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What is Wrapped Bitcoin? The Basics of Swapped Tokens Explained

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In the following article, we will find out what wrapped tokens and Wrapped Bitcoin WBTC in particular are, why it is important to bring Bitcoin to Ethereum and how it is all connected to Decentralized Finance. To start everything off smoothly, let’s revise some elemental notions.

What is Wrapped Bitcoin?

Do you know what Bitcoin is? Of course, you do if you are here, interested in other tokens. We know that you know, but let’s go through some pillars of this field once again.

Bitcoin is the world’s largest, most known cryptocurrency. BTC was created over ten years ago, and since then has remained the foundation for what was originally called “peer-to-peer electronic cash system” – the notion that is still remaining as the main pillar behind pretty much any crypto asset.

If you are looking for more information on the creation of Bitcoin, you can always read the original Whitepaper. We are here, however, to talk about the novelties. Decentralized finance, too, has been around for a while, but now we find ourselves caught in the waves of hype – exchange protocols continue to blossom, new assets get created almost every day, and the capitalization of the field grows larger as we speak.

Wrapped Bitcoin (WBTC) is actually here to bring both notions – of ”traditional” Bitcoin, if you can say so, and the DeFi space. The main goal is taking the liquidity of BTC and bringing it to good use in Decentralized Finance.

What is wrapped token (explained on Wrapped Bitcoin)?

Wrapped Bitcoin is a token based on Ethereum that is meant to represent Bitcoin. It’s pretty logical that one WBTC always equals one BTC. Wrapped tokens, generally, are tokens that signify a taken currency, but exist on some other chain. In the case of WBTC, Bitcoin can be converted into Wrapped Bitcoin and vice-versa, all with the use of supporting services.

The main advantage of WBTC from the point of transaction is that the token is faster to move than Bitcoin. There is, however, another crucial point – ERC-standard Bitcoin is fully integrated into the Ethereum system. All the dapps, wallets, services and protocols working with Ethereum can operate with WBTC.

How was WBTC created?

Wrapped Bitcoin went live on Ethereum in late 2019. Many major DeFi players (MakerDAO, Kyber, Compound and more) joined their forces to bring the asset out to the world. At the moment, an entity called WBTC DAO (Wrapped Bitcoin Decentralized Autonomous Organization) is controlling the project. Other teams had the same idea of bringing Bitcoin to Ethereum, but Wrapped Bitcoin is the most popular one so far.

What are the advantages and disadvantages of WBTC?

As we have already mentioned, Wrapped Bitcoin is important because it’s connecting the world of Bitcoin to the one of Ethereum. Many Decentralized Finance dapps require the use of collateral (you have to lock up some assets in cryptocurrency so you can borrow other tokens). By bringing Bitcoin to this sphere, protocols can significantly increase their liquidity and create many more collateral sources.

The use of WBTC in smart contracts and protocols is great. However, there are some minor drawbacks – Wrapped Bitcoin cannot pride itself with the same security as the original chain. This is logical, as Ethereum and Bitcoin are still two different blockchains. To connect them and have an asset representing Bitcoin on Ethereum, you need to trust some part to execute it.

Surely, WBTC goes through cycles of audits and checks to ensure trust and safety, but it’s still important to understand that the whole system is not maintained just by the code itself. To calm the hearts and minds of onboarded users, we have to say that you actually can verify the transactions independently – all that is needed is to check if Bitcoins sent to WBTC addresses and the creation of tokens on Ethereum match.

How to get Wrapped Bitcoin WBTC?

Wrapped Bitcoin, due to being closely connected to the DeFi space, is quite easily acquired through popular exchange protocols. However, if you are to swap other, non-Ethereum assets to WBTC, the struggles of choice might follow.

This is where exchange aggregators come to play – services like Swapzone collect the offers from popular non-custodial cryptocurrency exchange services, gather them all in one interface and allow you to make an informed choice of the best deal. The process of converting any supported asset to Wrapped Bitcoin (WBTC) is fairly simple. Follow these few steps to get some tokens for yourself, too.

How to convert your crypto to WBTC:

1. Go to Swapzone.

2. Select the currency and the amount you’d like to exchange in the Deposit list.

3. Pick WBTC in the Receive list.

4. Choose the deal you would like to proceed with from the list – all the available offers from our exchange partners will be listed there. You can sort the offers out by best rates, best swap time and the rating of the service provider.

5. Click the Exchange button to proceed.

6. Enter the recipient’s Ethereum address on the next screen. Make sure you have entered the information correctly – the currency will be sent to this address.

7. If everything is correct, click Proceed to Exchange button.

8. Send the necessary amount of cryptocurrency to the wallet address the service provider has generated. After the deposit is received, our partners will exchange it to Wrapped Bitcoin.

9. Exchanged WBTC tokens will be sent to the address you have entered.

After you have performed an exchange, all you need to do is use your WTBC coins as you wish!


Digital & Hitech

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