Ecosystem

Why is Trustless Interoperability Needed?

Let’s have a look at the reasons why trustless interoperability is needed in the first place.

Solution Needed

Cryptoeconomically Secure Bridging Mechanisms

Ethereum’s progression into a multichain/L2 ecosystem and the continued growth of the DeFi space has intensified the need for trustless, cryptoeconomically secure interoperability. In the following, we will take a deep dive into the reasons why such secure bridging mechanisms are needed.

Trustless Ethereum Interoperability

And Why It Is Needed

Without trustless, secure, and decentralized bridging mechanisms, the functionality and growth potential of Ethereum and the entire DeFi sector is limited. In fact, a variety of use cases are unpractical, expensive, and possibly even dangerous to implement in a non-interoperable ecosystem.

The accelerated growth of the DeFi space within the crypto ecosystem has led to the creation of a multitude of new interoperability protocols and bridges.

The recent high-profile hacks of Thorchain and the PolyNetwork illustrate that the space is struggling with finding an interoperability solution that is both trustless, secure, and decentralized at the same time.

Considering the dangers of implementing a non-secure bridging mechanism into ones product, developers are confronted with the central question of figuring out which systems are actually cryptoeconomically secure. Similarly, users need to discern which services to use when moving funds between chains – a challenge in the present environment.

What Does “Trustless Interoperability” Mean Exactly?

To better understand why trustless interoperability is needed to accelerate the growth of DeFi while offering the highest level of security, we first need to define what “trustless” actually means in the area of cryptoeconomics.

When it comes to “trustlessness,” cryptographers focus on three simple questions:

Who is verifying a blockchain system?

How many verifiers need to be corrupted?

How much does it cost to corrupt verifiers?

To put it simply, decentralized blockchain systems depend on verifiers (i.e. validators or miners) that verify the accuracy of the blockchain’s state. If the verifiers are being corrupted, they can collude to steal user funds by changing the state of the blockchain.

The strength of a truly decentralized, uncensorable public blockchain is tested by being able to withstand corruption through malicious third parties and/or the collusion of individual validators.

In order to maximize the security of a system, both the diversity and number of verifiers needs to be maximized in combination with the implementation of slashing mechanisms. Combining these three factors allows ecosystems to disincentivize validator collusion and makes corruption attempts excessively costly for malicious third parties.

In practice, establishing such a system is difficult, which is why the ideal scenario is to find a solution that is verified entirely by the existing validator set of Ethereum. At its core, this idea is the central component of L2 and Ethereum’s approach to scalability.

Let’s have a look at such solutions in the following.

Bridging Scenarios

Adding New Verifiers Between Domains

In the following, we will have a look at different bridging scenarios and will evaluate whether or not the solution is cryptoeconomically secure.

Optimistic Rollups

Trustless Two-Way Bridges

The introduction of optimistic rollups (such as Arbitrum and Optimism) within the Ethereum ecosystem has introduced bridges whose transfers are fully secured by the underlying verifiers of Ethereum. This means that a user’s funds transferred through a rollup are as cryptoeconomically secure as funds can possibly be within the blockchain ecosystem.

We can focus next on the question if cryptoeconomic security is also guaranteed for other use cases.

Bridging via External Validators

Third-Party Bridges

Let us now add another layer of complexity by assuming that a user wishes to transfer funds directly between Arbitrum and Optimism without transferring funds to Ethereum first.

In such a case, a user would have to utilize a bridge protocol between Arbitrum and Optimism.

The central problem of third-party bridges is that they utilize a set of external verifiers. This means that funds are not secured by Ethereum’s verifiers but by the verifiers of the bridge.

In practice, this opens up several attack vendors, depending on the system that is utilized to verify transactions:

Lock/mint bridge

If a lock/mint bridge is used to create wrapped assets, the funds of users can be stolen if bridge verifiers unilaterally collude 

Liquidity pool bridge

If a bridge uses liquidity pools, funds can be stolen if verifiers unilaterally collude to stealing pool capital from liquidity providers (LPs)

Conclusion

With the following in mind, we can see that trustless interoperability is needed to secure user funds in a continuously growing ecosystem. But despite L2 and the acceleration of a multichain ecosystem, there exists no secure, trustless, and fully decentralized solution of interoperability.

The above example of switching funds between Arbitrum and Optimism further illustrates that the situation of bridging via third-party providers that do not use Ethereum’s verifiers is exactly the same as having used a L1 solution or a trusted sidechain.

Key takeaway

Cryptoeconomic systems (and bridging solutions) are only as secure and stable as their weakest link. The usage of insecure bridges adds dangerous attack vendors and compromises the security of secure blockchains and L2s.

Ecosystem

An Analysis of Interoperability Protocols