By wrapping Bitcoin into an ERC-20 token, users can utilize wBTC in various DeFi protocols on Ethereum. This opens up a wide range of decentralized financial services like lending and borrowing, yield farming, and staking, which are typically unavailable to native Bitcoin holders. With the help of wrapped tokens, users don’t need to transfer their assets on one chain to a centralized exchange, convert it to another asset, and send it to another compatible chain. Instead, they can get their hands on a wrapped token representing their original asset.
Who Created Wrapped Bitcoin?
- To understand this better, let’s take a look at how wrapped crypto actually works.
- Now that we’ve understood how wrapped tokens work, let’s check out what benefits they offer.
- Currently, the same would be the case with users of different blockchains if not for wrapped tokens.
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This Bitcoin token can integrate with Ethereum-based wallets, DeFi applications, and smart contracts. Because of this functionality, wBTC can move between Ethereum wallets, exchanges, and services much more rapidly how do you git rebase a branch solutions to git problems than BTC. However, most DeFi proponents advise against using a wrapped token managed by a centralized entity. This is because a central entity may, at any point, defraud its users by tampering with the asset reserves.
The Benefits of wBTC
Simply put, you convert the amount of BTC you hold into equivalent wBTC you can then use on the Ethereum blockchain. The goal of Wrapped Bitcoin is to bring the advantages of Bitcoin to the Ethereum ecosystem. The creators of Wrapped BTC recognized that while Bitcoin is the most well-known and widely-used cryptocurrency, it’s limited in its functionality compared to other blockchain networks like Ethereum.
According to DeFi analytics hub DeFi Pulse, the total value of the wBTC market grew from $665 million to $848 million between August 1 and September 20, 2020. Before wBTC, there was no way to take advantage of smart contracts and decentralized applications (dApps) with Bitcoin, as it can’t natively run on the Ethereum network. However, with the introduction of wrapped Bitcoin tokens, users can now access Ethereum’s smart contracts and dApps by leveraging BTC in a form that is compatible with the Ethereum blockchain. Wrapped Bitcoin (WBTC) is an example of how blockchain technology continues to bridge the gap between different ecosystems to create a more interconnected and accessible financial system. Wrapping bitcoin for Ethereum interoperability has shattered both technical and conceptual boundaries.
The INX Digital Company inc. is an expert in the field of finance, crypto and digital securities. Unlike wBTC, you can get HBTC directly by depositing BTC into your Huobi Global Exchange account without going through any merchant. In this guide, we explore what exactly is wrapped Bitcoin (wBTC), how it works, and why it matters to you as a crypto investor.
If you prefer decentralized finance (DeFi), you can use an option like Keep Network to mint wBTC tokens directly using a smart contract. WBTC bridges Bitcoin and Ethereum, enabling users to seamlessly transfer value between the two largest blockchain networks. This interoperability allows Bitcoin holders to access Ethereum’s vast range of applications without selling BTC.
Are there other Types of Wrapped Bitcoin Tokens?
Stacks offers a trustless approach, but the scope of sBTC is limited to the Stacks protocol. The amount of BTC that has been converted into wrapped tokens is rising, too. According to DeFi Pulse, the total value locked in WBTC surged by 943% from mid-May to mid-August 2020. Apart from WBTC, there how to buy vancat are several other wrapped tokens such as WETH, WMATIC, renBTC, WFTM. Across the DeFi space, there are multiple wrapper platforms issuing such tokens.
What Is Wrapped Bitcoin?
WBTC enhances liquidity within Ethereum’s ecosystem by allowing Bitcoin’s significant market value to be used in Ethereum-based applications. This increased liquidity helps strengthen DeFi protocols and allows for larger-scale financial activities. When someone wants to convert their Wrapped BTC back to Bitcoin, they initiate a “redemption request” with the custodian. The custodian then burns the wBTC tokens and sends the equivalent amount of Bitcoin to the user’s crypto wallet. Furthermore, the Ethereum ecosystem gets additional liquidity by making it possible to use Bitcoin for token trades. As Bitcoin currently holds the largest market cap, its access to more market value increases liquidity on Ethereum.
A standard use for wBTC is as collateral, or a pledge for loan repayment, when taking out a cryptocurrency loan on DeFi platforms. Upon development document an overview repayment of the crypto borrowed, the collateral, in the form of wBTC, is returned. Speaking of security, nothing comes close to hardware wallets such as Ledger Nano S Plus, Ledger Nano X, Ledger Flex, and Ledger Stax in terms of securing your assets. Users can directly exchange their existing ERC-20 tokens to wrapped Bitcoin and back as it behaves just like any other fungible Ethereum token. Merchants can follow a similar process to request to burn WBTC on the Ethereum blockchain and free an equal number of BTC on the Bitcoin network.