Know Your Crypto: Wrapped Bitcoin (WBTC)

• • Wrapped Bitcoin is a network that facilitates interaction between different blockchains.
  • It is the first ERC20 token to be backed by Bitcoin.

Wrapped Bitcoin (WBTC) is a tokenized version of Bitcoin that is 1:1 backed by Bitcoin. It is an ERC20 token, which means that it can be used on the Ethereum blockchain. WBTC was created to bring the benefits of Bitcoin to the Ethereum ecosystem, such as:

• Increased liquidity and participation: Decentralized exchanges (DEXs) often suffer from low liquidity and participation. WBTC can help to address this by providing a more liquid asset that can be used on DEXs.
• Faster transactions: The Ethereum network processes transactions faster than the Bitcoin network. This means that WBTC can be used to move Bitcoin between exchanges more quickly.
• Access to Ethereum DeFi apps: WBTC can be used to access Ethereum DeFi apps, such as lending and borrowing protocols. This gives Bitcoin holders the opportunity to earn interest on their Bitcoin and participate in other DeFi activities.

How does WBTC work?

WBTC is created by a process called “minting.” Minting occurs when a user sends Bitcoin to a custodian, who then creates an equivalent amount of WBTC on the Ethereum blockchain. The user then receives the WBTC tokens, which can be used on the Ethereum network.

WBTC can be burned by sending it back to the custodian. When WBTC is burned, the Bitcoin that it is backed by is released back to the user.

Who are the key participants in WBTC?

There are four key participants in the WBTC ecosystem:

• Custodians: Custodians are responsible for holding the Bitcoin that is backing WBTC. They are typically financial institutions that have experience in managing digital assets.
• Merchants: Merchants are responsible for distributing WBTC to users. They are typically exchanges or other institutions that want to provide their customers with access to WBTC.
• Users: Users are the people who hold WBTC. They can use WBTC on the Ethereum network to trade, lend, borrow, and participate in other DeFi activities.
• WBTC DAO Members: The WBTC DAO is a group of institutions that have the right to make changes to the WBTC protocol. They are responsible for ensuring that the WBTC ecosystem is secure and reliable.

How can I get WBTC?

There are a few ways to get WBTC:

• You can buy WBTC on an exchange that supports it.
• You can mint WBTC by sending Bitcoin to a custodian.
• You can receive WBTC as a reward for participating in DeFi activities.

Is WBTC safe?

WBTC is considered to be a safe investment because it is backed by Bitcoin. However, it is important to note that WBTC is still a relatively new asset, and there is always some risk involved in investing in cryptocurrencies.

Overall, WBTC is a promising project that has the potential to bring the benefits of Bitcoin to the Ethereum ecosystem. It is a safe and convenient way to use Bitcoin on the Ethereum blockchain, and it can be used to access a variety of DeFi apps.