Let’s learn about Wrapped Bitcoin, an ERC-20 token that brings Bitcoin to the Ethereum Blockchain. Wrapped Bitcoin is a converted version of Bitcoin that can be used on Ethereums network of decentralized applications. It brings increased liquidity to the decentralized finance ecosystem, granting Bitcoin holders access to a variety of financial services.
Through a WBTC partner, one Bitcoin can be converted to 1 Wrapped Bitcoin, and vice-versa. The concept of Wrapped BTC was officially announced in October 2018. The initial developers of the wrapped Bitcoin protocol wereBitGo, Kyber Network, and Ren, known as Republic Protocol at the time.
The WBTC whitepaper was released on January 24, 2019, and about a week later, the token was launched with eight merchants facilitating Bitcoin-to-WBTC conversions. A standard use for WBTC is as collateral, or a pledge for loan repayments, when taking out a cryptocurrency loan on DeFi platforms.
Here’s how it works. Wrapped Bitcoin is created when users requestEthereum-based ERC-20 tokens from a merchant in exchange for their Bitcoin. Upon receipt of the request, the merchant carries out KYC and AML procedures. The merchant then initiates a transaction with a custodian such as BitGo. Finally, the custodian mints WBTC and transfers it to the merchant’s Ethereum address. The merchant can then deliver Bitcoin to the custodian and issue WBTC to users.
The reverse occurs with a burn transaction when WBTC transforms back into Bitcoin. WBTC is governed by a DecentralizedAutonomous Organization called the WBTC DAO. Governing members of the WBTC DAO decide on major upgrades and changes to the protocol as well as who can assume the roles of the merchants and Custodians that manage the system. You’re watching the video channel of MarketSquare, the new homepage for the decentralized Web.