The cryptocurrency space is in constant development, birthing innovations that can be a bit technical for newbies. While several people are still trying to understand the technology behind bitcoin as they look to buy Bitcoin, some are already talking about wrapped Bitcoin.
There have been so many discussions as regards wrapped coins recently, particularly, wrapped bitcoin (wBTC). The idea of wrapped Bitcoin came up in an attempt to improve the functionality and ease of use of Bitcoin.
What is wBTC?
Wrapped Bitcoin (wBTC) is an ERC20 token that efficiently brings Bitcoin to the Ethereum network. This exceptional token gives investors, traders, organizations, and decentralized applications a link to the Ethereum blockchain while maintaining exposure to BTC. The aim is to get a version of BTC’s cost value and join it with ETH’s programming.
Every wBTC is an ERC20 coin that is equal to BTC on a 1:1 ratio. You can change any bitcoin to wrapped-BTC on several exchanges, including centralized exchanges. Wrapped BTC can also be converted to bitcoin when you wish. This adaptable and modifiable feature enables users to smoothly swap between BTC and wrapped BTC to meet their needs.
Advantages of Wrapped BTC
One may wonder what exactly is the difference if buying Bitcoin is better than buying wrapped BTC or perhaps, the benefits of converting Bitcoin to wrapped BTC. Interestingly, there are so many reasons why traders might want to change their BTC to wrapped BTC. Basically, wBTC is the gateway for BTC owners to tap into the unlimited functionalities of the Ethereum network. The Ethereum blockchain is currently the biggest in the cryptocurrency space.
The huge network includes private addresses, smart contracts, decentralized applications, decentralized exchanges, games. Users of wBTC can even have access to decentralized finance, allowing them to borrow and lend crypto assets without selling their Bitcoin. The limitless nature of the ethereum space has increased the trade of wBTC.
The major benefit of wrapped Bitcoin is the liquidity it provides for decentralized exchanges. The ETH blockchain is different and diverse. There is a shortage of liquidation in the decentralized community compared to the robust liquidity of the CEXs. The low liquidity makes exchanges function at suboptimal levels because users cannot trade high volumes. Wrapped Bitcoin incorporates Bitcoin’s liquidity into ETH blockchain’s flexibility.
It provides scalability
This is another significant benefit you get when you buy a wrapped Bitcoin than when you buy bitcoin. With wrapped coins existing on ETH’s network, and not directly on Bitcoin, trades made with wrapped Bitcoin are quicker and cheaper. Also, you will have more storage and transaction options with wBTC.
WBTC offers users more functionalities when compared to buying BTC. For instance, wrapped BTC can capitalize on ETH’s dynamic smart contracts. A smart contract is a transaction protocol that is intended to execute automatically according to the terms of a pre-programmed agreement.
Smart contracts are regarded as a future technology of the blockchain system. But smart contracts were birthed by the ETH protocol that allows users to create their own tokens. Unless a new development occurs on the bitcoin blockchain, it offers nothing exciting like decentralized finance.
Bitcoin for Decentralized Finance (Defi)
It can be said that the development and growth of decentralized finance brought about the creation of wrapped Bitcoin. Decentralized finance apps look to change native CeFi services into decentralized forms. Notable applications such as Compound enable customers to substitute banks and offer liquidity in return for interests.
Crypto staking with wBTC
Crypto staking is one of the peculiar functionalities of decentralized finance. There are presently several kinds of crypto staking platforms today. A lot of them need a user to keep their digital assets on their smart contracts for a stipulated period in return for interests.
Customers who buy Bitcoin can only participate and benefit from crypto lending by converting their BTC to wBTC to fund their Ethereum wallet for staking. For instance, programs like Uniswap and Maker allow you to immediately earn interests when you stake your wBTC or use it to provide liquidity for traders.
This is another benefit you get when you have wBTC. Yield-farming is a new concept that is gaining popularity in the system. Yield-farming is unlike staking in some ways. Yield farming programs allow you to lock your cryptocurrency for a shorter time. A lot of yield farming apps enable users to earn passive income by lending out their digital assets to other users.
Wrapped Bitcoin Expansion
There are many benefits associated with buying wrapped Bitcoin. These benefits have aided the creation of a new system in the blockchain sphere. Presently, a lot of traders and investors are more interested in making use of wrapped Bitcoin.
In September 2020, it was reported that there is a unique and phenomenal expansion as regards wrapped Bitcoin. According to coinmarketcap.com, the market capitalization of wBTC stands at $6.2 billion, which positions it as the 15th cryptocurrency.
Whether you intend to buy Bitcoin or wBTC, it is important to understand that the idea of wrapped Bitcoin is to provide the Ethereum network with a BTC equivalent. There’s really no difference in the value of the two assets.
Bitcoin holders do not need to concern themselves about wBTC since they intend to hold bitcoin for a while. However, bitcoin owners that want to explore the Defi space may need to convert their BTC to wBTC to enjoy the robust functionalities the Ethereum network offers.
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