Blockchain Technology: What’s the difference between a swap and a bridge?
I know a swap and bridge sound the same, but I promise they are technically different. At a high level, cryptocurrency swaps allow users to exchange one type of currency for another, while cryptocurrency bridges allow users to transfer tokens or coins from one blockchain to another. Think of it as jumping from train to train (swaps) or being on a train that jumps to different tracks (bridge). Let's dive in a bit further.
Blockchain cryptocurrency swaps allow users to exchange one type or cryptocurrency for another without the need to first exchange the coins for fiat currency. These swaps can be facilitated by decentralized exchanges (DEXs), which operate on a blockchain, or by centralized exchanges that offer swap services. A simple example of this could be buying Bitcoin with Ethereum.
Cryptocurrency bridges, on the other hand, allow users to transfer tokens or coins from one blockchain to another. For example, a user might have Bitcoin and want to interact with a decentralized application (DApp) that is on the Ethereum blockchain. They can use a bridge to exchange Bitcoin into Wrapped Bitcoin so it is compatible on the Ethereum rails. In this case, they can use a bridge to facilitate the transfer. Here is a break down of different types of bridges:
Centralized bridges: These are operated by a centralized entity and require users to trust the operator to securely facilitate the transfer of their assets.
Decentralized bridges: These are operated by a decentralized network of nodes and do not require users to trust a single entity to facilitate the transfer of their assets.
Automated market maker (AMM) bridges: These are decentralized bridges that use an AMM to facilitate the transfer of assets between blockchains.
All in all, both types of exchanges can be useful for those looking to diversify their cryptocurrency holding or take advantage of different blockchain platforms.