WBTC or Wrapped BTC is the tokenized version of Bitcoin (BTC), hosted in the ETH blockchain and pegged to the value of the original coin in a 1:1 relationship. WBTC is the compatible version of Bitcoin with ERC-20 standards allowing you to trade BTC for other ERC-20 tokens without recurring to third parties. The popularity of WBTC in Ethereum’s DeFi ecosystem has grown due to its use cases in decentralized finance (DeFi) protocols, including staking, investing, NFTs trading, yield farming, margin trading, providing liquidity to liquidity pools, and crypto lending. Read on to learn everything you need to know about […]
WBTC or Wrapped BTC is the tokenized version of Bitcoin (BTC), hosted in the ETH blockchain and pegged to the value of the original coin in a 1:1 relationship. WBTC is the compatible version of Bitcoin with ERC-20 standards allowing you to trade BTC for other ERC-20 tokens without recurring to third parties.
The popularity of WBTC in Ethereum’s DeFi ecosystem has grown due to its use cases in decentralized finance (DeFi) protocols, including staking, investing, NFTs trading, yield farming, margin trading, providing liquidity to liquidity pools, and crypto lending.
Read on to learn everything you need to know about WBTC and how to buy Wrapped Bitcoin WBTC in a few easy steps.
Let’s jump right in!
WBTC or Wrapped Bitcoin is the tokenized version of Bitcoin on the Ethereum blockchain. A wrapped coin is a prototype token pegged to the original coin’s value that can be unwrapped at any point. Almost every major blockchain has a wrapped version of its native cryptocurrency, i.e., think of Wrapped Ether (WETH), which has the same value as Ether. A smart contract reproduces the price of Bitcoin in real-time for the Wrapped Bitcoin. So you can always trade Wrapped BTC for Bitcoin at a 1:1 ratio. Similarly, all other wrapped coins, such as WETH, etc., can be redeemed for the original asset at any time.
Wrapped coins were invented to promote interoperability between different networks, blockchains, and digital assets in the crypto space. For example, Wrapped Bitcoin (WBTC) was designed to increase interoperability between blockchains and make Bitcoin (BTC) usable in decentralized applications (DApps). Bitcoin cannot be traded directly with Ethereum based tokens because it was created long before the ERC-20 standard was developed. As a result, trading BTC on a decentralized exchange or lending BTC on a decentralized lending platform is impossible. WBTC was designed to solve these limitations by enabling Bitcoin to be exchanged with other Ethereum based tokens and comply with the ERC-20 standard.
Bitcoin has to be deposited as a reserve to mint WBTC tokens. Essentially, the Wrapped BTC protocol allows Bitcoin holders to exchange their Bitcoin tokens for an equal number of WBTC tokens and use them on the Ethereum network. Wrapped BTC offers a wider variety of applications than BTC and is particularly popular in the Decentralized Finance (DeFi) ecosystem.
The WBTC token allows for faster Bitcoin transactions and brings greater liquidity to the Ethereum ecosystem, including decentralized exchanges (DEXs) and financial applications. While the majority of trading volume takes place on centralized exchanges with Bitcoin, WBTC brings Bitcoin’s liquidity to DEXs and makes it possible to use Bitcoin for token trades.
Wrapped Bitcoin BTC was revealed in October 2018 and officially launched in January 2019. It was developed by Kyber Network, BitGo, and Ren, who maintain their positions in the protocol.
A WBTC decentralized autonomous organization (WBTC DAO) consisting of over 30 members maintains and manages the network and votes on removing and adding merchants and custodians.
How Wrapped Bitcoin Works
Wrapped Bitcoin standardizes Bitcoin to the ERC20 format, providing access to a variety of decentralized exchanges, wallets, and DApps. It brings Bitcoin’s liquidity to DEXs and makes it possible to use Bitcoin directly in ETH-based smart contracts. WBTC also allows for an increased speed of verified Bitcoin transactions using the Ethereum blockchain.
Before a new WBTC is minted or produced, a merchant first places a request with the custodian. WBTC white paper specifies that the merchant sends Bitcoin to the custodian, who then mints WBTC and sends it to the merchant’s wallet on the Ethereum blockchain. Wrapped Bitcoin can then be converted back into Bitcoin when the user requests the custodian to release the token from the reserves. In simple words, for every WBTC that exists, there is a Bitcoin that a custodian is holding.
Merchants are responsible for keeping up with ALM (anti-money laundering) and KYC (know your customer) standards for end-users. The custodians are like vaults that provide reliability and security to WBTC and ensure that all WBTC tokens are fully backed and verified through on-chain proof of reserves. They mint BTC and send the equivalent amount of WBTC (one to one pegged to the value of BTC) back to the merchant.
BitGo is the sole custodian for WBTC as of October 2021. In June 2021, more than 1% of Bitcoin was held in Wrapped Bitcoin WBTC tokens.
