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what is wrapped bitcoin

What is Wrapped Bitcoin (WBTC)? A Beginner’s Guide

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  • Wrapped Bitcoin (WBTC) is a project created by BitGo, Kyber Network, and Ren to facilitate the interaction between different blockchains.
  • The main goal of WBTC is to use the advantages of BTC in the Ethereum blockchain.
  • WBTC is designed to bring the value and stability of Bitcoin to Ethereum’s ever-growing ecosystem of decentralized applications.
  • The key goals of the project are: 1) To optimize Bitcoin for decentralized use cases within the Ethereum ecosystem via standardizing Bitcoin to the ERC-20 format; 2) To help BTC owners take advantage of DeFi applications based on Ethereum; 3) To introduce Bitcoin to other blockchains in a convenient way.

 

If you’re new to cryptocurrency, you may have heard of Bitcoin (BTC) but wondered what it is. BTC is a digital currency used to purchase goods and services online. But what if you want to use your Bitcoin in physical stores? Well, that’s where Wrapped Bitcoin (WBTC) comes in. WBTC is a tokenized version of Bitcoin that can be stored on Ethereum-based wallets and used in transactions like regular cryptocurrency. In this guide, we’ll explain what WBTC is and how it works.

What is Wrapped Bitcoin?

Wrapped Bitcoin is a tokenized version of Bitcoin that is backed 1:1 by BTC. This means that for every WBTC in circulation, custodians store an equivalent amount of BTC securely. WBTC can be traded on decentralized exchanges (DEXes), used to yield farms, or lent out on lending platforms. One advantage of WBTC over BTC is that because it’s an ERC20 token, it can be stored in any Ethereum-based wallet. This makes it more convenient for users who want to use their BTC in DeFi applications but want to avoid going through the hassle of transferring their BTC from a non-Ethereum wallet to an Ethereum wallet. 

How Does Wrapped Bitcoin Work?

WBTC works by wrapping BTC into an ERC20-compliant token. When BTC is deposited with a custodian, they mint an equivalent amount of WBTC and send it to the user’s Ethereum wallet. When the user wants to redeem their WBTC for BTC, they send the WBTC back to the custodian and burn the tokens. This process wraps BTC into an ERC20 form so that it can be used in DeFi applications while still being backed 1:1 by actual BTC. 

There are four key participants in the WBTC system: Custodians, Merchants, Users, and WBTC DAO Members. Custodians store the physical Bitcoins that back WBTC tokens. Merchants are entities that allow users to swap Bitcoin for WBTC or vice versa. Users are individuals who hold either BTC or WBTC tokens. Finally, WBTC DAO Members govern the WBTC system. They decide how to allocate funds and how to grow the ecosystem best.

A user requests a merchant to perform a Bitcoin to WBTC swap or backward. The merchant then submits this request to a custodian. After the custodian verifies that the user has the required amount of BTC, they will create an equal amount of WBTC and send it to the user’s wallet. The whole process usually takes about 1-2 hours.

Why Use Wrapped Bitcoin?

There are a few reasons why you should use WBTC over regular BTC. First, as we mentioned earlier, WBTC is much more convenient to use in DeFi applications because it can be stored in any Ethereum-based wallet. Secondly, because WBTC is backed 1:1 by actual BTC, you can be sure that your funds are always safe and secure. Finally, using WUSB could potentially help you earn more interest on your BTC because it opens up new avenues for earning interest, such as yield farming and lending platforms. 

Conclusion

Wrapped Bitcoin is a great way to use your BTC in DeFi applications while maintaining the safety and security of your original investment. However, Bitcoin and Wrapped BTC are two different types of cryptocurrency with their own distinct advantages and disadvantages. Wrapped BTC might be the right choice for you if you’re looking for stability, transparency, and smart contract functionality. On the other hand, if you’re more interested in owning a finite asset, then Bitcoin might be a better option. Ultimately, the decision comes down to personal preference.

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