Elon Musk, CEO of Tesla has fueled immense curiosity in crypto currencies by investing $1.5 billion in Bitcoin. Apart from this, the recent boom in Bitcoin price was in part fueled by the introduction of a new idea called Wrapped Bitcoin. If you are new to Cryptocurrency, read our Cryptocurrency guide before jumping back here. This Wrapped Bitcoin Review helps in understanding the various aspects of Wrapped Bitcoin.
What Is Wrapped Bitcoin?
In other words for every WBTC that exists there is a bitcoin that is being held by a custodian, in this case, the custodian is Bitgo and trades it on decentralized exchanges. It is a popular version of the famous cryptocurrency Bitcoin tokenized for use in the popular blockchain network, Ethereum.
ERC-20 is a technical standard used for all smart contracts on the Ethereum blockchain for token implementation. Should you Bitcoin today? I’d rather say buy Wrapped Bitcoin for its additional functionalities. But, as always, beware smart contract risks before you dabble.
Who Created Wrapped Bitcoin?
Wrapped Bitcoin was created by BitGo Inc, Kyber Network, and Ren (previously known as Republic Protocol).
Wrapped Bitcoin Investors
Wrapped BTC was started as a joint venture primarily between BitGo, Kyber, and Ren, which seeks to provide users with a more sophisticated set of financial services in the Ethereum ecosystem.
BitGo is a digital asset management and trading firm. It is also one of the first creators of WBTC and still holds the keys for those looking to mint more of it.
Kyber is an on-chain liquidity protocol. It was founded in 2017 and is based in Singapore which is a veritable, crypto hot spot. The team at Kyber helped create WBTC and still plays a Merchant’s role in the project.
Ren was founded in 2017 and its goal is to develop cross-chain integrations between crypto-assets and Defi (Decentralised Finance) apps.
Why Was Wrapped Bitcoin Created?
Wrapped Bitcoin was created to enable full integration between a Bitcoin-like asset (WBTC) and its Defi partners on the Ethereum blockchain. This brought the riches of the immense liquidity associated with the value of Bitcoin.
Earlier, there was no way for a Bitcoin-holder to seamlessly participate in DeFi. If they wanted to participate in it, they would have to spend the time, money, and opportunity costs necessary to move their Bitcoin to Ethereum.
What Makes Wrapped Bitcoin Unique?
What makes Wrapped Bitcoin unique is that it allows Bitcoin holders to keep holding on to it as an asset while also using DeFI apps like , MakerDAO, Compound, Yearn Finance or Curve Finance to borrow or lend money.
The wBTC protocol has brought increased liquidity to the decentralized finance (DeFi) ecosystem and has given bitcoin holders access to a variety of financial services not previously available to them.
Is Wrapped Bitcoin A Good Investment?
Yes, because Wrapped Bitcoin is a digital asset that takes the best of both blockchains – bitcoin’s price value and brand along with Ethereum’s programmability – into one highly in-demand token. The Wrapped Bitcoin price is directly associated with its underlying asset, Bitcoin.
If you are a believer in cryptocurrency, this provides immense value. Is Crypto the future of money?
How Does Wrapped Bitcoin Work?
WBTC is a multi-institutional framework for wrapping tokens on Ethereum through the use of Merchants and Custodians to issue, burn, and custody the underlying asset
The Wrapped Bitcoin ecosystem is made up of four major stakeholders:
Custodians: BitGo is the professional custodian which holds the native asset,i.e Bitcoin which you have tokenized. Keys to mint new tokens are controlled by custodians.
Merchants: Merchants (i.e. Kyber or Republic) are the party which issues or burns wrapped tokens. Merchants play a key role in distributing wBTC to users.
Users: Users are the holders of the wrapped token who can transfer and transact the asset like any other ERC20 token within the Ethereum ecosystem.
WBTC DAO Members: The WBTC DAO (Decentralized Autonomous Organization ) members govern custodians, merchants, and users. It is the responsibility of DAO members to authorize the inclusion and deletion of custodians for any changes to a contract.
These four entities collaborate to create or destroy WBTC through the following processes known as:
For a merchant to change BTC for WBTC, the merchant must send the desired amount of BTC to the custodian( Bitgo), and then the custodian will send ERc20 token to the merchant’s Ethereum wallet address. Swapping BTC for WBTC is called minting WBTC.
When a merchant would like to swap WBTC back to BTC, he must send the WBTC back to the custodian and he will receive BTC back to his BTC wallet address. The total WBTC supply will lower by the amount of WBTC burned. This is also called burning WBTC.
Is Wrapped Bitcoin A Fork?
