What is a Wrapped Bitcoin (WBTC)?



David Sandron/Shutterstock.com

A Wrapped Bitcoin (WBTC) is a way to represent Bitcoin on the Ethereum blockchain. Bitcoin and Ethereum are the two major cryptocurrencies in the world, but they cannot normally communicate with each other, hence the need for packing.

Bitcoin on the Ethereum Blockchain

Bitcoin and Ethereum both serve unique but separate purposes in the crypto economy.

Bitcoin is the oldest and most valuable cryptocurrency due to its unique scarcity, security and decentralization. It pioneered the path many digital currencies subsequently followed and has not looked back since.

Ethereum has become the second most valuable cryptocurrency in the world due to the vast DeFi ecosystem it supports. Ethereum’s programmable smart contracts allow developers to build applications for lending, borrowing, providing liquidity, and much more.

Despite both having valuable use cases, Ethereum and Bitcoin cannot communicate directly within each other’s blockchains.

To get around this hurdle, a group of developers came up with a token that represented Bitcoin’s worth in 2019. This Bitcoin token integrates with Ethereum-based wallets, DeFi applications, and smart contracts.

Known as Packaged Bitcoin (WBTC), holders get the best of both worlds. Wrapped Bitcoin follows the price of Bitcoin exactly, but is usable with Ethereum-based products.

RELATED: What Is DeFi? The Basics of Decentralized Finance

Advantages of Packaged Bitcoin

Before Wrapped Bitcoin, it was much more cumbersome to participate in DeFi with Bitcoin. Wrapped Bitcoin allows Bitcoin investors to hold it as an asset while also using DeFi dApps such as Link or Aave borrow or lend money. They can also exchange Wrapped Bitcoin for other Ethereum tokens like Chain linkto tieor Shiba Inu with a DEX like Uniswap

Wrapped Bitcoin has bridged the gap between the two blockchains. People can join DeFi by buying Wrapped Bitcoin instead of the original Bitcoin.

Some Disadvantages of Packaged Bitcoin

While there are numerous benefits that Wrapped Bitcoin offers, there are some significant differences between WBTC and BTC.

Wrapped Bitcoin is simply a copy of Bitcoin that is compatible with Ethereum. It exists completely separate from the Bitcoin blockchain. As a result, there is no mining of Wrapped Bitcoin.

Furthermore, there is a different amount of Wrapped Bitcoin and Bitcoin in circulation. Wrapped Bitcoins are created through a Decentralized Autonomous Organization (DAO). The WBTC DAO is currently responsible for minting new Wrapped Bitcoins. Members can vote on upgrades and changes. Since there is a governing body behind Wrapped Bitcoin, it is inherently less secure than Bitcoin.

How to buy packaged Bitcoin?

There are a few ways to buy Wrapped Bitcoin.

If you want to exchange your actual Bitcoin for real Bitcoin, it can be done with platforms like Atomic Wallet or Poloniex

However, one of the easiest methods is trading through an Ethereum-based DEX-like Uniswap† By holding a balance of Ethereum or any other Ethereum-based token, users can immediately trade for Wrapped Bitcoin. You can then use your WBTC with all kinds of DeFi applications without having to sell your actual Bitcoin holdings.

RELATED: How to Use Uniswap with MetaMask on iPhone or Android

Leave a Reply

Your email address will not be published.