What Is Wrapped Bitcoin?

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Contributor, Benzinga
Updated: July 18, 2022

Looking to buy Wrapped Bitcoin? You can do so on Coinbase!

Wrapped Bitcoin (WBTC) is a token that pegs Bitcoin to the Ethereum blockchain. It offers users another way to interact and use the largest cryptocurrency in the world, Bitcoin, while providing other benefits. Investors buy Wrapped Bitcoin to gain exposure to Bitcoin while being able to use Ethereum’s network for things like lending, borrowing and trading. 

Explanation of Wrapped Bitcoin

Wrapped Bitcoin (WBTC) is an ERC-20 token on the Ethereum blockchain. It hopes to improve both the usability and scalability of Bitcoin. Because it’s based on the Ethereum network, it can be used to interact with the Ethereum network through smart contracts, decentralized applications (dApps) and other features. 

WBTC is pegged to BTC at a 1:1 ratio, meaning that 1 WBTC is always worth 1 BTC. Wrapped Bitcoin “wraps” a Bitcoin to ensure the 1:1 ratio. Each WBTC token is backed by 1 BTC token. The value is maintained by the WBTC decentralized autonomous organization (DAO), which houses the tokens. The WBTC DAO currently has over 30 members working as custodians for BTC/WBTC swaps.

One major use of WBTC is collateralization. WBTC holders can use their position as collateral to receive loans. This option allows users to use decentralized finance (DeFi) for loans without giving up the store of value that Bitcoin has proven to be.

Bitcoin vs. Wrapped Bitcoin: What’s The Difference?

While Bitcoin and Wrapped Bitcoin have the same price, they are entirely different assets. WBTC operates on the Ethereum blockchain and BTC operates on the Bitcoin blockchain. 

Bitcoin is arguably more secure because its blockchain is more secure and larger than Ethereum’s. Bitcoin is also easier to buy and is available on many more exchanges than WBTC.

Wrapped Bitcoin offers more usability, as it operates on the Ethereum blockchain. However, it cannot be stored in a Bitcoin wallet. To store WBTC, you need an Ethereum wallet. 

The Benefits of Using Wrapped Bitcoin

The main benefit of using Wrapped Bitcoin is to serve as a bridge between Bitcoin and Ethereum. Both the Ethereum and Bitcoin chains have their own benefits, so connecting the 2 can prove to be powerful. It incorporates the best parts of both chains to produce something better than either can make on their own. 

One major issue that arose early on with cryptocurrency was that users would have to swap tokens to experiment with new DeFi protocols. Chains typically only support a select number of tokens. WBTC changed this by allowing users to continue holding their assets while trying out new protocols. Users can try out new protocols on the Ethereum network without having to swap their BTC for a token of different value. 

This function also means Bitcoin holders can continue to hold their precious tokens. Instead of having to sell or swap into ETH to use Ethereum, they can retain their exposure to BTC. Bitcoin has shown itself to be a solid store of value, currently up over 500% on the year. With WBTC, users can continue to invest in BTC while reaping the benefits of the Ethereum chain.

One specific use of Wrapped Bitcoin on the Ethereum network is with staking. Users can stake their WBTC position and earn interest for doing so. Staking is not possible on the Bitcoin network, but users can stake for interest using WBTC on the Ethereum network.  

Where Can You Buy WBTC?

Because Wrapped Bitcoin is related to the wildly popular Bitcoin, it is available on a variety of crypto exchanges. Brokerages tend to be easier to use than exchanges. A few brokerages stand out because of ease of use and a focus on user experience. 

Coinbase Global Inc. (NASDAQ: COIN) and FTX U.S. are major crypto brokerages that offer WBTC. To open an account, you typically only need an email or phone number. Once funds are deposited, they can immediately be used to purchase crypto. If you're located in the United States, Coinbase is your best option to buy wrapped bitcoin.

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While brokerages can be an easy way to buy cryptocurrency, you may be interested in a more secure way to store cryptocurrency. Wallets are a great option to do so, providing an extra layer of security to your crypto position. 

There are 2 main types of wallets. The first is a software wallet. Software wallets operate entirely on a computer or other web-based device. They provide users with the chance to store crypto on an online account, separate from a brokerage or exchange. For Wrapped Bitcoin, the best software wallet is MetaMask. MetaMask supports ERC-20 tokens, the type of token WBTC is. MetaMask is easy to use and provides a secure place for crypto storage.

The other type of wallet is a hardware wallet. Hardware wallets are physical objects that store cryptocurrency. They are essentially a physical “key” for crypto storage. Hardware wallets provide even more security than software wallets. 

The best hardware wallet for WBTC is Ledger. Ledger hardware wallets also support ERC-20 tokens. They look like USB sticks but are used to store private keys. For those looking for the most secure crypto experience, Ledger hardware wallets may be the way to go. 

Double the Power

Wrapped Bitcoin is a unique asset that taps into the strengths of both the Ethereum and Bitcoin networks. It helps improve the interoperability between separate blockchains. As Wrapped Bitcoin and Bitcoin continue to make headlines, make sure to return to Benzinga for the most up-to-date information.

Is Wrapped Bitcoin the same as Bitcoin?

In short, no. While the 2 assets have the same price, they operate on separate chains. Bitcoin is on the Bitcoin network, and Wrapped Bitcoin is on the Ethereum network. They also serve different functions in the crypto sphere. 

Is Wrapped Bitcoin safe?

WBTC uses powerful technology to ensure the security of the token. It uses decentralized custodians to verify conversions of WBTC to BTC and vice versa. However, the trust-based model that WBTC relies on could be used to issue “fake” WBTC tokens when BTC is swapped for WBTC, but this is extremely unlikely.

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