Bitcoin and cryptocurrencies have been around for more than a decade. Now the cryptos have evolved tremendously since the inception of BTC in 2009. People know very well about Bitcoin, but there is another Bitcoin that is known as Wrapped Bitcoin. There are many crypto enthusiasts that may still be figuring out what is actually the Wrapped Bitcoin (WBTC) and what is their use.
What is Wrapped Bitcoin?
Bitcoin is like a revolution in the finance sector. As the crypto market continues to evolve, new innovations have emerged to enhance the usability and functionality of BTC and cryptocurrencies. One such innovation is the concept of wrapped Bitcoin (WBTC), a way to bring Bitcoin to the Ethereum blockchain.
Wrapped Bitcoin (WBTC) is an ERC-20 token that is pegged to the value of Bitcoin. It is a way to bring Bitcoin to the Ethereum blockchain. By combining BTC with the Ethereum blockchain it can be used to power decentralized applications (dApps), such as decentralized exchanges (DeX), lending protocols, and other decentralized finance (DeFi ) platforms.
To create WBTC, Bitcoin is first locked up by a custodian. The custodian then mints an equivalent amount of WBTC on the Ethereum blockchain, which is then distributed to users. Each WBTC token is backed by an equal amount of Bitcoin, which can be redeemed at any time. It was the mechanism and aim behind the creation of the Wrapped Bitcoin.
How Does Wrapped Bitcoin Work?
The process of creating wrapped Bitcoin involves several steps. First, a user who wants to wrap their BTC sends it to a custodian, who holds the Bitcoin in a secure location. Once the Bitcoin is locked up, the custodian then creates an equivalent amount of WBTC tokens on the Ethereum blockchain.
These WBTC tokens can then be used on the Ethereum blockchain just like any other ERC-20 token. Users can trade WBTC on decentralized exchanges, lend and borrow it on lending platforms, or use it as collateral to borrow other cryptocurrencies.
When a user wants to redeem their WBTC for Bitcoin, they simply send the WBTC back to the custodian, who then releases the locked-up Bitcoin. The redeemed Bitcoin is then sent back to the user.
The Benefits of Wrapped Bitcoin
The WBTC can be useful in many cases. One of the major benefits of wrapped Bitcoin is that it enables Bitcoin holders to participate in the Ethereum ecosystem. Since Ethereum has a wide variety of decentralized applications, WBTC provides users with access to a broader range of DeFi platforms.
WBTC tokens can be used to enable Bitcoin-based transactions on the Ethereum blockchain ecosystem. This means that Bitcoin can be used to interact with Ethereum-based smart contracts, opening up new possibilities for cross-chain interoperability. Ethereum has evolved as a blockchain and smart contract hub that can help BTC to gain its real value.
Final Words
Bitcoin is known as the original cryptocurrency while Ethereum is a smart contract giant. Wrapped Bitcoin is a promising innovation that brings the benefits of Bitcoin to the Ethereum blockchain. It helps and enables Bitcoin holders to participate in the growing DeFi ecosystem.
The WBTC also provides a way to facilitate cross-chain interoperability between Bitcoin and Ethereum. As the crypto market continues to evolve, it is likely that we will see more innovations like wrapped Bitcoin emerge to enhance the usability and functionality of cryptocurrencies.
