What is Wrapped Bitcoin (WBTC)? As of late, there has been a lot of talk regarding wrapped tokens. Specifically, Wrapped Bitcoin (wBTC) continues to surface as one of the prime examples of why wrapping tokens is beneficial to all. The concept of wBTC emerged in a bid to improve Bitcoin’s functionality and usability.
What is Wrapped Bitcoin?
WBTC is an ERC20 token dedicated to bitcoin that allows bitcoin holders to use it in Ethereum-powered decentralized apps, swap it on decentralized exchanges, and trade it for other cryptocurrencies.
To turn BTC into WBTC, bitcoin holders must utilize “merchants,” such as AirSwap or WBTC.cafe, who will store their BTC in a custodian.
The procedure for minting WBTC and receiving the coins is as follows:
- To begin a transaction, a bitcoin holder accesses a merchant.
- The merchant initiates a transaction to authorize the custodian to mint WBTC to the merchant’s Ethereum address.
- The custodian receives the bitcoin holder’s bitcoins from the merchant.
- The custodian awaits six confirmations of the BTC transaction.
- Custodian generates a transaction on Ethereum to mint new WBTC tokens.
- The bitcoin owner asks for WBTC from the merchant.
- On the bitcoin holder, the merchant completes the required AML and KYC processes.
- The bitcoin holder and merchant perform an atomic swap or exchange with the merchant receiving BTC and the bitcoin holder receiving WBTC.
- Ethereum users can swap their ETH or any other Ethereum-based token to WBTC on a decentralized exchange like Uniswap and Kyber to access the bitcoin asset.
Is Wrapped BTC “Real” Bitcoin?
No, it isn’t. It’s not even real Bitcoin.
WBTC is an Ethereum-based ERC20 cryptocurrency. The token’s creation process is backed 1:1 by bitcoin through its minting mechanism, although you are not holding bitcoin when you have WBTC.
Following tokenization into WBTC, several elements of Bitcoin are lost, including:
- The Bitcoin network’s security
- The Lightning Network’s ability to make rapid payments
- Some of Bitcoin’s privacy features
However, by converting BTC to WBTC, new opportunities arise. As some investors have referred to it, the main benefit of bitcoin is the opportunity to participate in the growing decentralized finance industry and get yield on “digital gold.”
As a result, tokenized bitcoin is proving to be particularly popular with DeFi users.
How Do WBTC Tokens Work?
Imagine you’re already familiar with Bitcoin and want to start utilizing DeFi applications. But there’s a difficulty! There isn’t much of a cryptocurrency connection between Bitcoin and Ethereum.
On the other hand, Wrapped Bitcoin helps resolve this issue and provides much-needed liquidity to DeFi systems.
WBTC is an ERC-20 token that’s backed entirely by Bitcoin. (They may be compared to stablecoins, even if Bitcoin itself isn’t always very trustworthy.)
After the Bitcoin is wrapped, the BitGo Trust holds it in reserve. In light of past concerns (something that other stablecoins have struggled with), the amount of WBTC in circulation has been published — with evidence that Bitcoin, the underlying asset, is securely held in custody.
WBTC can be stored in wallets such as those supplied by CoinList, which can be wrapped (and unwrapped).
What Can You Do With WBTC?
WBTC can be used in a variety of ways in today’s DeFi marketplace, including the following:
- To earn interest in decentralized lending pools.
- Collateral for crypto-backed loans is a property.
- To produce liquidity mining/yield farming income,
- To margin trade on decentralized derivative exchanges
WBTC can be used as collateral to obtain crypto-backed loans to finance a company or deploy leveraged crypto investing techniques like yield farming by Ethereum-friendly bitcoin HODLers.
WBTC holders, on the other hand, may deposit their funds in a decentralized lending protocol as a liquidity provider to earn interest. WBTC depositors now earn 0.09 percent APY on Compound and Aave, for example.
While yield farming has a considerably higher risk than simply lending cryptocurrencies, the anticipated APYs are also greater. WBTC holders willing to take more significant risks can deposit WBTC in liquidity pools to earn fees and liquidity mining rewards (usually in the form of protocol tokens). WBTC is also accepted by new protocols like Curve Finance and Harvest, which utilize liquidity pools.
WBTC may also be utilized to margin trade on decentralized derivative trading platforms, such as DDEX and Fulcrum, by seasoned traders. Traders can use WBTC instead of bitcoin to trade on non-custodial, smart contract-powered derivatives trading applications to improve fund security while doing so.
Key Features and Takeaways of Wrapped Bitcoin
Security is a major concern for cryptocurrency adoption. Wallet addresses (and private keys) are broadcast to the network, making theft of funds almost impossible to hide. However, WBTC is significantly different.
First and foremost, the bitcoin being wrapped is not obtained in a manner that’s detrimental to the network. In other words, using a mixed coin wallet would be risky and would likely lead to the withdrawal being rejected.
