What is the Difference Between Bitcoin and Wrapped Bitcoin (WBTC vs BTC)
Sep 18, 2022
Bitcoin offers many advantages, such as being completely decentralized, transparent, and unhackable. However, since its inception in 2008, the underlying technology behind the peer-to-peer system has, for the most part, remained the same.
Being one of the first cryptocurrencies on the scene, Bitcoin’s blockchain came before smart contract technology, and therefore cannot accommodate this feature on its blockchain, unlike Ethereum. As a result, standard Bitcoin (BTC) has no connection with widely popular decentralized apps (dApps) that are currently thriving within the Defi eco system. The genius solution to this problem is Wrapped Bitcoin (WBTC).
So what is the difference between wBTC vs BTC? And is Wrapped Bitcoin better than Bitcoin? We’ll answer these questions and more in this article.
What is Wrapped Bitcoin?
Wrapped bitcoin (WBTC) is an adapted version of Bitcoin, equal to it in price, that can be used on the Ethereum blockchain. WBTC was launched on the Ethereum mainnet in Jan 2019, finally allowing users to interact with Ethereum's decentralized finance (DeFi) ecosystem using a modified version of Bitcoin.
The Wrapped Bitcoin protocol was initially developed by BitGo Inc, Kyber Network, and Ren. The consortium released the Wrapped Bitcoin white paper and launched the token in Jan 2019.
What is the Difference Between wBTC vs BTC
Let’s take a look at wBTC vs BTC. Wrapped Bitcoin is simply a tokenized and modified version of Bitcoin that can be utilized on Ethereum’s blockchain. Wrapped Bitcoin and Bitcoin are identical in price, the main difference between Wrapped Bitcoin vs Bitcoin is that wBTC allows users to interact with Ethereum’s decentralized finance ecosystem. This means that Wrapped Bitcoin offers the best of both worlds, combining the liquidity of Bitcoin with the exciting world of Defi, giving wBTC an entirety of new use cases and improved transaction speeds that clear much quicker than BTC.
Looking at its creation of wBTC vs BTC, as opposed to the mining method of conventional Bitcoin, the process of minting wBTC requires the use of trusted merchants that essentially hold a user’s Bitcoin, then issue wBTC tokens that are compatible with Ethereum.
If for example, a BTC holder wants to send money over Ethereum, or perhaps is looking to develop some decentralized apps (dApps) on the Ethereum blockchain, as we’ve established, this can’t be done using original Bitcoin tokens. So, instead, users will look towards Wrapped Bitcoin to provide a solution to this problem.
Differences between wBTC vs BTC also arise on the topic of security. With a large gap existing between Bitcoin and Ethereum, these chains cannot natively interact with one other, and so trust among people is required for the process to work. In comparison to Bitcoin, wBTC will never offer an identical level security or decentralization as the original. This is because the process of minting and burning wBTC leans on people and organizations to manage the system, rather than pure code.
In order to raise trust and transparency in wBTC, the token undertakes regular audits and publishes all on-chain transactions. Cryptocurrency users are able to independently check and verify how much Bitcoin was sent to a WBTC address via the Bitcoin blockchain, and then additionally check this number against the creation of WBTC tokens on the Ethereum blockchain. The reverse process where wBTC is burned to redeem BTC, this process can also be tracked on-chain.
How does wBTC work?
wBTC tokens can be obtained by either one of two ways. They can either be minted through merchants and custodians, or they can be bought from a decentralized/ centralized exchange, which is often the more expensive of the two.
Minting a Wrapped Bitcoin is a process that consists of two main transactions: minting and burning.
In order to mint a Wrapped Bitcoin, users must submit a request and make their Bitcoin payment to a wBTC merchant. The merchant then makes a transaction with the custodian that mints the token through sending BTC in exchange for wBTC. The custodian locks the Bitcoin in a reserve and holds it in custody.
To redeem the Bitcoins later on in exchange for wBTC, the user will then pay another small fee to the merchant, which will then proceed to initiate a burn transaction with the custodian. The custodian will release the Bitcoin and burn the wBTC. The transaction is tracked and verified on the Ethereum blockchain.
Wrapped BTC is a great solution for strong Bitcoin advocates that want to take advantage of decentralized applications along with other areas in DeFi. Since the price of wBTC is linked one-to-one with Bitcoin, users can still track the price of BTC whilst still utilizing the extended functionalities of Wrapped Bitcoin. What the future holds for wBTC depends on the extent to which developers continue building using it. Essentially, as DeFi itself gains popularity, the use cases and applications for wBTC will follow.
Disclaimer: The views and opinions expressed in this article are solely the author’s and do not necessarily reflect the views of MultiBank io. No information in this article should be interpreted as investment advice. MultiBank io encourages all users to do their own research before investing in cryptocurrencies.