There was a time when Bitcoin was the hot news in all forms of media. There were confusions regarding its credibility and liquidity. Now, flouting all of that in air, comes the wrapped Bitcoins amidst all the discussions about wrapped tokens. What is Wrapped Bitcoin or WBTC? Is Wrapped Bitcoin a good investment? - Get all your questions answered in this post!
What is WBTC or Wrapped Bitcoin?
WBTC (Wrapped Bitcoin) is nothing but an ER- 20 token which bridges the differences between Bitcoins and Ethereum Blockchain. WBTC integrates itself to the domain of Ethereum wallets, dapps and smart contracts while retaining a connection with the world of Bitcoins. This initiative helps the owners of Bitcoins to bring in the value of it to the programmability of Ethereum through a combination. 1 Bitcoin can be converted into 1 WBTC through a WBTC partner.
This conversion can be done through numerous platforms that are available online today. The reversibility of this process makes it easier and convenient for the users to juggle between BTC and WBTC. The 1:1 ratio of Bitcoin supported WBTC is transparently verified through a “proof of reserve” system. It allows the users to participate in Decentralized Finance which is also known as DeFi.
Types of WBTC models
Although they differ in the terms of procedures, they unite when it comes to the end result. They are all BTCs in the Ethereum platform at the end of the day. The following are a few important and popular WBTC models -
Centralized BTC wrapping model
Here the owner gives the BTCs to a centralized intermediary where they crypto up your Bitcoins and issue a Ethereum- 20 token which corresponds with the value of Bitcoin. Here you are completely dependent on the intermediary for your wrapping. BitGo is an example.
Trustless BTC wrapping model
Unlike the one mentioned earlier, here the wrapping is more decentralized. The responsibilities of the intermediary are transferred to the smart contract. Since the BTC is locked in a network contract, the platform cannot update or adjust it without your approval. Hence it becomes a trust-less system.
In this case, a synthetic asset of the same value is issued after the Bitcoin is wrapped into a smart contract. The asset is not backed by the BTC but the native tokens and liquidity pools.
6 Reasons why WBTC is a Good Investment
The advantage of wrapped Bitcoins over Bitcoins and any other cryptocurrencies are many. The overarching support of the Ethereum blockchain is what gives WBTC an upper hand over the others. There are however some disadvantages like delay in blockchain and cryptocurrencies coming to the mainstream. However, there is no doubt that the benefits outweigh the risks. Here are a few reasons why WBTCs are a good investment.
1. Alliance with Ethereum Blockchain
Ethereum is the largest ecosystem as far as any cryptocurrency is concerned. The very integration of Bitcoin with Ethereum is beneficial for the user due to its large reachability and exclusive facilities like dapps, DEXs, games etc. Through this integration, Bitcoin users can gain access to Decentralized Finance without having to lose any Bitcoins.
The liquidity offered by WBTC is diverse and spread out because of Ethereum. This is especially when various instances have shown us how various functionaries like Decentralized Exchanges lack the required liquidity to function to their maximum potential. In the case of WBTC, this lack does not come up at all and rules out chances for functioning in a way less than the best.
Flexibility or Scalability of the wrapped Bitcoin is another important reason why this investment is really good. After wrapping, WBTC exists in the Ethereum blockchain rather than Bitcoin itself. This makes transactions easier and cheaper.
4. Decentralized Finance
The advent of DeFi has in fact paved the way for WBTC. It has transformed centralized finances to a decentralized one. Today users have been allowed to replace banks and have been facilitated with the option for providing liquidity in return for rewards as far as popular apps like Compound is concerned.
5. Better Functionality
As mentioned earlier, the integration with Ethereum has opened a wide expanse of opportunities for Bitcoin users. They can make use of the facilities like smart contracts to leverage WBTC. BTC lacks this facility. Smart contracts being self-executing pre-programmed protocols give tremendous impetus to the blockchain sector.
6. Yield Farming
This is another DeFi protocol that allows users to lend out their crypto currencies for interest. It is a passive income for many which is not granted by any other blockchain sectors. The popular app, Compound allows this to be done among many others.
WBTC (Wrapped Bitcoins) - FAQs
What is WBTC or Wrapped Bitcoin?
WBTC (Wrapped Bitcoin) is an ER- 20 token which bridges the differences between Bitcoins and Ethereum blockchain. WBTC integrates itself to the domain of Ethereum wallets, dapps and smart contracts while retaining a connection with the world of Bitcoins.
Is WBTC the same as BTC?
WBTC stands for Wrapped Bitcoin and is simply an ERC20 token that represents Bitcoin. One WBTC equals one BTC. BTC can be converted into WBTC and vice-versa.
Is WBTC backed by BTC (Bitcoin)?
WBTC is an Ethereum token that's backed one-to-one by bitcoin (BTC), which means that one WBTC is always equal to one bitcoin.
Is Wrapped Bitcoin a Good Investment?
The advantage of wrapped Bitcoins over Bitcoins and any other cryptocurrencies are many. The overarching support of the Ethereum blockchain is what gives WBTC an upper hand over the others. Better functionality, scalability, liquidity, decentralized finance are some the advantages of WBTC.
While WBTCs are safe and a good investment, one must watch out for any kind of frauds or theft that can likely happen in this situation. It must also be noted that WBTC is just a Bitcoin in the Ethereum platform and there is absolutely no difference in values. Blockchains are the pioneers of a new tech revolution. Embrace it first before everybody follows your suit.