- 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
Wrapped Bitcoin 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 simple: to bring the liquidity of Bitcoin to the Ethereum ecosystem.
What is Wrapped Bitcoin & How Does it Work?
For any user who is 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 BTC liquidity 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 full transparency.
Wrapped Bitcoin – The Bridge Connecting Ethereum and BTC
For decentralized finance applications, there’s no stopping someone from using 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 an enormous user base and a 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 things simpler for exchanges, wallets, and payment services. In general, these services need to run two separate nodes: one for BTC and one for ETH. When dealing with WBTC, only an Ethereum node is needed.
Speed is another benefit that WBTCs enjoy. The average block time on the 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 exceeds $1 billion in total value.
How Can You Buy WBTC?
A lot of official merchants support Wrapped Bitcoin. Some of these merchants require KYC checks. If you want to purchase WBTC anonymously, you can leverage decentralized exchanges.
To purchase WBTC, you first need to fund your wallet with BTC. 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 purpose by linking two of the largest blockchains, namely Bitcoin and Ethereum.
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 industry. It is going to be interesting to see the adoption of WBTC considering the growth of both Ethereum and Bitcoin.