When end-users withdraw WBTC from circulation (converts WBTC back to Bitcoin), they accomplish it through a process called burning carried out by a merchant. The custodian is then allowed to free the held Bitcoins to the merchant, who then reimburses the customer.
There are several key participants in the creation and management of the WBTC protocol:
- Custodians: They ensure that all WBTC tokens are fully backed. BitGo is Bitcoin’s custodian.
- Merchants: They play a vital role in distributing WBTC by burning or mining WBTC.
- Users: They hold and use WBTC to transact and transfer like any other ERC-20 token in the Ethereum ecosystem.
- WBTC DAO: It’s the governing body responsible for removing or adding merchants and custodians. It’s also responsible for contract changes. The DAO helps decentralize the network using multi-sig contracts, which mandate all members to reach unanimity before a change is initiated.
As of February 2022, there is currently $10.9B worth of WBTC on the Ethereum network.
Buying Wrapped Bitcoin
There are several reasons why you, as an investor, would want to wrap your Bitcoin. Essentially, WBTC replaces the original Bitcoin letting you transact within the DeFi ecosystem or other decentralized applications, smart contracts, games, DEXs, within the Ethereum network. Wrapped Bitcoin holders also gain access to DeFi borrowing and lending networks without giving up their Bitcoin.
Let’s look into some of the benefits of buying Wrapped Bitcoin.
Greater liquidity is a significant advantage WBTC brings to the market. Because the Ethereum ecosystem is spread out and diverse, the funds’ distribution can create a scenario where decentralized exchanges and other platforms lack the necessary liquidity to function optimally. Low liquidity makes an exchange less effective because users can’t trade their tokens quickly for the desired amounts. WBTC integrates BTCs liquidity into the flexibility of the Ethereum ecosystem. This way, WBTC closes the liquidity loop between many DeFi and CeFi products.
WBTC provides more functionalities compared to Bitcoin. For instance, WBTC can leverage Ethereum smart contracts, which are considered a core technology of the blockchain sector. However, smart contracts didn’t become mainstream until Ethereum was launched years after Bitcoin. This is why Bitcoin lacks full smart contract capabilities.
Scalability is another advantage you gain when you buy Wrapped Bitcoin WBTC. Since Wrapped Bitcoin tokens exist on the Ethereum blockchain and not on Bitcoin, WBTC transactions are faster and cheaper. You also have more storage and transaction options.
Staking is a popular DeFi functionality, and there are multiple versions of staking protocols in effect. Staking requires that crypto investors lock their crypto into a smart contract for an agreed time in exchange for rewards. Investors who convert their BTCs to WBTCs can utilize these next-gen protocols. For example, some platforms allow you to automatically earn rewards when you stake WBTC on the Ethereum network.
Trustless WBTC Model
The trustless model is one of the more advanced ways of wrapping Bitcoin through a decentralized system. The Keep Network offers investors wrapped Bitcoin services in the form of TBTC. In this scenario, the responsibilities of the centralized custodian are transferred over to smart contracts. Your Bitcoin remains locked in a contract that the platform can’t adjust without your approval. This strategy provides investors with an autonomous and trustless system.
Where to Buy Wrapped Bitcoin
You can buy WBTC on several cryptocurrency exchanges, among them:
Uphold, a leading US exchange is an innovative trading platform that supports various cryptocurrencies, including WBTC. The platform stands out for its simplicity, unique features, and company’s credibility. Uphold provides a user-friendly desktop and mobile app. The trading view is customizable with your most-traded assets and has an easy-to-navigate, modern feel on both desktop and mobile.
Residents of the United Kingdom and Europe are not permitted on this platform.
Binance is the leading cryptocurrency exchange by trading volume. It offers crypto-to-crypto trading in more than 500 cryptocurrencies and virtual tokens. Although its trading options are limited in the US, it offers low trading fees and a broad selection of currencies globally. Binance enables you to instantly buy Bitcoins and 15 top cryptocurrencies with fiat currencies using credit cards, bank accounts, and other payment methods. Users can trade crypto derivatives with leveraged positions—(up to 20x leverage on futures and 10x on margin trading)—for maximum returns. Binance also supports staking, crypto loans, and other means of earning passive income from your crypto assets. Binance’s NFT marketplace and trading platform is the premier destination for NFTs and digital collectibles across mediums, from visual arts and gaming to music and sports. The advantages of buying WBTC on this exchange include lower fees than other exchanges and improved liquidity, which allows you to purchase and sell rapidly to capitalize on market-moving news.
This exchange is ideal for investors from Australia, Canada, Singapore, the United Kingdom, and other countries. Most tokens are unavailable to residents of the United States.
