The cryptocurrency market has gained a massive following over the last few years. While some investors are still a bit apprehensive about putting their money in it, there is no denying that Bitcoin has become one of the most widely appreciated and successful cryptocurrencies of all time.
However, Bitcoin can’t work with other currencies on the blockchain, such as Ethereum. While this helps bolster the security of these two blockchain assets, it also stifles the development of an interoperable exchange. That’s where Wrapped Currency comes in.
The first London Value Investor Conference was held in April 2012 and it has since grown to become the largest gathering of Value Investors in Europe, bringing together some of the best investors every year. At this year’s conference, held on May 19th, Simon Brewer, the former CIO of Morgan Stanley and Senior Adviser to Read More
Before you can understand the whys, wheres, and hows of investing in Wrapped Bitcoin (WBTC), it’s essential to learn more about what Wrapped Bitcoin is.
What Is Wrapped Bitcoin (WBTC)?
Simply put, Wrapped Bitcoin is the tokenized version of Bitcoin. It’s hosted in the Ethereum blockchain and pegged to the value of the original coin in a 1:1 ratio. Through a WBTC partner, 1 Bitcoin can be converted into 1 WBTC and vice versa.
This makes WBTC the compatible version of Bitcoin with ERC-20 standards. So you can trade BTC for other ERC-20 tokens without bringing any 3rd parties into this transaction.
We have seen a dramatic increase in WBTC’s popularity in the ETH DeFi ecosystem thanks to its use in decentralized finance protocols. These include staking, investing, NFT trading, yield farming, margin trading, and liquidity.
WBTC is maintained by a group called the WBTC DAO. It was originally started by BitGo, Ren, and Kyler. Today, this group consists of nearly 30 members.
How Does WBTC Work?
If you’re looking to deposit Bitcoin and mint WBTC, there is a specific process you need to follow. Merchants and custodians carry out this process. Below are a few general steps you need to take:
- As a user, you must first submit a request.
- Next, the merchants initiate a transaction to authorize the custodian to mint a corresponding WBTC amount.
- Once this is done, the merchant sends the Bitcoin to the custodian. You can now exchange your BTC for WBTC. This is in exchange for the newly minted WBTC.
For you to redeem your BTC for WBTC, the merchant initiates a burn transaction. They first notify the custodians. Upon receiving confirmation, the custodian releases the corresponding amount of BTC and sends it to the merchant’s Bitcoin address. Lastly, you can exchange your WBTC for redeeming BTC with the merchants. They burn these received tokens.
How Is WBTC Governed?
As discussed earlier, the group that creates WBTC is controlled by a Decentralized Autonomous Organization (DAO). The DAO is composed of custodians, merchants, and other agreed-upon establishments. At its inception, the organization consisted of 16 founding members. These included players like MakerDAO, Blackfolio, and Loopring. Today, the DAO has approximately 30 members.
The governance of WBTC goes as such: the DAO makes collective decisions, such as any changes to the smart contracts that stamp out wrapped Bitcoin. Other decisions include adding or removing DAO members.
Why Invest In WBTC?
Bitcoin is a highly coveted coin. You might wonder: “Why would I want to convert BTC to WBTC?” There are a couple of reasons why an investor would want to wrap their BTCs:
Wrapped currencies bring greater liquidity to the market. The fact that the ETH ecosystem is diverse means that the distribution of funds can create a situation where DEXs and other platforms cannot bring the necessary liquidity to the table to function correctly.
Wrapped currencies can integrate the liquidity of BTC seamlessly into ETH’s ecosystem. This can bridge the liquidity gap between many CeFi and DeFi products.
Scalability is another way you can leverage wrapping your Bitcoin. Since these wrapped tokens exist on ETH’s blockchain, transactions conducted with WBTC tend to be quicker and more cost-effective. Additionally, you’ll have more transaction and storage options.
Yield Farming BTC
This DeFi protocol is fast becoming popular in the crypto market. As compared to staking, farming protocols have a significantly shorter lockup period. Moreover, many farming systems let users loan their crypto and earn interest.
How To Buy WBTC?
Before you can begin buying wrapped Bitcoin, you need to find a currency exchange that supports it and has the features you’re looking for. These could include low-transaction fees, a user-friendly platform, and round-the-clock customer support. Once you’ve come across an exchange that’s suited to your needs, follow these steps:
Create An Account
The next step is to open a trading account to buy WBTC. The requirements for opening a trading account differ from platform to platform. However, pretty much all platforms ask for:
- Your name
- Contact information
- Email address
- Social security number
- Copy of an identification document such as a driver’s license, passport, or government ID
We strongly suggest you enable two-factor authentication (2FA) to ensure the safety of your funds.
Deposit Your Funds
To begin buying WBTC and other cryptocurrencies, you must deposit sufficient funds into your trading account. Here are a couple of deposit methods you can use:
- Debit/credit cards
- Bank transfers
We highly suggest using debit/credit cards or bank transfers because they are known to be payment card industry (PCI) compliant.
Purchase a Wallet
Once you’ve deposited your funds, the next step is purchasing a crypto wallet. This wallet has its own set of keys used to store your coins safely.
You can choose between software and hardware wallets. Generally speaking, the latter is the most secure and, consequently, more popular choice. They are a source of offline storage, reducing the risk of your being hacked.
And just like that, you’re all set to buy WBTC! Keep an eye out for the “instant buy” feature. This is perhaps the easiest way to purchase wrapped BTC. You need to set a limit order or purchase the currency at market price with a market order in some centralized exchanges.
Where To Buy WBTC?
Wrapped Bitcoin is currently available at the following crypto exchanges:
- Binance: This is the best option for those in Australia, Canada, Singapore, or the UK. Keep in mind that US residents are prohibited from purchasing WBTC.
- Kraken: One of the most popular crypto exchanges today, Kraken accepts clients from all over the world. However, WBTC trading is not available for customers from the United States, Canada, Japan, and Australia at the moment.
- Bitstamp: Having been founded in 2011, this is one of the oldest and most well-established exchanges. They currently accept residents from the US, UK, and Canada.
- io: Gate.io is currently accepting most international jurisdictions; however, Canadian and American residents are prohibited.
Wrapped Bitcoin is becoming increasingly accepted and widely distributed in the crypto world. It carries the same value that the BTC does, but it increases the possibility of Bitcoin operating in ETH’s DeFi system.
With Bitcoin hitting peaks after the 2021 halving, virtually no one wants to sell their BTC. Wrapped Bitcoin allows these long-term holders to earn passively without giving up ownership of their valuable digital assets. For this reason, you should expect WBTC to continue gaining momentum in the future.