Bitcoin is the world’s first, largest and most recognized crypto asset. Since bitcoin’s inception over a decade ago, the technology behind the revolutionary “peer-to-peer electronic cash system” has remained largely the same.
but bitcoin is not the beginning and the end of cryptocurrencies. On smart contract blockchains like ethereum, developers have created a thriving decentralized finance (defi) ecosystem.
Reading: What is wrapped bitcoin
To use bitcoin within the ethereum defi ecosystem, it is necessary to create an erc-20 token that represents it. this is bitcoin wrapped (wbtc), which aims to combine the best of both worlds by bringing the value and liquidity (money) of bitcoin into the dynamic and rapidly evolving world of defi.
what is wbtc?
wbtc stands for wrapped bitcoin, simply an erc-20 token that represents bitcoin: one wbtc equals one btc. a btc can be converted into a wbtc and vice versa. Being an erc-20 token makes wbtc transfer faster than regular bitcoin, but the key advantage of wbtc is its integration into the world of ethereum wallets, decentralized applications (dapps), and smart contracts. At the time of publication, there are over 280,000 WBTC in circulation.
who invented wbtc?
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Wrapped Bitcoin was launched on the Ethereum mainnet in January 2019. Wrapped Bitcoin was introduced to the world as a collaborative project between major players in the defi ecosystem, such as bitgo, ren, dharma, kyber, compound, makerdao and set protocol. , in an effort to bring more liquidity to the ethereum network by dipping into bitcoin. the project is now controlled by a decentralized autonomous organization (dao) called wbtc dao.
what makes it special?
many of the most popular defi dapps on ethereum require the use of collateral. products like makerdao and composite require users to lock crypto assets in order to borrow other crypto assets.
Because the total value of ethereum is significantly less than bitcoin, this limits how much these protocols can grow. By bringing in bitcoin, protocols get a boost in liquidity and thus can create more sources of collateral for their dapps. wrapped bitcoin also allows bitcoin holders to hold it as an asset while also using defi dapps as a compound to borrow money.
what else is different?
Since there is still a gap between bitcoin and ethereum (chains cannot natively communicate with each other), trust between people is required. Compared to btc, wrapped btc will never have the same level of security or lack of trust 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. Users can independently verify how many BTC were sent to the WBTC address on the Bitcoin blockchain, and then check whether those transactions match the creation of WBTC tokens on the Ethereum blockchain. the reverse process of burning wbtc to redeem btc can also be traced on-chain.
how are wbtc tokens produced?
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The governing members of wbtc dao decide on major updates and changes to the protocol, as well as who can take on the roles of merchants and custodians managing the system.
Users who hold btc and want to convert it to wbtc need to interact with merchants. Merchants start the process of minting or burning WBTC tokens by performing verification procedures to confirm the identity of users. Custodians hold the actual BTC that is wrapped and perform the minting and burning of tokens on the Ethereum blockchain. when wbtc is written, the custodian returns btc to the user. when a new wbtc is minted, the btc is taken from the user and stored by the custodian.
how do you get wbtc tokens?
since wbtc is an erc-20 token, it can be traded on decentralized exchanges (dexs) like kyber or uniswap. if you want to exchange btc for wbtc there are several platforms available including atomic wallet, coinlist and poloniex.
what can you do with wbtc?
wbtc can be used in defi for lending, lending, token swapping, yield farming, and in liquidity pools. Some defi platforms that support wbtc include aave, balancer, composite, kyber network, makerdao, and uniswap.
the future
The future is less about how people use wbtc and more about what developers build using it. As a permissionless erc-20 token, wbtc becomes another building block for defi applications in the growing “lego money” ecosystem. as defi grows, so will the use cases and applications for wbtc.
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