Secondly, the owner of the private key has sole access to their bitcoin. If a third party were to access the private key, they don’t have control over the bitcoin in any way. In fact, they couldn’t even spend it as it’s “unstored” at that point. The combination of these two factors result in an incredibly secure system.
The liquidity of this new token is severely hampered due to the fact that bitcoin is still by far the dominant coin. While there are plans underway to increase the amount of WBTC, it’ll be some time before there’s enough to fulfill a substantial role in the marketplace.
In comparison, other stablecoins have considerably more liquid markets. USD Coin, for example, is used to collateralize derivative contracts on decentralized exchanges like DDEX. This results in a significant amount of USD being traded in a manner that’s convenient for the derivatives trading market.
Additionally, USD Coin has significantly more volume than WBTC on token exchanges like Kyber Network, which allows for USD/WBTC orders to be filled at a slight discount compared to the market price. Although the amount of WBTC on the market is expected to increase in the future, the number of users that will be transacting in it over the blockchain will not.
Due to this reality, WBTC suffers from less trading volume than other stable coins. Worth noting: Decentralized exchanges are starting to become popular for a number of reasons. The elimination of custody through third-party exchanges, for example, is a major benefit for most traders in the cryptocurrency marketplace. While not all DEx’s have volumes for WBTC, there are a few that do.
A few exchanges that do include:
Other than Decentralized Exchanges, the highest volume for WBTC is on the liquidity pool system. WBTC holders with mining rigs that are “offline” (pools powered down) can contribute their funds to the WBTC liquidity pool in exchange for a small miner fee. Worth noting: Stablecoins are starting to gain in popularity as a store of value and stable medium of exchange.
Liquidity can be an issue in this market, however. Market Domination WBTC has no plans to launch a stablecoin called “WELD”. This is a scam coin meant to capitalize on the success of WBTC. If you receive a message from anyone claiming to be from We Need Everyone lactating, then do not respond to the message. If you respond, then you are helping the scammer.
WTC was launched in order to address some of the weaknesses of WBTC. First, it allows users to transact in a manner that’s more convenient for them. Second, it allows for the transaction fees to be used to reward miners. The primary benefit of WBTC over WTS is that WTS charge fees in USD, while WBTC only has fees in WBTC. This gives WTS users an incentive to spam the network by sending low value BTC for the fee, which results in high transaction fees.
To address this issue, WTC was created. Instead of having fees in WBTC, they are in WTC. This way, users that do not want to deal with the instability of the volatile BTC price will only pay fees in the stable coin.
WBTC is the native currency of the network, while WTC is only used to transact within the network. The current value of WBTC is significantly lower than the value of 1 BTC. This creates a serious issue when attempting to buy or sell large amounts of WBTC. A user would have to send an exceptionally large number of bitcoins to a large mining pool (to get a transaction mined) in order to buy/sell enough WBTC to transact outside the protocol.
Doing this would result in a loss of mining revenue. On the other hand, the mining pool would have to sell enough bitcoin to cover the amount of WBTC they received in order to make a profit. If this isn’t enough, the mining pool will lose money, and users will have to send more bitcoin to make up the difference. This would require an extremely large amount of bitcoin to be sent.
A solution to this problem was discovered by user “zap” when he realized that short selling bitcoin would allow for the transfer of large amounts of bitcoin without the need for an extremely large bitcoin transfer. Short selling is the practice of selling a share asset (like stocks or futures) you don’t own to someone else. You may sell them for a set price, less than what you paid for them or even for free if the asset crashes in value.
Wrapped Bitcoin vs. Bitcoin: What’s the Difference?
It’s worth noting that Wrapped Bitcoin is a cryptocurrency, just like Ethereum, and can use that in the DeFi ecosystem. WBTC is generated by using known businesses that keep your Bitcoin and then issue you WBTC coins compatible with Ethereum.
For example, suppose you have a large number of bitcoin tokens. You wish to move funds across Ethereum or possibly create some apps on the Ethereum network. You’d want to spend your Bitcoin currency, but you can’t. As a result, instead of going to a third-party vendor who may or may not have your best interests in mind, you go to a reputable merchant that takes the time to verify your identity and ensure that everything is in order.
The merchant then goes to a custodian, a known third party (currently BitGo), to complete the process. The custodian generates ERC-20 tokens dubbed Wrapped BTC. The number of WBTC tokens equals the amount of Bitcoin tokens you agree to deliver. You’ve maintained your bitcoin up until now.
The WBTC can now be sent from the custodian’s account to a crypto wallet that supports Ethereum. It’s time for the swap now. You send your BTC to the merchant, who in turn sends you WBTC using a peer-to-peer transfer or an exchange.
You may use the WBTC on the Ethereum blockchain for DeFi transactions or dapps once you have it. The BTC is kept in reserve and serves as a backing to the WBTC. This is confirmed on the public ledgers for Bitcoin and Ethereum blockchains, made available to the general public. On the blockchains, you may view transactions as well as proof of reserves.
Later, when you’re ready to get your BTC back, go back to the merchant and claim your WBTC. The WBTC is then burned by the merchant in a process known as burning since there is no more reserve.
