What Is Wrapped Bitcoin (WBTC)?

For any user who starts using BTC in decentralized financial applications, the most important drawback is the lack of a bridge connecting BTC to Ethereum. Let’s get to the bottom of it in this Wrapped Bitcoin review.

How does wBTC work?  

What is Wrapped BTC? 

Wrapped Bitcoin (WBTC) is a wrapped token initially launched on the ERC20 standard on the Ethereum network. WBTC is backed by Bitcoin, so the denomination of the token always matches the BTC’s worth.

The original idea in the essence of Wrapped Bitcoin is to enable the compatibility of the first cryptocurrency with the Ethereum blockchain, the resulting products, and other networks accepting ERC20 tokens. Nowadays, Wrapped Bitcoin is also supported by the Tron ecosystem in the TRC20 standard. 

Let’s take a look at the principles of how WBTC works. In addition to users, the issuance of WBTC involves

• Custodians performing a bank’s functions. Custodians hold Bitcoins in their accounts, which back up WBTC tokens. In the Wrapped Network, the BitGO service acts as a custodian.
• Traders initiate the WBTC minting or burning. They create a smart contract that transfers BTC to the custodians and issues a similar amount of WBTC. DEX exchanges act as traders.
• DAO Management Community votes on protocol changes, and choice of custodians and traders and consists of DeFi companies using the Wrapped Network protocol.

What Are the Benefits of Wrapped Bitcoin?  

The biggest advantage of Wrapped Bitcoins is that it combines the strengths of Bitcoin and Ethereum. While Bitcoin has a titanic user base and a huge pool of liquidity, Ethereum provides a powerful technology platform. Ethereum’s most important service feature is smart contracts that facilitate complex transactions. 

Connecting BTC to the Ethereum ecosystem also facilitates exchanges, wallets, and payment services. Typically, these services must run two separate nodes: one for BTC and one for ETH. When working with WBTC, you can only run the work using an Ethereum node.

With the Ethereum blockchain as the backbone, WBTC transactions can also be done much faster. 

The underlying WBTC blockchain is Ethereum, which also secures WBTC. The Ethash proof-of-work mechanism protects it.

Who Created Wrapped Bitcoin?  

WBTC is a product of three organizations: BitGo, Kyber Network, and Ren.

BitGo was founded in 2013 as an institutional-level custodial service provider. BitGo acts not only as the developer of WBTC but also as the initial custodian of its reserves.

Kyber Network is a blockchain-level liquidity provisioning protocol that enables the integration of various cryptocurrency tokens into DeFi application software. The platform acts as a merchant in the WBTC system, participating in the process of issuing and burning tokens.

Ren specializes in integrating different blockchains and DeFi applications into them, using solutions such as RenBridge and RenVM.

The WBTC project was announced in October 2018. Since then, the WBTC technical specification has been created and brought to a working state, and many security audits have been conducted. The custodians responsible for storing Bitcoins and issuing WBTC have been strictly selected and included in the WBTC DAO (Decentralised Autonomous Organisation) consortium.

What’s the difference between Bitcoin and Wrapped Bitcoin?  

Wrapped Bitcoin vs Bitcoin has several hallmarks:

• Regular Bitcoin functions on its native blockchain technology, while wrapped Bitcoin is predicated on the Ethereum blockchain, which provides for smart contracts and other features of this platform.
• WBTC provides reverse conversion between BTC and WBTC. Users can lock their BTC to receive an equivalent plurality of WBTC and then reverse-release their BTC assigned to WBTC. This permits users to participate in the Ethereum ecosystem using their Bitcoins.
• WBTC requires the participation of custodians, who are responsible for storing and releasing WBTC. This makes WBTC less decentralized compared to Bitcoin, where users can manage their funds independently. However, the WBTC project aims to provide a high level of security and safe storage.
• WBTC allows for improved liquidity for Bitcoin in the Ethereum ecosystem. Users can use WBTC to trade on decentralized exchanges, participate in DeFi credit and financial protocols, and for other smart contract transactions.
• WBTC has undergone several security audits to ensure transparency and trust in its operation and asset custody.

