wormhole to transfer data faster, cheaper, and more securely than any other bridging service. Moreover, developers can also build products on top of Wormhole, aside from the existing crypto and NFT bridge apps.
A bridging protocol is a second-layer app that creates virtual bridges between two blockchain networks, making it possible for them to communicate. And by communicating, we mean any kind of information transfer, including asset transfers.
Right now, the market is like an enormous neural network filled to the brim with fantastic ideas and concepts. Users yield farm on AVAX for its low network costs and high APY, they buy NFTs on Solana for its chaos-free minting environment and cheap transfers, and they invest on Ethereum where dozens of high-market cap altcoin picks exist. But this neural network lacks synapses, bridges that connect these various places together.
If an attractive yield farming protocol launches on AVAX, there is no fast, cheap, and easy way for an Ethereum investor to relocate and reutilize his capital. There is especially no decentralized way to do that. Most users transfer their Ether from a non-custodial wallet such as Metamask to a centralized exchange, where they exchange ETH for another token, and then withdraw it to a wallet on another network.
It’s a long process. And if you consider all the 2FAs and email codes needed to execute these withdrawals, you realize how tiresome this all really is.
Bridging protocols are here to save us. They are all decentralized, so there is no need to bother with exchanges. Bridging protocols may as well have the same impact-level on DeFi as decentralized exchanges.
Introduction to Wormhole
Wormhole is a cross-chain messaging protocol launched in August 2021 that connects high-value blockchain networks. The protocol itself is secured by a network of Guardians that protect Wormhole against malicious actors and hacking attempts.
Guardians observe and attest events and transactions on Wormhole. All entities connected to Wormhole may access these attestations and can track the flow of money between various chains.
To reach consensus on the state of the ledger, over two-thirds of Wormhole’s Guardians must produce an attestation. Once created, the attestation is sent to the targeted blockchain to execute the transaction and trigger smart contract code if present. Think of it as miners confirming transactions.
According to the team, several key features make Wormhole efficient and secure. These features include:
Fully generic network
By being a fully generic network, Wormhole allows its cross-chain messages to contain abstract data. This feature enables developers to produce applications on top of Wormhole, with use-cases such as governance, decentralized oracles, NFTs, and asset transfers.
Consensus abstraction means that the consensus process is lightweight and can be completed asynchronously on Wormhole’s peer-to-peer network. The end result is that transactions have a high throughput. Moreover, Wormhole can relay signed messages to another connected chain. And if present, the chain will execute any custom application logic.
Wormhole’s speed also introduces low latency. Its asynchronous single-round consensus design allows it to transfer information to any blockchain with minimal delay. The team claims their network is almost on-par with Solana’s high TPS count.
Last, but not least, Wormhole is fully extensible and upgradeable. The network can connect to a new chain through a simple governance process. The protocol’s main contracts can also receive upgrades as long as the proposal meets a supermajority.
The Guardian network is a diverse set of node operators and validators, most of which are reputable staking services with existing track records. The network has 19 Guardians in total, some of which include:
Wormhole’s main product is a bridge app built on top of its messaging network. The app allows users to send assets between Ethereum, Solana, Terra, Binance Smart Chain, and Polygon. After sending tokens from one chain to another, the user mints a Wormhole wrapped asset that they can exchange on various markets. Apart from standard cryptocurrencies, users can also send non-fungible tokens.
Wormhole is highly liquid. After running for nearly five-months, the protocol has reached a TVL (total value locked) of nearly one billion dollars. A majority of the capital comes from Terra and Ethereum. The recent FTX integration and Binance Smart Chain (BSC) integration significantly contributed to the rise of this bridging product.
We're happy to announce deposits for wETH and many other @wormholecrypto wrapped assets are live on FTX! 🌉
Processing an enormous amount of money seems like a daunting task for Wormhole, but it is not. All 19 Guardians constantly broadcast messages and facilitate token transfers. Moreover, all nodes support all networks integrated by Wormhole. According to their explorer, the protocol processes an average of 1300 transactions per day.
To begin, select your source chain and target chain. The source chain is the network from which you’re withdrawing assets. The target chain is the network that receives the assets. Make sure to have a wallet for both chains on your web browser before continuing.
After selecting the two networks, connect your wallet and select the token you wish to move. By selecting an asset, a token list will pop up. This list shows a number of tokens and dApps where your token is liquid. For example, Wormhole lists Uniswap as the only liquid market for SOL.
Note: Tokens listed under ‘Other Assets’ do not have a liquidity pool assigned to them. There is no use for these wrapped tokens as there is no liquidity. Make sure to exclusively bridge assets that have a respective liquidity pool. If moving large capital, check the LP’s size.
Next, set the amount you wish to transfer and select a wallet for your target chain. Connect your wallet and approve its use for the Wormhole app.
Hit ‘next’ to go to the next step and click on transfer. Confirm the transfer and then confirm the transaction.
Wait for the transfer to conclude. After it’s done, you will be able to redeem your newly wrapped tokens and finish bridging.
Want to learn more about Wormhole? We recommend the following links:
Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.
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