What is Wrapped Bitcoin (WBTC)?
Wrapped Bitcoin (WBTC) is an ERC-20 token pegged to Bitcoin (BTC) at a 1:1 ratio. This innovative digital asset enables Bitcoin to be used within the Ethereum ecosystem, allowing for seamless interaction with Ethereum wallets, decentralised applications (dapps), and smart contracts.
Background of Wrapped Bitcoin
WBTC was introduced to address the limitations of Bitcoin’s integration with other blockchain systems. Its inception occurred to provide Bitcoin holders access to Ethereum’s DeFi (decentralised finance) protocols, expanding the usability of Bitcoin in a variety of financial transactions and investments.
How Wrapped Bitcoin Works
The process of creating WBTC involves converting Bitcoin into Wrapped Bitcoin through WBTC partners. Users can exchange 1 Bitcoin for 1 Wrapped Bitcoin by using custodians such as BitGo. Once the exchange is made, the equivalent amount of WBTC is minted and made available on the Ethereum blockchain. When users want to redeem their WBTC back to BTC, the corresponding WBTC tokens are burnt, ensuring the 1:1 peg is maintained.
The Role of the WBTC DAO
The Wrapped Bitcoin ecosystem is governed by the WBTC Decentralised Autonomous Organisation (DAO), which comprises over 30 members, including initial contributors BitGo, Ren, and Kyber. This organisation oversees the operations of wrapped Bitcoin, focusing on improving liquidity and onboarding more users into the cryptocurrency space.
Benefits of Wrapped Bitcoin
- Increased Liquidity: WBTC enhances liquidity in DeFi protocols, allowing users to leverage Bitcoin’s value in various financial applications.
- Interoperability: By bridging Bitcoin and Ethereum, WBTC enables users to utilise the strengths of both blockchain ecosystems.
- Smart Contract Functionality: Users can engage with dapps and smart contracts on Ethereum using Bitcoin’s value without sacrificing security.
Where to Find More Information About Wrapped Bitcoin
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