While decentralized finance (DeFi) may present endless opportunities, a number of issues may prevent it from achieving its goal of competing with the current centralized economic system. This is where Wrapped Bitcoin (WBTC) comes in. So what is Wrapped Bitcoin (WBTC) ? Is WBTC the same as BTC? This article will discuss WBTC.
What is Wrapped Bitcoin (WBTC)?
As the Ethereum DeFi ecosystem grows, Bitcoin holders increasingly want to get involved. Enter the ERC-20 token Wrapped Bitcoin, a 1:1 representation of BTC.
Wrapped Bitcoin (WBTC) is an ERC-20 token whose value is pegged to Bitcoin. This means that it is a representation of Bitcoin that can run on the Ethereum blockchain. Due to its reliability, Bitcoin is one of the most prominent wrapper tokens in the DeFi ecosystem.
When a user wishes to exchange BTC to WBTC, he/she needs to send his/her BTC to the merchant. The merchant will initiate a WBTC minting request and send the user's BTC to the custodian. The custodian will then mint the corresponding WBTC, which will then be transferred to the user through the merchant.
Wrapped tokens are essential due to the features and applications provided by different blockchains. For example, unlike Bitcoin, Ethereum's blockchain contains smart contracts that allow decentralized applications (DApps) to be launched on it.
Is WBTC the same as BTC?
Although Bitcoin and Wrapped Bitcoin have the same price, they are completely different assets. WBTC runs on the Ethereum blockchain, while BTC runs on the Bitcoin blockchain.
For example, let's say you own a lot of Bitcoin tokens. You want to send money via Ethereum, or you want to develop some dapps on the Ethereum blockchain. You want to use your bitcoin tokens, but you can't. So, instead , you go to a trusted merchant who will take the time to verify your identity and make sure everything is in order.
Next, the merchant goes to a custodian (currently BitGo), which is a trusted third party. Custodian issues ERC-20 tokens identified as Wrapped BTC. The number of WBTC tokens is equal to the number of Bitcoin tokens you committed to provide. So far, you have kept your BTC.
Wrapped Bitcoin offers more usability as it runs on the Ethereum blockchain. However, it cannot be stored in a Bitcoin wallet. To store WBTC, you need an Ethereum wallet.
Conclusion
From this article, you will have knowledge of what is Wrapped Bitcoin (WBTC) and is WBTC the same as BTC. The cryptocurrency world is constantly moving towards greater efficiency, flawlessly secure transactions, easily accessible services and simplicity that will allow it to leave the economic fringes and dominate the world economic stage.
