Swap and Bridge: Understanding the Key Differences

Have you ever found yourself confused between the two apparently similar terms, swap and bridge? In the world of blockchain, these two terms are usually used interchangeably, but their function and meaning are completely different.

In this blog, we’ll explore the difference between swap and bridge and how each contributes to the crypto landscape.

What is a Swap?

A swap is a process that allows users to exchange one cryptocurrency for another directly within the same or different ecosystems using a decentralized exchange.  

For example, if you want to exchange Ethereum (ETH) for USDC on the Ethereum network, you’d use a decentralized exchange (DEX) such as Uniswap or PancakeSwap.  

Types of Swaps

There are two types of Swaps:

1. On-chain Swaps:  

Swaps or transactions that occur within the same network are called on-chain swaps.

2. Cross-chain Swaps:  

As the name indicates, these swaps are responsible for transactions that occur between different blockchains.  

How Cross-Chain Swaps Work? 

Cross-chain swaps can be facilitated through various mechanisms, one of which is atomic swaps. Atomic swaps use smart contracts to ensure that a trade occurs securely between two different blockchains, guaranteeing that both parties either receive their respective tokens or the transaction is canceled. 

This eliminates the need for third-party exchanges. Some cross-chain swaps also rely on other smart contract-based methods to enable seamless asset transfers without requiring an intermediary like a centralized exchange.

Key Features of Swap:

• Occurs within the same or different blockchain  
• Some cross-chain swaps require liquidity pools in decentralized exchanges (DEXs), but others, like atomic swaps, do not.
• Enables quick token conversions.
• No need for a third-party platform or service.

What is a Bridge?

A bridge in the crypto world connects two separate blockchains. With its help, users can transfer tokens or data between different ecosystems.

Types of Bridges

There are various types of bridges. Some of them are as follows

1. Trust-based (Custodial)bridges:  

In such bridges, a central authority is required to manage the process.

2. Trustless (non-custodial) bridges:  

On the other hand, in these bridges smart contracts are used to operate without the need for intermediaries.

How do Crypto Bridges Work?  

When using these inter-chain connections, the original tokens are usually locked on the sending blockchain. At the same time, an equal number of "wrapped tokens" are minted on the receiving blockchain. The original tokens stay locked until the user decides to bring them back, at which point the wrapped tokens are burned.

Let's take an example to understand it better. 

For instance, if you hold Ethereum but want to use it on a network like BNB Smart Chain, a cross-chain bridge will lock your Ethereum on the Ethereum network. Then it will mint or create an equivalent amount of wrapped Ethereum on the BNB Smart Chain network.

Key Features of Bridge:

• Facilitates cross-chain transfers.
• Helps in transferring assets between different blockchain ecosystems.
• Requires locking and minting mechanisms.
• Supports a broader range of decentralized applications (dApps).

Bridge vs Swap: Core Differences

Still confused between the differences of these terms? Let's explore what is the difference between swap and bridge in simple words:

• Purpose:
  • A swap is used to exchange one token for another. Contrary to that, a bridge is used to transfer the same token between various networks.
• Mechanism:
  • Swaps usually use liquidity pools or atomic swaps.
  • Bridges lock tokens on one blockchain and then mint equivalent tokens on the other mechanism like, lock/unlock and burn/mint can also be added.
• Scope:
  • Swaps can occur within a single or between different blockchains.
  • Bridges are exclusively used to transfer assets between ecosystems.

As we have discussed the terms, their functions and the differences between swap vs bridge and how they work. To clarify more better taking an example:

Why Use a Cross-Chain Bridge?

The cryptocurrency landscape is diverse. As many different blockchains are serving specific purposes, no single blockchain can do it all. With more blockchain ecosystems like Ethereum, Solana, and BNB Smart Chain developing rapidly, the need for cross-chain bridges has increased.

They help users move assets across different blockchains, improving liquidity, scalability, and the overall user experience in decentralised finance (DeFi).

Their uses are as follows

• Interoperability: Connect blockchains to operate on different protocols.
• Liquidity Sharing: Transfer assets and increase liquidity across multiple chains.
• Expanded Use Cases: Access decentralized applications and DeFi services across various ecosystems.

Wrapping Up

In the ever-evolving crypto world, it is necessary to understand the differences between swap and bridge to enhance the user experience in the decentralized landscape. While swaps help you exchange tokens within the same cross chain  quickly and easily, bridges enable more complex cross-chain transfers. They do not only expand the utility but also provide seamless access to assets. 

For more informational topics stay tuned on ARMswap.