Bitcoin is one of the most popular cryptocurrencies on the market. But what if you want to keep it on another blockchain? What if you want to use it on the Ethereum blockchain? In that case, Wrapped Bitcoin is the best choice you have.
By wrapping a cryptocurrency, you can use it on another chain. Wrapped Bitcoin or WBTC is an ERC-20 token on the Ethereum blockchain. One Bitcoin is equal to one WBTC.
Ethereum created different features such as wallets, dapps, and smart contracts. As a Bitcoin holder, you might want to participate in decentralized finance apps; WBTC allows you to do that. Here we will talk about everything you need to know about WBTC.
What Is Wrapped Bitcoin?
A group of three developers, including BitGo, Kyber Network, and Ren created WBTC on the Ethereum blockchain in 2019. You know these organizations if you are familiar with the decentralized finance industry. They played a massive role in Defi and wanted to create a way for bitcoin to be used on the Ethereum blockchain. Users can participate in the Defi project and build decentralized applications. What about bitcoin holders? How can they join in DeFi?
Wrapped Bitcoin is quite like USD Coin and Tether because they all are tied to the value of order assets. The value of Wrapped Bitcoin is pegged to bitcoin, and for every WBTC, there is a bitcoin in provable reserves. But how does this token work?
How Do Wrapped Tokens Work?
Nodes and miners are not responsible for maintaining the network. It is supported by a group of people called WBTC DAO. 30 members take care of the system. Bitgo, Ren, and Kyper created this wrapped cryptocurrency.
Cryptocurrencies backed Wrapped cryptos. Several organizations and balances back these types of wrapped coins.
One of the most exciting things about wrapped coins is that they can be processed faster because they are not processed across multiple blockchains. By using wrapped tokens there is no need to use several blockchains, as the wrapped tokens are used on the Ethereum blockchain. It only takes a minimal gas fee to pay.
Organizations, custodians who hold underlying assets and currency, burn or mint new wrapped tokens if necessary. What is so interesting about cryptocurrency is its underlying technology. Blockchain provides several use cases that did not exist before. One of the most amazing things about blockchain is interoperability. This characteristic made interaction and exchange of value possible between different blockchains.
When decentralized finance started, the need for interoperability became more urgent because everyone wanted to benefit from the Defi protocol.
Investors who want to participate in decentralized finance and use a smart contract ecosystem need to have an ERC-20 token. Wrapped cryptos like WBTC are ERC-20 tokens that can be redeemed for the asset they represent. You can exchange this token for other tokens in the system.
Wrapped cryptos can be used on non-native blockchains. You can use Wrapped Bitcoin on Ethereum blockchain and decentralized applications. By tokenizing bitcoin, the Ethereum network can benefit from bitcoin’s liquidity.
What’s the Difference Between Wrapped Bitcoin and Bitcoin?
Wrapped bitcoins are the tokenized version of Bitcoin. It can be used in the Ethereum ecosystem. To create a WBTC, a trusted merchant should hold your BTC, and the issue is Wrapped Bitcoin tokens that can be used in the Ethereum network.
When a trader needs to send money over Ethereum or create a decentralized application on the Ethereum blockchain, he needs to use an ERC-20 token. You cannot use your bitcoin tokens. So it would be best if you went to a trusted merchant who can verify your identity. Then the merchant uses a trusted third party or a custodian.
The trusted third party will issue ERC-20 tokens. For every bitcoin you promise to provide, the custodian will give a WBTC. In this case, without selling your bitcoin, you can acquire Wrapped tokens and send money on Ethereum or create a new decentralized application.
If you want to mint Wrapped bitcoin, you can use peer-to-peer transactions or exchanges like Bitunivex to send your Bitcoin to a merchant.
Then you can use the token on decentralized applications. Information about issued wrapped coins and the total supply of bitcoin in reserve stores on the public ledger of Ethereum and Bitcoin. Whenever you need your bitcoin, return it to your merchant, and he will burn the Wrraped bitcoin and provide it for you.