Wrapped Bitcoin (WBTC): Definition, How it Works, and Benefits

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Bittime -  In the ever-evolving cryptocurrency ecosystem, the concept of wrapped Bitcoin (WBTC) has become increasingly popular. In this article, we will explore in depth what wrapped Bitcoin is, how it works, its advantages and risks, and its important role in the DeFi (Decentralized Finance) ecosystem .

What Is Wrapped Bitcoin (WBTC)?

Wrapped Bitcoin (WBTC) is an ERC-20 token held by traders and investors that represents ownership of Bitcoin. In other words, WBTC is a bonded version of Bitcoin that runs on the Ethereum blockchain network . 

The main goal of WBTC is to bring Bitcoin liquidity into the DeFi ecosystem by enabling users to use their Bitcoin for various DeFi applications and platforms.

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How Wrapped Bitcoin Works

1. Bitcoin Tokenization

The WBTC creation process begins by locking Bitcoin in a special wallet address. Once Bitcoin is locked, an appropriate amount of WBTC will be created and given to Bitcoin holders. This will result in a digital representation of Bitcoin called WBTC that can be used in the DeFi ecosystem.

2. Convert Back to Bitcoin

When users want to convert their WBTC back into Bitcoin, they can send their WBTC to a designated wallet address for burning. Once WBTC is destroyed, the corresponding Bitcoins will be released and returned to the original Bitcoin holders.

3. Custodian

The process of creating and destroying WBTC is managed by an entity called a custodian. The Custodian is responsible for managing locked Bitcoins and ensuring that each WBTC token created or destroyed corresponds to the amount of Bitcoins actually owned by the user.

Also Read: What is the Real Purpose of Bitcoin?

Benefits of Using Wrapped Bitcoin

1. Access to the DeFi Ecosystem

One of the main advantages of using WBTC is that it gives Bitcoin holders access to engage in the DeFi ecosystem. Previously, Bitcoin was limited to the Bitcoin blockchain and could not be used directly on DeFi platforms running on the Ethereum blockchain. 

With WBTC, Bitcoin holders can easily convert their Bitcoin into WBTC and use it in various applications such as Ethereum-based decentralized exchanges (DEX), lending, staking, and yield farming.

2. Enhanced Market Liquidity

By providing Bitcoin liquidity into the DeFi ecosystem, WBTC helps increase overall market liquidity. This opens up more opportunities for trading, arbitrage, and use of assets in various DeFi protocols. Improved liquidity can also help reduce spreads and improve overall market efficiency.

3. Diversify Portfolio Safely

Using WBTC allows investors to diversify their portfolios without having to leave the DeFi ecosystem. They can use their Bitcoin as an underlying asset to support transactions in DeFi.

However, investors still maintain exposure to the underlying Bitcoin price. This provides flexibility in portfolio management and allows users to take advantage of different financial opportunities without having to sell their Bitcoins.

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4. Interoperability Between Blockchains

WBTC also opens the door to interoperability between the Bitcoin and Ethereum blockchains. Using WBTC, users can easily move their Bitcoins from the Bitcoin blockchain to the Ethereum blockchain, and vice versa.

This enables easy cross-chain transfers between the two blockchains, allowing users to take advantage of services and applications running on both networks.

5. Stable and Reliable

WBTC is backed by actual Bitcoin held by a trusted custodian entity. This gives users confidence that any WBTC they hold is backed by real Bitcoin.

In addition, the WBTC creation and destruction process is carried out transparently and securely by the relevant parties, ensuring that each WBTC created or destroyed corresponds to the actual amount of Bitcoin.

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Risks of Using Wrapped Bitcoin

1. Contractual Risk

Because WBTC relies on a custodian entity to manage and secure its locked Bitcoin, there are contractual risks associated with failure or loss on the part of the custodian.

2. Regulatory Potential

As the DeFi ecosystem grows, there is also the potential for increased regulation related to bonded tokens like WBTC. Changes in regulations or policies may affect the way WBTC is managed and used.

Conclusion

Wrapped Bitcoin (WBTC) is an important innovation in the world of cryptocurrency as it brings Bitcoin liquidity into the growing DeFi ecosystem. By providing access to various DeFi applications and protocols, WBTC helps expand Bitcoin usage and improve overall market liquidity. 

However, users should carefully consider the risks associated with using WBTC and ensure that they understand the mechanisms involved before deciding to use WBTC in their portfolio.

Also Read: What is a Crypto Portfolio?

How to Buy Bitcoin (BTC) on Bittime

If you are interested in investing in Bitcoin (BTC) , you can buy it at Bittime. BTC tokens are available on Bittime in BTC IDR pairings. 

The following is a guide on how to buy BTC tokens on Bittime. 

• Register an account at Bittime using an active email. 
• Complete the identity verification process.  
• Once the account is verified, open the Bittime application.
• Select the Market menu or click the graphic icon. 
• Select IDR pairing to buy BTC with Rupiah.
• Click 'Buy'.
• Select the order type to use. Limit orders, market orders and stop orders are available.
• Enter the nominal rupiah to buy BTC.
• Click the 'Buy BTC' button. 
• A notification pop up will appear. Read it carefully and click 'Confirm'. 
• Enter the six digit Transaction PIN.
• The application will display a successful order notification. 
• Check your BTC balance in your wallet after a successful transaction.

To see a complete guide on how to buy Bitcoin (BTC), you can click here.

Apart from buying Bitcoin (BTC), you can also buy various crypto assets, such as ETH, USDT, SOL, ADA, AVAX, DOGE, and many others. Don't forget, keep monitoring crypto asset price chart movements today to find out crypto market trends on Bittime. 

Crypto asset buying and selling transactions on Bittime are easy, safe and instant. Bittime is officially registered and supervised by Bappebti and Kominfo. 

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DISCLAIMER : This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.