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wrapped btc

What is Wrapped Bitcoin? – A Detailed Guide

  • Every Wrapped Bitcoin is backed by Bitcoin held at a 1:1 ratio at Bitgo Trust.
  • Wrapped Bitcoin brings Bitcoin’s liquidity to the Ethereum ecosystem.
  • Ethash Proof of Work mechanism keeps Wrapped Bitcoins secured. 

Source: Bitcoin News

Many people are confused when they get to know about wrapped bitcoin. That’s why they wonder – What is wrapped bitcoin? Well, it is a new innovative addition to the crypto bandwagon. Wrapped Bitcoins are a category that brings Bitcoin to the Ethereum blockchain. It is a token developed on the ERC-20 protocol and backed at a 1:1 ratio by Bitcoin and held at Bitgo Trust.

The purpose of wrapped Bitcoins is straight and simple: to bring the liquidity of Bitcoin to the Ethereum ecosystem.

What is Wrapped Bitcoin & How Does it Work?

For any user who is well aware of Bitcoin and wants to start using it in decentralized finance applications, the most crucial drawback is the lack of a crypto bridge connecting BTC with Ethereum. WBTC tokens solve this problem by providing liquidity of BTC to other DeFi protocols.

Wrapping a Bitcoin implies holding the crypto in a reserve by the BitGo trust. The volume of in-circulation WBTCs is publicly disclosed to ensure the fullest transparency possible.

Wrapped Bitcoin – The Bridge Connecting Ethereum and BTC

Source: CCN

For decentralized finance applications, there is no stopping someone to use Ethereum as collateral. But, the advantage of BTC is that it has far higher market capitalization than ETH and every other cryptocurrency in the market. 

While it is important to keep on increasing the variety of collaterals that can be accepted on DeFi protocols, highly traded tokens ensure that trade executions are quick and less vulnerable to the effects of high volatility.

What are the Advantages of WBTCs?

The biggest advantage of Wrapped Bitcoins is that it merges the strong areas of Bitcoin with Ethereum. While Bitcoin provides a humongous user base and massive liquidity pool, Ethereum provides a strong technology platform. The most important utility feature of Ethereum is its smart contracts that facilitate the most advanced use cases of crypto. 

Wrapping BTCs and connecting them to the Ethereum ecosystem also makes the job easier for exchanges, wallets, and payment services. In general, these services need to run two separate nodes: one for BTC and one for ETH. While dealing with WBTC, one can get the work done only with the help of an Ethereum node.

Speed is another benefit that WBTCs enjoy. The average block time taken by an Ethereum blockchain is much less than BTC. Owing to the presence of the Ethereum blockchain as its foundation, WBTCs can be transacted much faster as well. 

How Secure are WBTCs?

The foundational blockchain of WBTC is Ethereum, which ensures the security of WBTC as well. It is secured by the Ethash proof of work mechanism.

What is the Token Economics of WBTC?

Announced on October 26, 2018, Wrapped Bitcoin was officially launched on 31st January 2019. WBTC does not follow any pre-determined schedule of issuance. Whenever a user purchases or sells his or her tokens for Bitcoins leveraging the system of merchants and custodians, WBTCs get minted or burned automatically. 

One Wrapped Bitcoin is always backed by one BTC. Therefore the number of WBTCs in circulation is always equal to the number of Bitcoins in the BitGo Trust reserve. As per the latest available data, the number of WBTCs is more than 94,000 tokens. The combined worth of these tokens crosses US$1 billion in total value.

How Can You Buy WBTC?

A lot of official merchants support Wrapped Bitcoin. Some of these merchants make the buyer go through KYC checks. If you want to purchase WBTC anonymously, you can leverage the decentralized exchanges.

To purchase WBTC, you need to fund your wallet with BTCs first. During purchase, the BTCs are debited from the BTC wallet and WBTCs are credited to the WBTC wallet. The transaction involves two different wallets.

Creating an interconnection between major crypto protocols is a necessity for the entire DeFi economy to prosper. In that sense,  WBTC serves a great benefit by linking two of the largest blockchains of Bitcoin and Ethereum. 

Price Movements 

WBTC or Wrapped Bitcoin was available for over $3476 on 5th February 2019. By 16th May 2019, it had climbed to the price of $8238 and by the end of June, it had touched $12,954. At the end of 2019, it was down to $7429. It remained below $10,000 till August 2020. 

By 9th August 2020, each WBTC token was available for $11,752. It’s prices started increasing rapidly in November 2020 with an increase in the price of Bitcoin. As of now, each WBTC is available for over $19,200

Summary

Source: Crypto World News

WBTC is poised to be one of the most successful cryptocurrencies in the Ethereum ecosystem. The combination of Bitcoin’s liquidity and Ethereum’s technological advantage will help cement the position of Wrapped Bitcoin as one of the leading names in the crypto world. It is definitely going to be interesting to see how WBTC does ahead with the growth of both Ethereum and Bitcoin. 

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