- Wrapped Bitcoin is a token associated with bitcoin price that is minted in Ethereum.
- WBTC is minted by BitGo, a single custodian and is exchanged for BTC given by merchants.
- WBTC is held as collateral in a specified 1:1 ratio.
WBTC (Wrapped Bitcoin) is a token representing bitcoin (BTC) on non-Bitcoin blockchains such as Ethereum. WBTC advanced on the Ethereum blockchain in 2019 with a collaborative effort of 15 decentralized autonomous organizations (DAO) and 26 partners, including Dolomite, Dharma, Idex, Blockfolio, etc. WBTC is referred to as an ERC20 token backed by Bitcoin.
Importance Of Wrapped Bitcoin And Its Security Through BitGo
WBTC is a crucial entity as it shows the bitcoin price exposure for users of DeFi (Decentralized Finance). It also makes a BTC-linked asset that is available outside the native blockchain and is traded against ether and other ERC-20 tokens. Held bitcoin tokens are collateral with a custodian, which sustains WBTC tokens that are minted on Ethereum.
BitGo is leveraging its industry-leading custody solution to ensure the safe and secure storage of WBTC. Along with that, it also facilitates proof of assets for the token, which is fully backed up. WBTC has a transparent public dashboard for the validation of the WBTC circulation and quantity of stored Bitcoin.
For the trade of Bitcoin on Ethereum, Bitcoin must exist swiftly in an Ethereum-friendly format. ERC-20 is a general token standard that drives the compliance of digital assets to certain specifications on its blockchain. This enables them to be fully fungible, unlike NFTs and they are dynamically used across smart contract protocols.
How Is The Wrapped Bitcoin Token Used?
WBTC can be utilized like other ERC-20 tokens on the Ethereum blockchain. That implies that it can be beneficial for the DeFi protocols or that it can be traded on centralized exchanges as an alternative to Bitcoin since its value gives away the estimated BTC price.
Retail crypto users can also attain WBTC through DEXs like Uniswap or centralized exchanges. This gives them the desired exposure to Bitcoin on other blockchains without any need to directly wrap or unwrap their Bitcoin with WBTC’s custodians. WBTC is backed by cryptocurrency. The supply of WBTC is dependent on the quantity of BTC held by BitGo as collateral.
WBTC is collaterally held in a 1:1 ratio and then it is distributed by the merchants to the broader crypto community. It is also considered a stablecoin, which is backed by crypto. WBTC funds are generally published on the wbtc.network website, which functions as a proof of reserves.
Conclusion
Wrapped Bitcoin was expected to facilitate additional liquidity for DEX (Decentralized Exchange). However, further developments have shown many more use cases. Initially started with decentralized lending, it also offers decentralization and insurance, which can be built on top of its framework on its own without anybody’s involvement. It has been quite thrilling to see the unbound potential for new developments.
