Bitcoin is decentralized digital money that can be shared on a peer-to-peer bitcoin network. The transaction is verified based on cryptography and recorded in a publicly distributed ledger called a blockchain. In terms of bitcoin and digital dollars, investors and decision-makers are reading articles online to learn about the future of money.
Moreover, bitcoin is one of the popular cryptocurrencies, but it has different functionality from other tokens, for instance, on the Ethereum blockchain. What if we could access bitcoin on Ethereum on the blockchain, and that’s what rapped bitcoin is all about
In this article, we will find out the significant differences between bitcoin and wrapped bitcoin, how to invest in them, and much more.
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What do you mean by Wrapped Bitcoin?
The wrapped coin was typically launched in the year 2019, very similar to bitcoin, but it was used on the Ethereum blockchain. It was invented by a team of developers and they were the key players of DeFi.
The Ethereum blockchain is mostly known for using Defi transactions and forming DeFi applications called dapps, but the Ethereum blockchain is limited up to a certain quantity which means it can access only a limited amount of tokens however the transmission speed is great for Ethereum-based blockchain
In order to connect bitcoin resources with the Ethereum blockchain, an ERC-20 token was formed called Wrapped bitcoin. Just like BTC WBTC is connected with certain currencies, they are backed by BTC all the time.
Wrapped Bitcoin vs. Bitcoin
So we can consider wrapped bitcoin as the tokenized version of bitcoin. Moreover, the entire process of minting is based on trust with the vendors which hold BTC and then ultimately issue WBTC tokens that can be fitted with Ethereum.
Let’s take a simple example, let’s consider that you own a great number of bitcoin tokens and you are willing to send the amount on Ethereum, which means you want to utilize your tokens but sadly you can’t do what you will do you will get in contact with trustworthy vendors, the merchant after verifying your details will move to the custodian like BitGo a third person and that person will produce some wrapped bitcoin (the number of ERC-20 is equal to the number bitcoin token you have).
In the next step, the WBTC that you got can be sent to the caretaker account to the vendor Ethereum crypto pocket, now using peer-to-peer transactions you will have the access to send the BTC to that vendor and in return, they send you WBTC. Once you have WBTC you are allowed or have access to use the Ethereum blockchain for DeFi transmission, later when you find feasibility you can have back the BTC and return back the WBTC to the merchant, and the merchant will wipe off the WBTC through a process called burning which is quite a quick process.
How to use Wrapped Bitcoin?
There are a number of ways to use WBTC and other wrapped coins; let’s find out:
- Enhanced Speed of Transaction
If you are interested in increasing the transaction speed, so the Ethereum blockchain is superior to the bitcoin network, using WBTC, it is pretty easy and accessible to utilize your BTC on
Ethereum platform, which boosts your business.
- Raised liquidity
Coinbase, a centralized type of cryptocurrency, mainly utilizes bitcoin for trading centralized decentralized exchanges like DEXs and is also based on the Ethereum blockchain. Besides exchanging BTC for ETH, go after decentralized exchange for another type of digital asset, then it will be possible to use WBTC.
- Smart contracts with Bitcoin
BTC doesn’t use smart contracts, but there is a possibility that WBTC can use back intelligent contract transactions.
How to invest in Wrapped Bitcoin and Bitcoin
WBTC and BTC are both centralized exchanges. For instance, if you want to purchase WBTC tokens on eToro with the help of coinbase pro, Gemini will help to store your WBTC but another side, Kraken will not allow you to store it, and you will be required to have a crypto wallet which is suitable with all type of token.
Moreover, there is a great chance that you can buy WBTC on the decentralized platform as well, like Uniswap, but the only thing you need to make sure of is that you ETh to buy WBTC instantly.
FAQs
Which is preferable: Wrapped Bitcoin or Bitcoin?
Both are better. It depends on your goal and objective. Wrapped bitcoin is considered a tokenized version of BTC, based on the Ethereum blockchain. Still, if you want to save your reserves, it is suggested to go after bitcoin. Still, besides saving, if you want to utilize your tokens for DeFi transactions or are interested in DeFi application dapps, WBTC can be a better choice for you.
Is WBTC considered a good investment?
WBTC is a good or bad investment. It depends on your strategy. Remember wrapped bitcoin is tied with bitcoin amount, which one bitcoin is equal to one wrapped bitcoin with the expectation that the price of bitcoin will increase in the future, so WBTc is a decent option for investment, but makes sure whatever the investment you are making it is essential to consider your goal and needs first.
What is the main objective of Wrapped Bitcoin?
The main objective of wrapped bitcoin is to use bitcoin stock on the Ethereum blockchain to avoid going through the procedure of swapping BTC for ETH.
