Wrapped Bitcoin

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This content was generated by Whalee (BETA), an AI crypto assitant that analyses cryptocurrencies. Informations can be incomplete and/or erroneous. Please always double check and DYOR.

What is Wrapped Bitcoin?

Wrapped Bitcoin (WBTC) is a tokenized version of Bitcoin that runs on the Ethereum blockchain. It is an ERC-20 token pegged 1:1 to Bitcoin, allowing users to utilize Bitcoin assets on the Ethereum network. This integration enables Bitcoin holders to participate in decentralized finance (DeFi) applications and decentralized apps (dApps) without having to convert their Bitcoin to Ethereum.

How is Wrapped Bitcoin used?

Wrapped Bitcoin (WBTC) is used to bring the value and liquidity of Bitcoin to the Ethereum ecosystem, particularly in decentralized finance (DeFi) applications. Here's how it works:

  1. Minting WBTC: Users send their Bitcoin to a custodian, who mints an equivalent amount of WBTC ERC-20 tokens. These tokens are then sent to the user's Ethereum wallet.

  2. Using WBTC: WBTC can be used in various DeFi applications, such as lending, borrowing, and trading on decentralized exchanges (DEXs). It can also be used as collateral for loans and other financial transactions.

  3. Redeeming WBTC: When users want to convert their WBTC back to Bitcoin, they initiate a redemption request with the custodian. The custodian then burns the WBTC tokens and sends the equivalent amount of Bitcoin to the user's wallet.

WBTC is critical for connecting Bitcoin and Ethereum, allowing Bitcoin holders to access the DeFi ecosystem without having to sell their assets. It has brought increased liquidity to the DeFi ecosystem and has given Bitcoin holders more flexibility in using their assets.

How do I store Wrapped Bitcoin?

To store Wrapped Bitcoin (WBTC) tokens, you can use a variety of methods and platforms. Here are some options:

  1. CoinList Wallet: You can store WBTC in your CoinList wallet, which allows you to manage and redeem your WBTC tokens for Bitcoin.

  2. Wrapped Bitcoin (WBTC) Wallet by Bitcoin.com: This wallet allows you to buy, sell, trade, and use WBTC and other cryptocurrencies. It offers features like effortless syncing across mobile and web, earning interest on WBTC, and trading on decentralized exchanges.

  3. Centralized Exchanges: You can also store WBTC on centralized exchanges that support the token. These exchanges typically provide a secure environment for managing your WBTC holdings.

  1. Decentralized Wallets: Some decentralized wallets, like those using the Ethereum Virtual Machine (EVM), can also support WBTC storage. These wallets often provide more control over your assets and can be used for various DeFi applications.

  2. Hardware Wallets: For added security, you can store your WBTC private keys in a hardware wallet, which provides an offline storage solution to protect your assets from unauthorized access.

It is essential to choose a reputable and secure storage method to ensure the safety of your WBTC tokens.

How to buy Wrapped Bitcoin?

To buy Wrapped Bitcoin (WBTC) tokens, you can follow these steps:

  1. Create an Account:

    • On Binance, register via the website or app using your email and mobile number.
    • On Coinbase, download the app and start the sign-up process, which includes verifying your ID and adding a payment method.
    • On Ledger, purchase a hardware wallet and use the Ledger Live app to manage your crypto.
    • On Coinmama, create an account, get verified, and then buy Wrapped Bitcoin.
  2. Choose a Payment Method:

    • On Binance, you can use credit/debit cards, bank deposits, or third-party payment channels.
    • On Coinbase, you can use a bank account, debit card, or initiate a wire transfer.
    • On Ledger, you can buy Wrapped Bitcoin directly on the Ledger app using a credit card or bank transfer.
    • On Coinmama, you can use credit or debit cards for payment.
  3. Select Wrapped Bitcoin:

