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Cryptocurrency

What Is Wrapped Bitcoin

By David Krug 4 minute read

What Is Wrapped Bitcoin? Wrapped Bitcoin is a fantastic option if you want to use Bitcoin on the Ethereum Blockchain.

In terms of popularity, Bitcoin still reigns supreme over other cryptocurrencies, such as those on the Ethereum network. Why not use the Ethereum blockchain to access Bitcoin instead? Wrapped Bitcoin, an Ethereum-based currency based on Bitcoin, is built on this principle.

About Wrapped Bitcoin

An Ethereum-based cryptocurrency called Wrapped Bitcoin (WBTC) was created in 2019. A consortium of three developers, including BitGo, Kyber Network, and Ren, formed it instead of having a single creator. Bitcoin coins may be utilized on the Ethereum network thanks to the efforts of some of the most important participants in decentralized finance (DeFi).

For its usage in DeFi transactions and in the development of DeFi applications, Ethereum is well-known (dapps). However, you can’t utilize your Bitcoin tokens on Ethereum if you have a large number of them. In addition, Bitcoin blockchain transactions take far longer than Ethereum blockchain transactions.

An ERC-20 token or an Ethereum standard token, called Wrapped Bitcoin was designed to allow users with Bitcoin holdings to join on the Ethereum network. When a WBTC token is exchanged for a BTC token, it is backed by a proven reserve of Bitcoins, just as stablecoins coins as Tether (USDT) and USD Coin (USDC).

What’s the difference between Wrapped Bitcoin and Bitcoin?

Wrapped Bitcoin may be utilized in Ethereum’s DeFi ecosystem since it is a tokenized version of Bitcoin. To create WBTC, you’ll need to work with a reputable vendor who will keep your bitcoins while issuing you Ethereum-compatible WBTC tokens.

Suppose you own a huge number of bitcoin tokens, for instance. For example, you may be interested in developing a dapp using Ethereum’s blockchain. But you’d prefer to utilize your Bitcoin tokens, but you don’t have access to that option. That’s why instead of going to an untrustworthy seller, you should go to a reputable one that takes the time to verify your identification.

A custodian (now BitGo) is a third-party trusted by the merchant. Wrapped BTC ERC-20 tokens are issued by the custodian. There are exactly as many WBTC tokens as there are Bitcoin tokens that you commit to giving. You’ve managed to hold on to your BTC so far.

Since then, it’s been possible to transfer WBTC to an Ethereum-capable crypto wallet owned by a business. Now is the moment to make the switch. You give your BTC to the merchant and they send you your WBTC through a peer-to-peer transaction or an online exchange.

WBTC may be used for DeFi transactions and dapps on the Ethereum network. The BTC is still on hand as a safety net to support the WBTC. Public ledgers for Bitcoin and Ethereum are used to authenticate this. On the blockchains, you’ll be able to view all of the transactions and evidence of reserves.

Returning to the merchant afterward to redeem your WBTC will give you back your BTC. When the merchant runs out of WBTC, he burns it to the ground in a method known as “burning”.

The procedure of exchanging Bitcoin for Wrapped Bitcoin may appear to be a lengthy one, but it is actually rather simple. When you don’t have to deal with the hassle of exchanging Bitcoin (BTC) for Ethereum (ETH) or any other token, the true benefit is that you save time and money. Wrapped Bitcoin may be used on any Ethereum-based platform that supports it.

How can Wrapped Bitcoin be used?

Bitcoin holders will be able to utilize tokens from one platform to pay for goods or services on another. Wrapped cryptocurrencies can save money and work, even though the leading cryptocurrency exchanges make it easy to purchase and sell tokens, or even trade some token pairings.

WBTC (as well as other wrapped currencies) can be put to use in the following ways:

  • Faster transactions. The Ethereum blockchain outperforms the Bitcoin network in terms of transaction speed. It is possible to use your BTC reserves on the Ethereum network using WBTC, allowing you to do business more quickly and easily.
  • Centralized cryptocurrency exchanges (like Coinbase) frequently employ Bitcoin as the primary trading token.
  •  Ethereum, on the other hand, is commonly used by DEXs, or decentralized exchanges. WBTC eliminates the need to first convert Bitcoin to Ethereum Classic (ETH) and then go to a decentralized exchange to purchase other digital assets.
  • Bitcoin isn’t yet being utilized in smart contracts. WBTC, on the other hand, allows for the use of BTC as a backer for smart contract transactions.
  • If WBTC is a success, it might open the way for the ERC-20 standard to be used to tokenize fiat currencies. Currency reserves might be held in USD or EUR, and stable tokens could be issued that could be utilized on the blockchain without the need to convert currencies.

How to invest in Wrapped Bitcoin and Bitcoin

There are huge centralized exchanges where you may purchase both WBTC and BTC. To buy WBTC tokens, for example, you can use eToro or Coinbase Pro. Kraken, on the other hand, does not permit the purchase or storage of WBTC. In addition, you’ll want a cryptocurrency wallet that can hold a variety of different tokens.

You may also buy WBTC on decentralized exchanges like Uniswap, but you normally need to have a large amount of ETH in order to do so.

If you wish to mint your own WBTC, make sure you have enough BTC in your wallet to cover the cost. The best place to look for a merchant and submit your request in this scenario would be WBTC DAO. Smart contracts that tokenize your Bitcoin can also be used as a means of encapsulating it.

When it comes to a wrapped bitcoin token, WBTC is the most popular type, thus it’s more probable that you’ll find liquidity. There’s a good chance you can buy WBTC if you already know how to buy bitcoin.

David Krug

Author