What is Wrapped Bitcoin (wBTC)? Understanding wrapped tokens
Bitcoin unwrapped: Learn what Wrapped Bitcoin (wBTC) is and how it enables the use of Bitcoin (BTC) on the Ethereum (ETH) blockchain.
By Milly Fox-Jones
Bitcoin, the world's first cryptocurrency, launched the crypto revolution in 2009. Since then, developers have continued to build on its foundation to create the burgeoning web3 world we know today.
While Bitcoin is still one of the most successful cryptocurrencies, its lack of interoperability has posed a challenge. The solution? Wrapped Bitcoin (wBTC).
This guide will help you learn about the innovation that allows Bitcoin holders to benefit from other currencies and networks.
What is Wrapped Bitcoin?
Wrapped Bitcoin is an ERC-20 cryptocurrency token that runs on the Ethereum blockchain and is intended to be backed 1:1 by Bitcoin. To attempt to keep the price of wBTC and BTC stable, this means that for every wBTC token issued, there should be an equivalent amount of Bitcoin held in reserve by a custodian.
You can think of wrapped tokens like a modifier that allows you to use a cryptocurrency from one blockchain on another chain that does not traditionally support such crypto assets.
The custodians that issue wBTC include centralized exchanges (CEX), decentralized exchanges (DEX), or a group of decentralized organizations (such as a DAO) that manage the token's supply and attempt to ensure that the Bitcoin backing the token remains matches the amount of wBTC issued.
“Wrapping” Bitcoin – that is, exchanging your BTC for wBTC – allows you to enjoy the benefits of Bitcoin while benefiting from the features offered by the Ethereum network and its DeFi ecosystem.
Wrapped Bitcoin can be traded on various cryptocurrency exchanges and used as collateral for loans and other financial transactions. Wrapping BTC has become a popular way for Bitcoin holders to access the world of DeFi and participate in Ethereum-based applications.
Why was Wrapped Bitcoin created?
The wrapped token was launched in January 2019 with the aim of creating a token that could bring the liquidity and functionality of Bitcoin to the Ethereum ecosystem.
Before wBTC, there was no way to take advantage of smart contracts and decentralized applications (dApps) with Bitcoin, as it can't natively run on the Ethereum network.
Who created Wrapped Bitcoin?
Wrapped Bitcoin was created by a collection of companies in the crypto industry, including BitGo and Kyber Network.
- BitGo is a digital assets custodian and security company and provides the custodial services for the Bitcoin tokens that back wBTC
- Kyber Network is a decentralized exchange platform and provides liquidity by allowing users to trade it for other ERC-20 tokens
How does Wrapped Bitcoin work?
Wrapped Bitcoin works by creating a bridge between the Bitcoin and Ethereum blockchains. When someone wants to convert their Bitcoin to wBTC, they first send their Bitcoin to a custodian, who should hold the Bitcoin in reserve.
The custodian will then mint an equivalent amount of wBTC ERC-20 tokens and send them to the user's cryptocurrency wallet. This process is called wrapping.
When someone wants to convert their Wrapped BTC back to Bitcoin, they initiate a “redemption request” with the custodian. The custodian then burns the wBTC tokens and sends the equivalent amount of Bitcoin to the user's crypto wallet.
The process of minting and burning wBTC is overseen by custodians, who are responsible for holding the Bitcoin reserves that back the wBTC tokens.
What's the difference between Bitcoin and Wrapped Bitcoin?
The main difference between Bitcoin and Wrapped Bitcoin is that BTC is a native cryptocurrency that runs on the Bitcoin blockchain, while wBTC is an ERC-20 token that runs on the Ethereum blockchain.
Another key difference between Bitcoin and Wrapped Bitcoin is the level of decentralization. Bitcoin is fully decentralized and operates on a trustless, peer-to-peer network. Wrapped BTC, on the other hand, relies on a group of custodians to hold the Bitcoin reserves that back the wBTC tokens.
Custodians represent a central point of control and potential vulnerability.
Wrapped Bitcoin's goal: the bridge between blockchains
The goal of Wrapped Bitcoin is to bring the benefits of Bitcoin to the Ethereum ecosystem. The creators of Wrapped BTC recognized that while Bitcoin is the most well-known and widely-used cryptocurrency, it's limited in its functionality compared to other blockchain networks like Ethereum.
Wrapped Bitcoin aims to provide a more flexible and versatile form of Bitcoin that can be used in Ethereum smart contracts and decentralized applications.
By creating a token that represents BTC on the Ethereum blockchain, Wrapped Bitcoin enables users to take advantage of Ethereum's functionality while still benefiting from Bitcoin.
Overall, the goal of Wrapped Bitcoin is to bridge the gap between the Bitcoin and Ethereum ecosystems and enable Bitcoin to be used in a wider range of applications.
Did you know? You can pay with Wrapped Bitcoin
Frequently asked questions (FAQs) about wBTC
Are there are other wrapped Bitcoin tokens besides wBTC?
Yes, there are other variations of wrapped Bitcoin in addition to wBTC. Other wrapped Bitcoin assets include:
How many wrapped Bitcoins are there?
At the time of writing, there are over 156,000 wBTC tokens in circulation, compared to over 19.5 million Bitcoins in circulation.
Cryptocurrency circulation figures are subject to change.
Will wBTc's price always equal the price of BTC?
It is impossible to predict the future price of wBTC (or any cryptocurrency). But if a wBTC custodian maintains a 1:1 backing or BTC to wBTC, then the price of wBTC issued by that custodian should equal BTC's price.
However, it is possible the price of wBTC fluctuates in the future, either because a custodian does not maintain a 1:1 backing or for another reason.
For live Bitcoin price and market metrics, view our Bitcoin Price page.
Which blockchains support wrapped tokens?
There are a number of blockchains that support wrapped crypto assets, in addition to Bitcoin. Some of these include:
How to wrap Bitcoin?
To wrap Bitcoin, you can send your BTC tokens to a centralized exchange that will hold your BTC and send you an equal amount of wBTC tokens in exchange. If you prefer decentralized finance (DeFi), you can use an option like Keep Network to mint wBTC tokens directly using a smart contract.
MoonPay makes it easier to acquire wBTc with instant purchases. This provides a safer and simpler experience than using DeFi dApps, and is significantly faster than waiting several days for your funds to settle on a crypto exchange.
What are the risks associated with Wrapped Bitcoin (wBTC)?
Like any cryptocurrency, Wrapped Bitcoin is not immune to risk factors that can affect digital assets. Some of these include:
- Price volatility risks, including the price of BTC itself
- The risk that the custodian uses the BTC reserves
- Additional custodian risks like security and insolvency
- Regulatory risks concerning the legality of wBTC assets
How to buy Wrapped Bitcoin (wBTC) and BTC
You can buy Wrapped Bitcoin (wBTC) and Bitcoin (BTC) via MoonPay or through any of our partner wallet applications with a credit card, bank transfer, Apple Pay, Google Pay, and many other payment methods.
Just enter the amount of wBTC or BTC you wish to purchase and follow the steps to complete your order.
How to sell Bitcoin
MoonPay makes it easy to sell Bitcoin when you decide it's time to cash out your crypto.
Simply enter the amount of BTC you'd like to sell and enter the details where you want to receive your funds.
We're always adding more cryptocurrencies like Wrapped Bitcoin (wBTC) to sell, so check back soon.
Swap Wrapped Bitcoin for more crypto
Want to exchange WBTC for other cryptocurrencies like Ethereum and Bitcoin? MoonPay allows you to swap crypto cross-chain with competitive rates, directly from your non-custodial wallet.