  • On Binance, click on the "Buy Crypto" link and select Wrapped Bitcoin.
  • On Coinbase, search for Wrapped Bitcoin on the website or mobile app and select it from the list of assets.
  • On Ledger, use the Ledger Live app to manage and buy Wrapped Bitcoin.
  • On Coinmama, select Wrapped Bitcoin from the available cryptocurrencies.
  1. Enter the Amount:

    • On Binance, enter the amount you want to spend in your local currency, and the app will automatically convert it to Wrapped Bitcoin.
    • On Coinbase, use the number pad to input the amount you want to spend, and the app will convert it to Wrapped Bitcoin.
    • On Ledger, use the Ledger Live app to manage your Wrapped Bitcoin and enter the amount you want to buy.
    • On Coinmama, enter the amount you want to buy and proceed with the purchase.
  2. Finalize the Purchase:

    • On Binance, confirm your order and wait for the transaction to process.
    • On Coinbase, tap "Preview buy" to review the details, then confirm your purchase by clicking "Buy now".
    • On Ledger, the Wrapped Bitcoin will be automatically sent to your hardware wallet after purchase.
    • On Coinmama, place your order and have your Wrapped Bitcoin delivered in minutes.

Remember to carefully consider your investment experience, financial situation, and risk tolerance before making any investment in cryptocurrencies.

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History of Wrapped Bitcoin

Wrapped Bitcoin (WBTC) was launched in January 2019 as a way to bring Bitcoin (BTC) to the Ethereum decentralized finance (DeFi) ecosystem. The initial developers of the wrapped bitcoin protocol were BitGo Inc, Kyber Network, and Ren (formerly Republic Protocol), who released the wBTC whitepaper on January 24, 2019. This project aimed to create an ERC-20 token that would represent Bitcoin on the Ethereum blockchain, allowing users to interact with Ethereum's decentralized applications (dApps) and DeFi ecosystem.

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How Wrapped Bitcoin works

Wrapped Bitcoin (WBTC) is a token that represents Bitcoin (BTC) on non-Bitcoin blockchains, primarily Ethereum. It allows users to access decentralized finance (DeFi) applications and services on Ethereum without having to sell their Bitcoin. Here's how it works:

Minting and Burning WBTC
  1. Merchant Request: A user submits a request to mint WBTC to a merchant, who must perform Know Your Customer (KYC) and Anti-Money Laundering (AML) checks.
  2. BTC Collateral: The merchant sends the required Bitcoin collateral to BitGo, the sole custodian of WBTC.
  3. Minting: BitGo mints the corresponding amount of WBTC and sends it back to the merchant.
  4. User Acquisition: The user obtains WBTC through centralized exchanges or DeFi channels.
  5. Unwrapping: To redeem Bitcoin, the user sends WBTC back to the merchant, who initiates a burn transaction. BitGo then releases the corresponding Bitcoin to the user.
Key Components
  • ERC-20 Token Standard: WBTC is an ERC-20 token on Ethereum, ensuring it is fully fungible and can be used seamlessly across smart contract protocols.
  • Custodian: BitGo holds Bitcoin collateral in a 1:1 ratio with the minted WBTC, providing a proof of reserves.
  • Merchants: They distribute WBTC to users and facilitate the minting and burning processes.
  • Decentralized Autonomous Organization (DAO): A governance body that controls smart contract changes and the addition or removal of merchants and custodians.
Benefits
  • Interoperability: WBTC bridges the gap between Bitcoin and Ethereum, allowing Bitcoin users to access DeFi applications.
  • Liquidity: WBTC brings Bitcoin liquidity to the DeFi ecosystem, enhancing the overall market.
  • Speed: WBTC transactions clear faster than Bitcoin transactions due to Ethereum's faster block time.
Creation and Governance
  • Initial Developers: BitGo Inc, Kyber Network, and Republic Protocol (later renamed Ren) developed WBTC.
  • Whitepaper: The WBTC whitepaper was published in January 2019.
  • DAO Governance: The DAO, comprising custodians, merchants, and other institutions, makes communal decisions on smart contract changes and membership.

