What Is Bridge Security?
Bridge security refers to the measures and robustness of the technology that connects different blockchains. Bridges enable assets to move from one chain to another—like crossing a cosmic portal. But because these portals are complex smart contracts, they can have vulnerabilities. Ensuring they are secure is essential to prevent theft, loss, or malicious exploits.
How Exploits Happen
Most bridge exploits occur due to vulnerabilities in smart contract code. Attackers scan for flaws such as reentrancy, integer overflows, or flawed validation logic. Once a weakness is found, they can drain funds or manipulate transfers. For example, in the 2022 Wormhole exploit, hackers exploited a bug in the contract to steal over $300 million worth of ETH and USDC. The exploit involved minting fake tokens after exploiting a vulnerability in the message passing logic.
Real Exploit Examples
One notable case is the Ronin Bridge attack in 2022, where hackers exploited a vulnerability to drain over $600 million. They targeted a flaw in the validator system, which allowed them to approve fake transactions. Another example is the Poly Network hack in 2021, where attackers exploited a smart contract flaw to steal over $600 million in assets. These incidents show how critical security is when bridging assets across chains.
L2Beat Ratings and Security Ratings
L2Beat provides security assessments and ratings for Layer 2 solutions and bridges. They analyze smart contract audits, security models, and past exploits to rate the safety of different bridges. A high rating indicates a well-audited, reliable bridge, while a low score signals higher risk. However, ratings are not foolproof. The absence of exploits does not guarantee safety—smart contracts are always evolving, and new vulnerabilities can appear.
Tax Implications of Bridge Risks and Exploits
The IRS has not issued specific rules on bridge exploits or cross-chain transfers. Generally, if a hack results in loss of assets, it could be treated as a theft deduction if properly documented. If a vulnerability is exploited, it might be considered a sale or disposition, triggering gains or losses. But, because the guidance is unclear, many taxpayers rely on the principle that any transfer or loss of ownership should be reported. Failing to report lost funds could lead to penalties or audits.
Common Mistakes About Bridge Security
❌ Assuming all bridges are equally safe
Why
Many users rely solely on reputation without reviewing security audits or ratings.
Fix
Always check the latest audits and security ratings before bridging assets.
⚠️ Cost
Potentially losing millions in a vulnerable bridge
❌ Ignoring smart contract vulnerabilities
Why
Users often overlook the technical risks involved in bridge contracts.
Fix
Research audit reports and security track records of the bridge.
⚠️ Cost
Exposing assets to exploits, theft, or loss
❌ Not documenting cross-chain transactions
Why
Without proper records, it's hard to prove ownership or loss.
Fix
Track and save transaction IDs, audit reports, and timestamps.
⚠️ Cost
Difficulty reporting or claiming insurance for losses
How Moonscape Handles Bridge Security Risks
Moonscape automatically detects cross-chain transfers and bridge interactions. We flag transactions involving known bridges, analyze their security ratings, and alert users to potential risks. Our system tracks your bridge deposits and withdrawals, helping you maintain accurate records—even if a bridge is exploited or compromised. While we cannot prevent exploits, Moonscape helps you understand your exposures and stay prepared.