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Trading Bitcoin on Ethereum Network with the “Wrapped Bitcoin” Project

A project to bring Bitcoin to Ethereum Ecosystem launched officially on January 30. The Wrapped Bitcoin (WBTC), an ERC20 token backed by bitcoin (BTC) reserves has started trading on several exchange and decentralised lending platforms.

Stable coins backed by fiat currencies is on a rise this year. Some of them are ERC20 tokens and help grow the decentralised trading market on the Ethereum blockchain. Now we have a Bitcoin backed ERC20 tradable token. The project called Wrapped Bitcoin (WBTC) is the brainchild of Bitgo, Kyber Network, and Ren together.

WBTC is an ERC20 token and each token is equal to 1 BTC. The project is based on Proof Of Reserves, where there could only be as many WBTC tokens as there are BTC held in reserve. Other examples of such projects are Tether and TUSD which are both holding USD in reserve against the number of coins/tokens in circulation.

Bitgo is holding the BTC reserves and is responsible to mint the WBTC token. The BTC reserves can be validated on-chain at any time.

How Wrapped BTC (WBTC) Works

There are three major parties involved. A Custodian that holds the reserves and can mint WBTC tokens. A merchant that fulfils transactions for the customer. A Customer/trader who requests exchange BTC for WBTC, that the merchant fulfils.

Currently there are 8 merchants that help convert BTC to WBTC and vice versa. The customer needs to complete KYC and then request WBTC tokens by sending BTC to the merchant address.

How wrapped bitcoins work

The bit of centralisation in the project lies at Bitgo, the company will hold the keys to mint WBTC tokens.

The WBTC creators emphasise that the system’s smart contracts have been audited by several reputable third-party audit firms such as Coinspect, Solidified Technologies, and Chainsecurity.

wrapped bitcoin custodian and implementation

The Use for WBTC

As I mentioned before, the best use case for WBTC is to become integral to the Ethereum based decentralised ecosystem. For instance, if I see that ETH prices may go down but BTC price may go up, I can convert my ETH to WBTC instantly on the supported exchanges like Kyber. We tried it as well.

This saves time in converting ETH or ERC20 tokens to BTC by using custodian services or other exchanges such as Binance, Changelly or fiat based exchanges in India.

Converting ETH or any tokens to WBTC on KyberSwap

Decentralised Lending

There are many decentralised lending platforms on the Ethereum blockchain. Most of them work on the principle – Put tokens as Collateral, take ETH in loan. The platforms can now offer BTC loans in form of WBTC.

Nuo, one of the decentralised lending platform has added WBTC to its menu of tokens on offer for lending and borrowing.

Store of Value

Many investors use BTC and ETH as store of value. Despite the bear markets, hodlers are holding on to their assets and bags of tokens and waiting patiently for a reversal.

With WBTC, ETH and BTC holdings can be held on one wallet itself. Can’t say the same thing for other platforms such as Tron or EOS. But to be able to hold the top two cryptocurrencies in a single ETH wallet saves significant amount of storage hassles.

Similarly, exchanges can offer the same value to their users by “running a single Ethereum node”, said the WBTC representatives.

Would you use WBTC? Do you think exchanges should list WBTC? Let us know in the comments below, and please, be nice, and share the article.

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