What Is Wrapped Bitcoin (WBTC)?
Wrapped Bitcoin (WBTC) is an ERC-20 token version of Bitcoin that resides on the Ethereum blockchain. ERC-20 is Ethereum’s fundamental compatibility standard. Thus, it allows the WBTC token to be fully integrated into the DeFi processes of the Ethereum network.
Bitcoin backs the WBTC token at a 1:1 ratio. This indicates that the BTC equivalent of each newly issued Wrapped Bitcoin token is held in a reserve at the custody. It guarantees that the token's value is permanently fixed to the price of Bitcoin, enabling decentralized and independent liquidity transfers between the BTC and ETH networks. Check out the Wrapped Bitcoin price chart above to see the current WBTC price.
WBTC coin is minted and burned automatically anytime users exchange their tokens for Bitcoin through a network of merchants and custodians. The quantity of tokens in circulation is related to the amount of Bitcoin in the WBTC network. This is the case because Bitcoin backs the Wrapped Bitcoin token at a 1:1 ratio as mentioned before.
Though note that since the Bitcoin price is pretty volatile, it’s the same case with the Wrapped Bitcoin price. It tends to fluctuate due to various factors that affect the whole crypto market. Thus, before converting Bitcoin to WBTC tokens, it would be a great idea to analyze the WBTC price chart to determine the main price fluctuation tendencies.
The Companies Behind Wrapped Bitcoin
The founders of the Wrapped Bitcoin crypto project are Ren, BitGo, and Kyber Network.
Ren is a company that specializes in integrating crypto assets and DeFi apps across multiple blockchains. Besides, it’s the organization that creates new WBTC tokens and burns old ones to keep the WBTC to Bitcoin ratio at 1:1.
BitGo provides trading, custody, and financial services for institutional digital assets. Besides, WBTC tokens and the keys required for token minting are held by BitGo. In other words, it’s the custodian of WBTC.
Kyber Network is an on-chain liquidity protocol that enables token trading without the use of a middleman. Just like Ren, it’s responsible for the minting and burning process of WBTC tokens.
The Main Benefits of Wrapped Bitcoin
The problem with Bitcoin is that its functionality is quite simple if we were looking at modern standards. This is not the case with Ethereum, since it was developed specifically to be utilized in more advanced ways, thanks to the smart contracts it employs.
Therefore, the Wrapped Bitcoin token version can be easily used in the advanced processes of Ethereum. Also, it’s important to note the average block time of Ethereum is around 15 seconds. Bitcoin block time, on the other hand, is around 10 minutes. Thus, by using WBTC tokens, you can get way faster transaction speed compared to using the original version of Bitcoin.
Besides, WBTC is also beneficial for the Ethereum network because it brings a huge amount of liquidity that comes from the Bitcoin market.
Additionally, WBTC eases the work for Ethereum-based exchanges and wallets. How? They can support WBTC activities simply by using an Ethereum node, eliminating the need to host two distinct nodes for the Ethereum and Bitcoin networks.
Again, don't forget to take a look at the Wrapped Bitcoin price chart above to see how the WBTC price changes in real-time.
The Main Parties in the Wrapped Bitcoin System
The Wrapped Bitcoin ecosystem consists of four main actors – custodians, merchants, users, and WBTC DAO members.
The ecosystem begins with the custodian, in this case, BitGo, which is in charge of storing WBTC. Then there is a merchant (the Kyber Network, Ren, or other merchants that work with WBTC), which is in charge of minting and burning the tokens. And then, of course, there are users who hold WBTC tokens.
Lastly, there’s WBTC DAO which is the governing organization of WBTC tokens. It’s in charge of contract modifications, as well as the addition and removal of custodians and merchants. WBTC DAO contributes to the network's decentralization through multi-sig contracts. The contracts demand unanimous agreement from all participants before any modifications can be made.
The Conversion of BTC to WBTC and Vice Versa
It’s pretty easy to exchange BTC tokens to WBTC tokens and the other way around. If you want to convert BTC to WBTC, you have to visit Kyber Network (or any other merchant listed on the WBTC partners page) and transfer your BTC to the platform.
The merchant informs BitGo (the custodian) of the quantity of WBTC to be minted after receiving the BTC from the user. BitGo then generates an identical quantity of WBTC following 6 confirmations of the BTC transaction. Lastly, the WBTC is sent to the Ethereum wallet of the user.
Now, if you want to convert WBTC to BTC, you have to contact the merchant again. The merchant will produce a burn transaction for the quantity of WBTC you wish to redeem.
BitGo will transfer the amount of the requested BTC to the Bitcoin address of the merchant once 25 Ethereum block confirmations are received. The burn request is marked as finished by the custodian through an Ethereum transaction. After the user goes through the KYC process, the merchant transfers BTC to the user's Bitcoin wallet address.