KuCoin is one of the largest and most popular exchanges. The exchange supports over 300 cryptocurrencies, including Wrapped Bitcoin. It offers bank-level asset security, a slick interface, beginner-friendly UX, and a wide range of crypto services: margin and futures trading, a built-in P2P exchange, the ability to buy crypto using fiat currency, such as a credit or debit card, instant-exchange services, ability to earn interest on digital assets by crypto lending or staking via its Pool-X, IEO launchpad for crypto crowdfunding, non-custodial trading, and much more. Moreover, KuCoin offers some of the lowest trading fees among exchanges.
HuobiGlobal was founded in 2013 and has since grown to become one of the world’s largest cryptocurrency exchanges, with a total trading volume of US $1 trillion. Huobi serves more than 5 million users in over 130 countries, accounting for half of all digital asset transactions worldwide. HuobiGlobal is one of the leading exchanges that presently supports WBTC trading. Currently, the exchange doesn’t welcome the United States or Canadian residents.
Coinbase is the largest cryptocurrency exchange in the United States, supporting over 100 cryptocurrencies, including Wrapped Bitcoin WBTC. Coinbase is available on iOS, Android, and desktop. Coinbase fees, on the other hand, might be perplexing and higher than some of its rivals.
This exchange currently allows trading for residents of the United States, except Hawaii.
How to Buy Wrapped Bitcoin
You’ll have to compare cryptocurrency exchanges to choose the one that supports WBTC and has the features you want, such as low transaction fees, an easy-to-use platform, and 24-hour customer support. Also, consider if the cryptocurrency exchange allows buying Wrapped Bitcoin with your preferred payment methods, such as a credit or debit card, another cryptocurrency, or a bank transfer. Coinbase Pro and eToro are some of the most popular crypto brokerages that support Wrapped Bitcoin.
Here’s our simple step-by-step guide to help you purchase WBTC right away!
Step #1: Create an Account
After you’ve decided on a reliable exchange, the next step is to open a trading account to buy Wrapped Bitcoin. The requirements differ depending on the platform you pick. Personal information such as your name, contact number, email address, home address, social security number, and a copy of your driver’s license, passport, or government-issued ID will be required in most transactions. You must provide this information to be authenticated if you plan to deposit fiat currency from your bank account to purchase the WBTC token.
It’s advisable to enable two-factor authentication (2FA) to keep your funds safe once you’ve verified your identity.
You can also swap your ETH or BTC tokens (if you own any) for WBTC by sending them to a decentralized exchange.
Step #2: Deposit Funds
After verifying your account, you must deposit funds for buying WBTC and other cryptocurrencies. The payment method you use will be determined by the platform, your location, and preferences. Most exchanges offer these three deposit methods:
- Debit or Credit Card: Linking your debit card to your crypto account is advantageous as it lets you make instant or recurring purchases, but be aware that it attracts an additional fee.
- Bank Account: Local bank transfers are typically free, but make sure to double-check with the exchange you choose.
- Cryptocurrency: WBTC can be traded for another currency like Ethereum or BTC.
Step #3: Purchase a Wallet
You need to get a crypto wallet with your own set of keys to store your coins securely. Depending on your investing preferences, you might choose between software and hardware wallets, the latter being a more secure choice.
The advantage of software wallets lies in their flexibility and ease of use; however, these wallets are vulnerable to security leaks because they’re hosted online. CoinStats wallet is an excellent option for a software wallet.
Hardware wallets are usually considered the safest way to store your cryptocurrencies as they offer offline storage, thereby significantly reducing the risks of a hack.
Several Ethereum wallets allow you to swap between different ERC-20 tokens directly on their wallet interface.
Step #4: Buy WBTC
Now you are all set to buy Wrapped Bitcoin WBTC! The instant buy feature (if the exchange offers this) is the easiest way to buy WBTC. You can place a limit order for WBTC or instantly purchase WBTC at market price with a market order on some centralized exchanges.
Wrapped Bitcoin is increasingly regarded as a significant addition to the cryptocurrency world. Having the same value as the original Bitcoin, WBTC increases the possibility of Bitcoin transacting within the DeFi ecosystem or any other decentralized application within the Ethereum network. BTC holders can lend Bitcoin through smart contracts by connecting their wallets to a decentralized platform and earning a fixed interest rate per year.
In just over one year, about $800 million worth of Bitcoin was converted into WBTC, and 1% of Bitcoin’s circulating supply of 18.73 million is now used in DeFi through Wrapped Bitcoin tokens.
Wrapped tokens increase liquidity and capital efficiency for both centralized and decentralized exchanges. They also enable fast and cheap transactions that are particularly beneficial for slow blockchains like Bitcoin or Ethereum.
You can check the current Wrapped Bitcoin Price and other metrics on CoinStats, one of the best crypto platforms around. Also, make sure to visit our CoinStats blog to learn more about wallets, cryptocurrency exchanges, portfolio trackers, tokens, etc., and explore our in-depth buying guides on how to buy various cryptocurrencies, such as How to Buy Bitcoin, What Is DeFi, How to Buy Cryptocurrency, etc.
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