It’s a lengthy procedure to convert Bitcoin into Wrapped Bitcoin but can do it rather rapidly. The greatest advantage is that you do not have to utilize exchanges (and the higher costs that come with them) to exchange Bitcoins for Ethereum (ETH). Instead, you’ll receive your Wrapped Bitcoin and be able to spend it on a variety of Ethereum-based apps.
Pros and Cons of Wrapped Bitcoin
As the most secure cryptocurrency in the world, Bitcoin will only provide you with what you put into it. You may profit from your Bitcoin by investing in Ethereum DeFi platforms using Wrapped Bitcoin. wBTC can be utilized to borrow money.
You can also trade on platforms like Uniswap, which accepts wBTC. There’s even the chance of earning money from trade fees on these platforms.
You can also consider locking your wBTC as a deposit and earning interest on it. A platform like Compound may be a good ground for such deposit earnings.
Security is the order of the day when it comes to Bitcoin’s major infrastructure. The risk of locking Bitcoin in the Ethereum Blockchain jeopardizes its primary purpose. Smart contracts that protect Bitcoin may be exploited. This will almost certainly result in a loss of a significant amount of money.
Also, WBTC might restrict individuals’ access to their wallets due to frozen accounts.
Where to Buy Wrapped Bitcoin wBTC
- Crypto.com: With this complete crypto-finance platform, you can buy 100+ cryptocurrencies and earn up to 14.5% p.a. on your investments, pay with your cryptocurrency for cashback at businesses, borrow money and more.
- Gate.io – A versatile exchange with over 700 coins, derivatives, yield farming, and lending services.
- Coinbase – On one of the most well-known cryptocurrency exchanges, you may buy and sell major cryptocurrencies.
- FTX US – Enjoy the local version of the FTX exchange, which offers up to 10x leverage, access to global liquidity, and perks for FTT token holders.
- Bitfinex – Spot trade all of the major cryptos on this full-featured exchange and margin trading platform
Bitcoin is the most adaptable cryptocurrency available. May use it to purchase anything from a growing list of vendors that accept Bitcoin payments, including well-known companies like Expedia, Overstock.com, and Tesla. Bitcoin is a type of cryptocurrency that may use to pay for goods and services or exchange for other traditional and digital currencies on electronic exchanges that work similarly to forex exchanges.
Bitcoin is a cryptocurrency based on a source code that employs highly complex algorithms to prevent the unauthorized duplication or production of Bitcoin units. The technology’s foundations, known as cryptography, are based on sophisticated mathematical and computer engineering ideas. It’s nearly hard to crack Bitcoin’s source code and change the money’s quantity.
- It is a decentralized technology. Therefore it cannot be influenced by governments or institutions.
- The transactions are anonymous (your identity is kept a secret).
- The fees are extremely low.
- It is always available and has no borders.
- Because transactions are untraceable, they may use cryptocurrencies for unlawful activities with ease.
- If the data on your wallet is lost or damaged, it may be impossible to recover it.
- Speculators have used bitcoin and other virtual currencies, which has resulted in significant volatility.
Ethereum is a blockchain-based platform that enables the use of smart contracts.
You don’t need a third party to execute trustworthy transactions if you use a smart contract. These smart contracts are also trackable and irreversible because they are kept on blockchain technology.
A new era of computer programming, digital ownership, and other innovations are being introduced thanks to the smart contract capabilities of Ethereum.
- Ethereum could be a world computer
- Ethereum will give us tokenization
- Can run uncensorable apps
- Ethereum security threats
- Makes Use of a Difficult Programming Language
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The breadth of Cardano’s goals makes it difficult to encapsulate in a few words. It’s the “Swiss army knife of protocols,” according to Hoskinson, that solves real issues.
Consider Cardano to be a platform where individuals may develop apps that address a wide range of issues. The Cardano network allows people to use blockchain technology to improve the world we live in, from preventing counterfeit drugs to providing access to microfinance.
Cardano is a blockchain with a unique approach to mining new blocks and validating transactions. Cardano differs from Bitcoin and Ethereum in that it uses the proof of stake (POS) method to mine new blocks and confirm transactions. Only a small proportion of Cardano’s users can mine ADA, which significantly lowers its energy consumption.
- Reputable team
- Environmentally friendly
- Peer-reviewed technology
- Not memorable
- The ambitious scope of work
- Early days
The concept of a wrapped cryptocurrency is relatively new, but it has already seen some success. WBTC was developed on Ethereum-based platforms and aimed to make Bitcoin work with the Ethereum ecosystem. The original coin usually backs wrapped cryptocurrencies, so they have increased liquidity because users can redeem them at any time for their underlying value.
A wrapped cryptocurrency is a tokenized version of a crypto asset backed by the original coin. Wrapped Bitcoin is a tokenized representation of Bitcoin held in reserve. WBTC is designed to be used on Ethereum-based platforms, making Bitcoin work with the Ethereum ecosystem.