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The cryptocurrency market has gained a massive following over the past few years. While some investors are still a bit apprehensive about putting their money into it, there is no denying that Bitcoin has become one of the most valued and successful cryptocurrencies of all time.
However, Bitcoin cannot interoperate with other currencies on the blockchain like Ethereum. While this helps strengthen the security of these two blockchain assets, it also stifles the development of an interoperable exchange. This is where Wrapped Currency comes into play.
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Before you can understand the why, where, and how of investing in Wrapped Bitcoin (WBTC), it’s important to understand more about what Wrapped Bitcoin is.
What is Wrapped Bitcoin (WBTC)?
Simply put, Wrapped Bitcoin is the tokenized version of Bitcoin. It is hosted on the Ethereum blockchain and is tied 1:1 to the value of the original coin. 1 Bitcoin can be converted into 1 WBTC and vice versa via a WBTC partner.
This makes WBTC the compliant version of Bitcoin with ERC-20 standards. So you can exchange BTC for other ERC-20 tokens without involving third parties in this transaction.
We’ve seen a dramatic surge in WBTC’s popularity in the ETH DeFi ecosystem thanks to its use in decentralized finance protocols. These include staking, investing, NFT trading, yield farming, margin trading, and liquidity.
WBTC is managed by a group called WBTC DAO. It was originally started by BitGo, Ren and Kyler. Today this group consists of almost 30 members.
How does WBTC work?
If you want to deposit Bitcoin and Mint WBTC, there is a specific process you need to follow. Dealers and custodians carry out this process. Below are some general steps you need to take:
- As a user, you must first make a request.
- Next, traders initiate a transaction to authorize the custodian to mint a corresponding WBTC amount.
- Once this is done, the merchant sends the bitcoin to the custodian. You can now exchange your BTC for WBTC. This is in exchange for the newly minted WBTC.
In order for you to redeem your BTC for WBTC, the merchant initiates a burn transaction. They first notify the custodians. After receiving the confirmation, the custodian releases the corresponding amount of BTC and sends it to the merchant’s Bitcoin address. Finally, you can exchange your WBTC for redeeming BTC at the merchants. You burn these received tokens.
How is WBTC governed?
As previously mentioned, the group that creates WBTC is controlled by a Decentralized Autonomous Organization (DAO). The DAO is composed of trustees, merchants and other agreed entities. At the beginning the organization consisted of 16 founding members. These included players like MakerDAO, Blackfolio, and Loopring. Today the DAO has about 30 members.
The governance of the WBTC is as follows: The DAO makes collective decisions, such as B. Changes to the smart contracts that are phasing out wrapped bitcoin. Other decisions include adding or removing DAO members.
Why invest in WBTC?
Bitcoin is a very desirable coin. You may be wondering, “Why would I want to convert BTC to WBTC?” There are a few reasons why an investor might want to package their BTCs:
Wrapped currencies bring more liquidity to the market. The fact that the ETH ecosystem is diverse means that the distribution of funds can result in DEXs and other platforms not being able to bring the necessary liquidity to the table to function properly.
Wrapped currencies can seamlessly integrate BTC’s liquidity into ETH’s ecosystem. This can bridge the liquidity gap between many CeFi and DeFi products.
Scalability is another way you can take advantage of packaging your bitcoins. Because these wrapped tokens exist on ETH’s blockchain, transactions made with WBTC tend to be faster and cheaper. In addition, you have more transaction and storage options.
Yield farming BTC
This DeFi protocol is gaining popularity in the crypto market. Compared to staking, farming logs have a significantly shorter retention period. Additionally, many farming systems allow users to borrow their cryptos and earn interest.
How do I buy WBTC?
Before you can start buying Wrapped Bitcoin, you need to find an exchange that supports it and has the features you are looking for. This could include low transaction fees, a user-friendly platform, and 24/7 customer support. Once you have found an exchange that suits your needs, follow these steps:
Create an account
The next step is to open a trading account to buy WBTC. The requirements for opening a trading account differ from platform to platform. However, pretty much all platforms ask for:
- Your name
- contact information
- social security number
- Copy of an identification document such as a driver’s license, passport or government-issued ID
We strongly recommend that you enable two-factor authentication (2FA) to ensure the security of your funds.
Deposit your money
In order to start buying WBTC and other cryptocurrencies, you need to deposit sufficient funds into your trading account. Here are a few deposit methods you can use:
- Debit/Credit Cards
- bank transfers
We strongly recommend using debit/credit cards or bank transfers as they are known to be PCI (Payment Card Industry) compliant.
Buy a wallet
Once you have deposited your funds, the next step is to buy a crypto wallet. This wallet comes with its own set of keys to keep your coins safe.
You can choose between software and hardware wallets. In general, the latter is the safest and consequently the most popular choice. They are a source of offline storage and reduce the risk of being hacked.
And you’re ready to buy WBTC! Look out for the Buy Now feature. This is perhaps the easiest way to buy wrapped BTC. You need to set a limit order or buy the currency at the market price with a market order on some centralized exchanges.
Where to buy WBTC?
Wrapped Bitcoin is currently available on the following crypto exchanges:
- binance: This is the best option for those in Australia, Canada, Singapore or the UK. Keep in mind that US residents are prohibited from purchasing WBTC.
- octopus: Kraken is one of the most popular crypto exchanges today, accepting customers from all over the world. However, WBTC trading is currently not available for customers from the United States, Canada, Japan and Australia.
- bit stamp: Founded in 2011, this is one of the oldest and most established exchanges. They currently accept residents from the US, UK and Canada.
- ok: Gate.io currently accepts most international jurisdictions; However, Canadian and American residents are prohibited.
Wrapped Bitcoin is becoming increasingly accepted and widely used in the crypto world. It has the same value as BTC, but it increases the possibility of Bitcoin operating in ETH’s DeFi system.
With Bitcoin peaking after the 2021 halving, virtually nobody wants to sell their BTC. Wrapped Bitcoin allows these long-term holders to earn passively without giving up ownership of their precious digital assets. Because of this, you should expect WBTC to continue to gain momentum going forward.
Updated May 13, 2022 12:18 p.m
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