Bitcoin continues to lure investors/traders by the hundreds! Of course, there are many features to commend it. At the same time, it has its drawbacks too. Its functionality seems limited at times, in comparison to that of other tokens. For instance, it cannot operate on the Bitcoin Holdings.
To make up for this, developers have come up with Wrapped Bitcoin. It gets along comfortably with the Ethereum blockchain.
It is commonly known as WBTC, a tokenized version of Bitcoin. Three organizations, Ren, BitGo, and Kyber Network, founded it. As developers, they are highly valued in the world of BEST DEFI CRYPTO (DeFi).
Its origin in 2019 was inspired by Ethereum’s speedy transactions and the popularity of Dapps. Therefore, it is an ERC-20 token or an Ethereum standard token. It imitates Stablecoins, which remain tied to the values of specific currencies. Therefore, one wrapped Bitcoin is equivalent to one Bitcoin. The former will always have the backing of the latter, as Bitcoins remain in provable reserves.
Minting WBTC is not an easy process. In fact, people may even complain that it is time consuming.
Here is a step-by-step explanation of what happens.
- Let’s say, you possess a sizeable amount of Bitcoin tokens. You wish to use the Ethereum blockchain for transferring them. Alternatively, you may wish to develop apps on the Ethereum network.
- You will need verification from a trusted merchant, first. The merchant must know that you are trustworthy. Therefore, a third party or a custodian (for now, BitGo) is brought into the picture.
- Since the custodian knows you and trusts you, you will receive the requisite WBTC. The quantity is equivalent to the number of Bitcoins that you are willing to exchange for WBTC.
- The transfer takes place from the custodian’s account to the merchant’s wallet. This wallet is compatible with the Ethereum blockchain.
- Finally, you may opt for a cryptocurrency exchange or a peer-to-peer transaction, for the next step. Your Bitcoins reach the merchant. The merchant sends you Wrapped Decentralized finance Bitcoins.
Your Bitcoins are the reserve backing for your WBTC. The proof of your entire dealing is visible in the public ledgers that Ethereum and Bitcoin use.
Whenever you want your Bitcoins back, go back to the merchant. Place a request. The merchant burns your WBTC, indicating that you have no more in reserve.
Uses of WBTC
Purchases/sales/exchanges are easy to handle with wrapped tokens. They save your time and effort.
Getting Smart Contracts
Thus far, Bitcoin has never been a part of smart contracts. However, with WBTC in evidence, Bitcoin may discover a change in its favor.
Everyone knows that the bitcoin network is slow in comparison to the Ethereum one. Fortunately, for you, your Bitcoin reserves are in perfect alignment with the Ethereum blockchain now. WBTC is there for support.
Several centralized digital currency exchanges consider Bitcoin as the ultimate leader in the trade arena. However, it is not successful on decentralized platforms. Here, Ethereum comes into its own.DEXs are the decentralized crypto exchanges.
WBTC makes it possible for Bitcoin to use both types of exchanges.
Tokenizing of Fiat Currencies
Global acceptance of WBTC would permit the tokenizing of various fiat currencies. The ERC-20 standard would then come into play. For instance, U.S. dollars, Euros, etc., could be held in reserve. In turn, it would become possible to mint tokens that were prize-stable. They would go straight onto the blockchain, without the necessity of conversion.
Wrapped Bitcoin vs. Bitcoin
With both the assets in circulation, people are bound to wonder which is better. The truth is that there is no comparison at all!
Both have their uses. Your goals will prove the ultimate decision-makers. It also depends upon your current situation in the crypto world.
Bitcoin is marvelous for building up value. This stored value can prove immensely useful during a monetary crisis. In contrast, Wrapped Bitcoin is excellent for decentralized transactions and development of Dapps.
If you are looking to invest in WBTC, you must examine your needs first. Then, look at your portfolio strategy. Since its value is equivalent to that of Bitcoin, then you will benefit during a price rise.
Thus, judge every aspect in depth before investing.