No, Wrapped Bitcoin is not a Bitcoin fork but it tracks Bitcoin 1:1 and brings additional capability being a ERC-20 token for chain interoperability and smart contracts.
Bitcoin forks are splits that happen in the transaction chain based on different user opinions about transaction history. These splits create new versions of Bitcoin currency.
In this case, it is not a chain split and a new chain in Ethereum blockchain that tracks the price of Bitcoin. You can think of it to be similar to Synthetix. Read our Synthetix review to understand more.
Can You Mine Wrapped Bitcoin?
No. Wrapped Bitcoin mining cannot be done because it is based on Ethereum’s ERC-20 token. Ethereum miners are confirming transactions for all of the ERC-20 token transactions, including WBTC.
How Do I Switch From BTC To WBTC?
The way Wrapped Bitcoin works is quite simple. Basically what this system does is ask Bitcoin users to send their bitcoins.
First of all, we have a user interface i.e a cryptocurrency exchange that will allow us to make a deposit of BTC in exchange for wBTC. This system issues us a Bitcoin address that is under the control of BitGo who will receive the BTC from users interested in wBTC, blocking and guarding their holdings.
Once BitGo has the BTC in its possession, a wBTC issuance order is issued for the same amount of Bitcoin that has been locked in BitGo. This issuance of wrapped tokens happens in Ethereum and is possible thanks to the smart contracts that have been built for this purpose. This issue must go to an Ethereum address since wBTC is an ERC-20 token. In the same way, the opposite can be done, being able to convert wBTC into BTC.
To maintain transparency, wBTC has a public order book. From there you can check the amount of Blocked BTC and the amount of wBTC issued. It is also possible to observe the different transactions within the system.
Bitcoin Vs Wrapped Bitcoin
Many of Bitcoin’s features are lost following tokenization into Wrapped Bitcoin, The following table takes a brief look at both BTC and wBTC.
|Start Date||3 January 2009||30th January 2019|
|Control||Bitcoin is fully decentralized||wBTC is not a decentralized token in its operation.|
|Operation||Bitcoin uses peer-to-peer technology to operate with no central authority or banks||Wrapped Bitcoin operates through custodians and has a governing body called DAO.|
|Security and Transparency||Cryptography controls the creation and transfer of a Bitcoin, and the protocols underlying bitcoin have proven to be robust.
Bitcoin’s use of a distributed ledger known as blockchain gives owners a record of all their transactions that cannot be tampered with because there is no single point of failure.
|Wrapped BTC will never have the same level of security or trustlessness as the original because it relies on people and organizations to manage the system instead of pure code.To increase trust and transparency, WBTC undergoes regular audits and publishes all on-chain transactions and verifications for the Bitcoin and Ethereum networks|
|Transaction Time||Transactions are slow Bitcoin has a 10-minute block time||Increased speed of transactions, as it takes only a few seconds.|
How Do You Unwrap Bitcoins?
Click “Unwrap” from inside your WBTC wallet.
Enter the amount of WBTC you wish to swap into BTC
Click “Confirm Unwrap” to receive BTC directly in your BTC wallet.
WBTC will be debited from your WBTC wallet and you will receive BTC in your BTC wallet. It should be noted that you will have two different wallets. You will not receive BTC in your WBTC wallet.
What Is WBTC Token?
Wrapped tokens are digital assets based on ERC-20 token (Ethereum blockchain) which allows the wrapped token to be used as a substitute on the Ethereum blockchain and hence have advantages of, for example using smart contracts, DeFi, dApps, faster transaction times, or lower transaction fees.
They are entirely built on the Ethereum blockchain. Its value is checked to be the same as its underlying assets with the help of smart contracts. It monitors its price in real-time.
Custodians exchange assets for wrapped tokens with merchants. This is done through 2 different types of transactions; minting (creation of wrapped tokens) and burning (reducing the supply of wrapped tokens). These transactions are available publicly and can be viewed by anyone through a block explorer.
Wrapped Bitcoin Airdrop WBTC
An airdrop is a token distribution method in which assets are directly transmitted to user wallets for free. Airdrop recipients do not pay for tokens received.
Typically used as a marketing tactic to create awareness around a project, airdrops can also result after a chain fork, token upgrade, or as part of a fundraising mechanism.
But the official Twitter handle of wBTC has warned investors that “any airdrop or giveaways of wBTC Iis a scam”
So you have to be careful.
How can I buy WBTC?
Buying wBTC is easy because the longevity and reputation of this token make it available on most major exchanges and they provide a variety of wBTC trading pairs.