WBTC’s features make it a convenient tool for users wishing to use Bitcoin in the Ethereum ecosystem and access DeFi features without leaving the BTC blockchain.

How do you get hold of wBTC tokens?  

What is WBTC? Here are the basic steps of the WBTC token creation process:

• Agreement: The Bitcoin (BTC) owner wishes to create WBTC and agrees with one of the WBTC participants, called a “bridge,” which acts as a custodian. Bridges are trusted organizations or participants that hold BTC and issue a corresponding amount of WBTC.
• Bitcoin Blockchain: A BTC owner transfers his or her Bitcoins to a bridge (custodian). The custodian freezes these BTC in his/her wallet.
• WBTC issuance: After receiving the Bitcoins, the custodian issues an equivalent amount of WBTC on the Ethereum blockchain. This is done by creating and sending the appropriate number of ERC-20 WBTC tokens to the address specified by the BTC owner.
• Storage and Audit: The custodian stores the Bitcoins that have been frozen and undergoes regular audits to ensure transparency and security of asset storage.
• Reverse Process: If a WBTC owner wishes to release their BTC, they contact the bridge and transfer the WBTC. The custodian verifies the authenticity of the WBTC and releases the appropriate amount of BTC, which is returned to the holder.

It is important to note that the process of creating and releasing WBTC requires trust in the custodian, as the custodian is responsible for storing and releasing WBTC. The WBTC project endeavors to work with trusted and verified custodians to ensure the safety and security of the system.

How Can I Buy wBTC?  

Many official sellers support trading with Wrapped Bitcoin. Some of these sellers make the buyer undergo KYC checks. If you want to buy WBTC anonymously, you can use decentralized exchanges or through the exchange process on the Godex crypto conversion service.

To buy WBTC, you must first fund your wallet with BTC. During the purchase, bitcoins are debited from the BTC wallet and WBTC is credited to the WBTC wallet. Two different wallets are involved in the transaction.

Conclusion  

WBTC is poised to become one of the most successful cryptocurrencies in the Ethereum ecosystem. The combination of Bitcoin’s liquidity and Ethereum’s technological advantage will help solidify Wrapped Bitcoin’s position as one of the leading names in the world of cryptocurrencies. Additionally, WBTC will move forward with Ethereum’s and Bitcoin’s growth. 

The future depends not so much on how people use WBTC, but on what developers create with it. As an unauthorized ERC-20 token, WBTC becomes another building block for DeFi applications in the growing ecosystem of “Lego money”. With the growth of DeFi, the use cases for the WBTC app will multiply.

FAQ  

How many wrapped Bitcoins are there?  

Wrapped Bitcoin involves holding cryptocurrency in reserve through the BitGo trust. The amount of WBTC in circulation is publicly disclosed to maximize transparency. As of May 2024, there are 155,500 WBTC in circulation.

Where can I purchase Wrapped Bitcoin (WBTC) tokens, and what platforms support WBTC transactions?  

WBTC coins are traded on centralized cryptocurrency exchanges, including Binance, OKX, Currency.com, Bybit, Huobi, MEXC, EXMO, Phemex, and FTX. In addition, it can be bought in exchange for other coins on the crypto exchange Godex in just a couple of clicks.

How does the process of wrapping Bitcoin into WBTC work, and is it a secure method?

The momentum of releasing WBTC begins by depositing Bitcoin to a special address that is controlled by a custodial service. After confirming receipt of the Bitcoin, a reciprocal amount of WBTC is issued on the Ethereum blockchain. This process guarantees that each WBTC is backed by real Bitcoin on a 1:1 basis. Every WBTC operation is subject to auditing and registration on the Ethereum blockchain with the objective to ensure a full transparency and traceability.  

Disclaimer: Please keep in mind that the content of this article is not financial or investing advice. The information provided is the author’s opinion only and should not be considered as direct recommendations for trading or investment. Any article reader or website visitor should consider multiple viewpoints and become familiar with all local regulations before cryptocurrency investment. We do not make any warranties about reliability and accuracy of this information.