WBTC has become a crucial component in the DeFi ecosystem, providing Bitcoin holders with access to Ethereum-based services while maintaining the value and liquidity of their Bitcoin assets.

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Wrapped Bitcoin's strengths

Wrapped Bitcoin (WBTC) has several strengths that make it a valuable tool for cryptocurrency users:

  1. Interoperability: WBTC allows Bitcoin holders to access the Ethereum network and its DeFi ecosystem, which was previously not possible due to compatibility issues between the two blockchains.

  2. Liquidity: Wrapped Bitcoin brings liquidity from the Bitcoin market to the Ethereum DeFi ecosystem, enhancing the overall liquidity and trading volume of DeFi applications.

  3. Speed: WBTC transactions are settled on the Ethereum blockchain, which adds a new block every 15 seconds, making them significantly faster than Bitcoin transactions, which are settled on the Bitcoin blockchain with a new block every 10 minutes.

  1. Collateral: WBTC can be used as collateral for loans on DeFi platforms, providing users with more options for borrowing and lending.

  2. Access to DeFi Applications: WBTC enables users to interact with various Ethereum-based decentralized applications (dApps), including those focused on lending, borrowing, and yield farming.

  3. Market Capitalization: Wrapped Bitcoin has a significant market capitalization, which helps to increase the overall market capitalization of Bitcoin and provides more investment opportunities.

  1. Security: WBTC is backed one-to-one by Bitcoin, ensuring that the value of WBTC is directly tied to the value of Bitcoin, making it a secure representation of Bitcoin on the Ethereum network.

These strengths have made Wrapped Bitcoin a popular choice for users seeking to leverage the benefits of both Bitcoin and Ethereum.

Wrapped Bitcoin's risks

Wrapped Bitcoin (WBTC) carries several risks that users should be aware of:

  1. Custodian Risks: WBTC is backed by a custodian who holds the actual Bitcoin reserves. If the custodian fails to maintain the reserves or is compromised, users may lose their funds or receive fake WBTC tokens.

  2. Price Volatility: Like any cryptocurrency, WBTC is susceptible to price fluctuations, which can affect its value relative to Bitcoin.

  3. Regulatory Risks: The legality and regulatory status of WBTC assets can be uncertain, leading to potential legal issues.

  1. Security Risks: WBTC transactions can be vulnerable to hacking and other security breaches, especially if users do not follow proper security protocols.

  2. Dependence on Ethereum Network: WBTC relies on the Ethereum network, which means that any issues with the network can impact WBTC transactions and value.

  3. Centralized vs. Decentralized Models: Different wrapping models, such as centralized and trustless approaches, carry varying levels of risk. Centralized models rely on a single entity, while trustless models use smart contracts, which can be more secure but still have risks.

  1. Depegging: WBTC can depeg from its 1:1 value with Bitcoin if the custodian fails to maintain the reserves or if there are issues with the wrapping mechanism.

  2. Counterparty Risks: Users must trust the company or entity issuing WBTC, which can be a risk if the issuer is not reliable.

  3. Liquidity Risks: WBTC liquidity can be affected by market conditions, making it difficult to convert WBTC back to Bitcoin or other assets.

  1. Unwrapping Mistakes: Users can make mistakes when unwrapping WBTC, such as sending it to the wrong address or not verifying the destination address, leading to potential losses.

By understanding these risks, users can take necessary precautions to minimize their exposure and ensure a safer experience with Wrapped Bitcoin.

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Did Wrapped Bitcoin raise funds?

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Wrapped Bitcoin’s team

  • BitGo Inc: A founding partner and custodian of WBTC, responsible for minting and securing Bitcoin reserves.
  • Kyber Network: A founding partner involved in the creation and development of the WBTC protocol.
  • Ren (formerly Republic Protocol): A founding partner that contributed to the development of the WBTC protocol.
  • WBTC DAO: A decentralized autonomous organization responsible for managing the WBTC ecosystem, including smart contract changes and the addition or removal of merchants and custodians.

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