To buy Wrapped Bitcoin, simply follow these steps:
Create an account
To get started, you need to register at a merchant account. The registration is quick and straightforward. However, you will need to verify your identity before you can participate in trades.
Deposit or buy bitcoin
You can deposit and store bitcoin on the account. Or deposit U.S. dollars or other cryptocurrencies, then trade for bitcoin.
Once bitcoin is in your wallet, you can instantly mint it to create WBTC. Just press the “Mint” button in your BTC wallet.
Wrapped Bitcoin Price Prediction
The Wrapped Bitcoin Price Prediction is that its price is pegged to the price of the underlying asset, Bitcoin. And since the usage of Bitcoin is increasing rapidly throughout the world, wBTC price will also increase along with it.
Bitcoin is the leader and definer of the up and down cycles in the market and its performance will direct the performance of all the other cryptos.
If you are looking for virtual currencies with good returns, WBTC can be a profitable investment option.
How Can I Store WBTC Token In Crypto Wallets?
The wBTC is stored as a smart contract in any of the simple cryptocurrency wallets. A public key allows others to make payments to the address derived from it, whereas a private key enables the spending of cryptocurrency from that address.
Pros And Cons Of Wrapped Bitcoin
Advantages of wBTC
Disadvantages of wBTC
Is Wrapped Bitcoin Safe?
Yes, there s a trust model in the Wrapped Bitcoin Framework. Custodians should be like trustworthy intermediaries since assets can be stolen and they might not honor the one-to-one backing. However, the whitepaper seeks to reduce confidence problems across several proactive steps.
- Third-party audits are performed to ensure that any token has an equivalent number of assets deposited with the custodians. For WBTC, evidence of reserves may be seen by publishing some individual signatures from the addresses where bitcoins are stored. It also has a Proof of Reserve (PoR) mechanism.
- The custodians cannot produce their tokens of their own, but instead, need a merchant to do so on their behalf. To produce new tokens, the custodian and the merchant must be active.
- Consumers are protected from having to deal with the merchant by many intermediary entities. A single merchant may not be trusted, but all merchants may jointly be.
- The legitimacy of both institutions is at stake in the success of the framework.
Wrapped Bitcoin Buying Process
Once you understand the risks involved with wBTC, you are ready to go ahead and give these new tokens a try.
You can open an account with official merchants where Wrapped Bitcoin is supported like Dharma, Kyber, Set Protocol, GOPAX, AirSwap, Prycto, Ren, and ETHfinex. You may need to know through KYC checks where your identity will be verified.
At many of these merchants, you also get access to multiple cryptocurrency addresses (wallets) like Bitcoin (BTC), Ethereum (ETH), Wrapped Bitcoin (WBTC) among others.
Once you are all signed up, you can simply click the “Wrap” button from inside your BTC wallet. Next, the network will pull up a prompt asking you to enter the amount of BTC you wish to convert into WBTC. Once you make that decision, you can click the “Confirm Wrap” button to process the transaction. It’s that easy.
Always be careful when withdrawing your cryptocurrency funds! Withdrawals sent to the wrong address are usually irreversible!
Wrapped Bitcoin Alternatives
Though Wrapped BTC is by far the most popular solution, it has a very good percent of the market share, it is not the only tokenized version of bitcoin.
Some of the other wrapped cryptocurrencies which are in circulation are:
renBTC, created by the Ren protocol,
BTCB., created by Binance Chain
tBTC, by Keep Network
Wrapped Bitcoin Social Media Handles
The Wrapped Bitcoin has one social media handle(Twitter) which is under operation:
Wrapped Bitcoin Official Website: https://wbtc.network/
Twitter handle: https://twitter.com/WrappedBTC
Whitepaper on wBTC: https://wbtc.network/assets/wrapped-tokens-whitepaper.pdf
Takeaway – Wrapped Bitcoin Review
As a concept, wrapped assets are excellent; they allow the owners of previously non-compatible crypto assets to invest them profitably through DApps.
Furthermore, the providers of DApps benefit from the additional capital in the market and can therefore better grow their projects. In reality, this cryptocurrency is built around transaction speed and interoperability with other chains.
The future of WBTC “is not about how the individual’s use it, but rather what the developer builds using it.” Since WBTC is a permission-less ERC20 token, it will become another building block for Defi applications. The best example of how WBTC is becoming another DeFi building block is how TokenSets blends the best of both worlds by extracting gains in both the assets.
I am a data analyst by profession who loves to crunch numbers at daytime and come home wondering how my passive income numbers for the day look like. I believe in being rich rather than looking rich. Follow me for Cryptocurrency, FIRE, Personal Finance, Credit Cards and Digital Nomad updates