The Tail of Two Tokens, A Comparison Between WBTC and LBTC

  • LBTC is issued by Liquid network which runs parallel to the Bitcoin network.
  • WBTC is ERC-20 standard token, developed for using Bitcoin over the Ethereum network. 

Bitcoin, the ancestor of all the cryptocurrencies and blockchain networks, is wise but suffers from old age. It is highly popular, trusted, and decentralized but experiences the pain of scalability and high transaction fees. Due to its activeness in the early years, it was a cherished person-building career, inviting developers and users, creating value, and becoming successful in it. However, the same popularity and traditional consensus method gave rise to network congestion leading to higher network fees.

Learning from it and helping their old uncle, the later networks were focused on providing scalability solutions with higher transaction speed and low gas fees. Also, there was a need to utilize the potential of a coin of such value on other platforms as well, like Ethereum, which was house to many DeFi-centered applications. These needs gave rise to the development of two prominent tokens namely the Liquid Bitcoin (LBTC) and Wrapped Bitcoin (WBTC). 

Utilizing the Value through WBTC

Ethereum hosts several DeFi apps and they have become a crucial part of modern cryptocurrency-centered transactions and trading. However, since Bitcoin does not support smart contracts, the use of Bitcoin was limited to its blockchain only. Users had to depend on centralized exchanges like Coinbase or Kraken. This limited users to use Bitcoin to its full potential.

The solution came in the form of WBTC, which is an ERC-20 standard token on the Ethereum main net. It was launched in January 2019 and is pegged to Bitcoin in a 1:1 ratio. Any user who wishes to mint WBTC can do so by sending Bitcoins to a recognized WBTC merchant. The merchant performs Anti Money Laundering (AML) and Know Your Customer (KYC) checks.

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After completing them, this BTC is then sent to a custodian who drops it in the reserve address and issues the equivalent amount of WBTC to the merchant which is then sent to the user. WBTC tokens are always backed by Bitcoin tokens. They can be used in decentralized exchanges (DEXs) on Ethereum. Currently, there is more than $4.8 Billion value locked up in WBTC according to Coinbase. 

Quicker and Cheaper Transactions through LBTC

Liquid Network is an independent sidechain that runs parallel to the original Bitcoin chain and is a layer-2 solution to provide scalability and improve performance. It was launched in 2018, by Blockstream to provide fast and confidential transactions. Although it uses the same base code as Bitcoin, it has its separate ledger and unique consensus method. This gives rise to LBTC, a tokenized form of Bitcoin. 

While Bitcoin depends on Proof of Work (PoW) consensus, the Liquid network depends on its Liquid Federation for block creation and transaction validation. This body is made up of several crypto-based companies serving as exchanges, game developers, trading desks, and more. The list includes Coincheck, Coinone, aquanow, and several others. 

A subset of this federation with 15 members performs all the functions in the liquid protocol. These include proposing new blocks successively and managing the two-way Bitcoin peg. The LBTC is pegged in a 1:1 ratio with Bitcoin and is burned or created in an equal ratio as locked in the network. 

Comparing LBTC and WBTC

Both were designed to serve different purposes and based on their needs a user may choose between either of them. LBTC was designed mainly to offer faster and more private transactions than possible over the Bitcoin mainnet. As it follows a more rapid consensus mechanism the transactions can be completed in just 2 minutes compared to the present 10-minute block time in Bitcoin. 

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WBTC was designed mainly to bridge the gap between Ethereum and Bitcoin and is widely used by investors who wish to harness the power of Ethereum through the value of their Bitcoin holdings. Both the tokens, nevertheless, broaden the perspective of Bitcoin and our powerful tools for users and investors.

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