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A wrapped Bitcoin (WBTC) is a way of representing Bitcoin on the Ethereum blockchain. Bitcoin and Ethereum are the two main cryptocurrencies in the world, but they cannot normally interact with each other, hence the need for wrapping.
Bitcoin on the Ethereum blockchain
Bitcoin and Ethereum serve separate but unique purposes in the crypto economy.
Bitcoin is the oldest and most valuable cryptocurrency due to its unique scarcity, security, and decentralization. It pioneered the path that many digital currencies have since followed and hasn’t looked back since.
Ethereum has become the second most valuable cryptocurrency in the world due to the vast DeFi ecosystem it supports. Ethereum’s programmable smart contracts allow developers to create applications for lending, lending, liquidity provision, and much more.
Although they both have valuable use cases, Ethereum and Bitcoin cannot directly interact within each other’s blockchains.
To overcome this hurdle, a group of developers came up with a token that represented the value of Bitcoin in 2019. This Bitcoin token can be integrated with Ethereum-based wallets, DeFi applications, and smart contracts.
Known as Wrapped Bitcoin (WBTC), holders get the best of both worlds. Wrapped Bitcoin exactly follows the price of Bitcoin, but can be used with Ethereum-based products.
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Benefits of Wrapped Bitcoin
Before Wrapped Bitcoin, it was much more cumbersome to engage in DeFi with Bitcoin. Wrapped Bitcoin allows Bitcoin investors to continue to hold Bitcoin as an asset while using DeFi dApps like Compound or Aave to borrow or lend money. They can also trade Wrapped Bitcoin for other Ethereum tokens like Chainlink, Tether, or Shiba Inu with a DEX like Uniswap.
Wrapped Bitcoin has bridged the gap between the two blockchains. People can participate in DeFi by buying Wrapped Bitcoin instead of the original Bitcoin.
Some Disadvantages of Wrapped Bitcoin
While Wrapped Bitcoin offers many advantages, there are some significant differences between WBTC and BTC.
Wrapped Bitcoin is simply a copy of Bitcoin that is compatible with Ethereum. It exists completely separate from the Bitcoin blockchain. As a result, there is no Wrapped Bitcoin mining.
Also, there is a different amount of Wrapped Bitcoin and Bitcoin in circulation. Wrapped Bitcoins are created through a Decentralized Autonomous Organization (DAO). The WBTC DAO is currently in charge of minting new Wrapped Bitcoins. Members can vote on updates and changes. Since there is a governing body behind Wrapped Bitcoin, it is inherently less secure than Bitcoin.
How to buy wrapped Bitcoin
There are few ways to buy Wrapped Bitcoin.
If you want to exchange your real Bitcoin for real Bitcoin, you can do so with platforms like Atomic Wallet or Poloniex.
However, one of the easiest methods is to trade through an Ethereum-based DEX like Uniswap. By holding a balance of Ethereum or any other Ethereum-based token, users can instantly exchange for Wrapped Bitcoin. You can then use your WBTC with all kinds of DeFi applications without having to sell your actual Bitcoin holdings.
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