By Heidi Wilder, Special Investigations Manager & Tammy Yang, Blockchain Researcher
Recent questions have been raised about how bridges and mixers work both for legitimate business purposes and illicit financial transactions.
Although mixing services have been extensively analyzed for years, bridges are a newer concept that became popular in 2021. Bridges allow crypto holders to ‘move’ (or ‘bridge’) their assets between different blockchains. This allows them to hop from one chain to another and gain exposure to other networks.
We observed a sharp increase in cross-chain activities from Ethereum beginning in April 2021. The daily number of deposit activities to Ethereum bridges reached its peak in the Summer of 2021 and the highest single-day record of over 60,000 transactions bridging from Ethereum occurred on September 12, 2021.
This two-part blog post aims to explain what bridging is, why it has become so popular, and why bad actors are bridging over funds across networks.
What is a bridge?
A bridge is an application that uses cross-chain communication technology to enable transactions between two or more networks, which can be Layer 1s, Layer 2s, or even off-chain services. Simply put, a bridge allows crypto holders to transfer their assets from one network to another. For example, a USDC holder on Ethereum might want to transfer their USDC from Ethereum to Avalanche via a bridge application.
However, a bridge doesn’t move an asset between chains, it links the asset on one network to its representation (i.e. a wrapped version) on the other network….