What Is A Wrapped Bitcoin?
Wrapped Bitcoin WBTC was introduced to effectively bridge Bitcoin to the Ethereum blockchain using the ERC20 token making it possible to create smart contracts backed by Bitcoin with a 1:1 ratio to the token. The ultimate goal is to combine Bitcoin’s price value with Ethereum’s programmability which will greatly help traders, Dapps, and institutions working on the Ethereum network to maintain exposure to Bitcoin. It makes it easier to write smart contracts and integrate them into Bitcoin transfers.
Where Can I Buy WBTC?
- Create an account-You will need to have your ID information ready and for added security, a 2-factor authentication setup will be required.
- Buy or deposit Bitcoin-CoinList offers a free wallet so you can deposit and store bitcoin on their platform. You can also deposit US dollars to purchase Bitcoin. Cryptocurrencies like USDT, USDC, ETH, LINK, FIL, UNI, MKR, and a few more are accepted that you can exchange for bitcoin.
- Create WBTC-You can instantly create your WBTC by pressing the “Mint” button in your Bitcoin wallet.
The ratio of your mint will always be a 1:1 ratio with Bitcoin. CoinList has a flat fee that is small at only 0.25%. Other fees you may have to endure are:
- Custodian fees: These fees are taken by the custodian when the merchant mints their wrapped Bitcoin.
- Merchant fees: These fees are taken by the merchant when the holder of the WBTC exchanges their tokens for native BTC.
- Sidechain transaction fees: This fee is shared equally among all those running sidechain nodes. It is predominantly aimed at preventing spam on the sidechain.
Why Convert BTC To WBTC?
You may ask yourself “why would I want to convert my Bitcoin over to WBTC?” The quick answer would be because WBTC runs on the Ethereum network which has the largest ecosystem of any other cryptocurrency. Also, Ethereum’s network includes an exclusive wallet, Dapps, DEXs, games, and smart contracts. Access to Decentralized Finance (DeFi) lending and other borrowing networks without giving up their Bitcoin directly. There are many other reasons to use WBTC.
- Liquidity- Ethereum’s ecosystem is spread out and diverse. Decentralized exchanges (DEXs) and other platforms can sometimes lack the liquidity to function at their optimal level. WBTC will bring greater liquidity allowing users to trade their tokens more quickly and for the amount they desire.
- Scalability- This major advantage is gained when wrapping Bitcoin because wrapped tokens exist on Ethereum’s blockchain where transactions are faster with lower costs. It also adds more transaction and storage options.
- DeFi BTC- It is said WBTC is the reason for the expansion of DeFi as it seeks to transform the traditional centralized financial services into a decentralized version that allow users to replace banks.
- WBTC Staking- Platforms like CoinList allow you to earn rewards by staking WBTC in your network wallet rather than locking your cryptocurrency in a smart contract for an agreed time in exchange for rewards.
- Yield Farming BTC- This protocol is slightly different than staking. Farming protocols use shorter lockup periods and they can allow the network user to lend out their crypto with interest.
As a new user, blockchain explorers are helpful tools that can guide you to understanding how blockchains work. They are also needed to provide the transparency that is required for the Wrapping BTC may look to be the future of DeFi on the Ethereum network but there are still hurdles that will need to be addressed before it can be fully adopted. There is always a risk that the platform you are using could somehow unlock the real BTC and leave you holding fake WBTC. Centralization is another issue facing WBTC. Any time you have a third-party involved in handling large amounts of Bitcoin, you stand the chance for a concentration of power.