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What Is Wrapped BTC and How to Buy wBTC?

2023-11-13 07:34:22
Wrapped Bitcoin (WBTC)

In our commitment to continually broaden our offerings, we are introducing a new project addition: Wrapped BTC. Wrapped Bitcoin (wBTC) refers to tokens created on blockchains other than the Bitcoin blockchain, with each wBTC token being equivalent in value to one Bitcoin on its native blockchain. This allows for the representation of Bitcoin's value on other blockchain networks.

In this article, we will explore ERC-20 Wrapped BTC, discussing how it works, and its token, wBTC. We will discuss wBTC statistics and the features of ERC-20 wBTC. Finally, we will conclude by providing a step-by-step guide on how to buy ERC-20 wBTC.

What Is Wrapped BTC?

Wrapped Bitcoins (wBTC) are tokens minted on the Ethereum blockchain (ERC-20) with each wBTC token being equivalent in value to one Bitcoin on its native blockchain. Wrapped Bitcoins allow for the representation of Bitcoin's value on other blockchain networks. wBTC is the first cryptocurrency token to be fully backed 1:1 by Bitcoin, ensuring complete transparency and verifiability. WBTC is governed by a consortium of institutions to address scalability, trust, regulation, and governance challenges.

WBTC addresses the need for greater liquidity in the Ethereum ecosystem, particularly in decentralized exchanges (DEXs) and financial applications. By converting Bitcoin into WBTC, users can leverage the faster transaction times and smart contract capabilities of Ethereum. This allows Bitcoin holders to trade their assets more efficiently on DEXs and participate in various Ethereum-based financial applications.

The process of minting and using WBTC involves a user requesting tokens from a merchant, with a proper KYC process. Once verified, a swap occurs between the user and the merchant, where Bitcoin is transferred from the user to the merchant, and WBTC is transferred from the merchant to the user. Minting and burning processes ensure that new WBTC tokens are created when needed and that Bitcoin can be redeemed for WBTC, with custodians and merchants playing essential roles in these operations.

wBTC offers a solution for tokenizing assets and bringing Bitcoin's liquidity to the Ethereum ecosystem. wBTC allows for faster and more transparent transactions, increased liquidity on decentralized exchanges, and greater interoperability between cryptocurrencies. wBTC's standardization of Bitcoin as an ERC20 token simplifies smart contract integration and opens up new possibilities for decentralized applications, financial services, and institutions to leverage the advantages of both Bitcoin and Ethereum.

Why Do We Need Wrapped Bitcoin?

ERC-20 Wrapped Bitcoin (WBTC) is essential because it enables Bitcoin holders to access the advantages of the Ethereum ecosystem. With WBTC, Bitcoin liquidity can be seamlessly integrated into Ethereum-based decentralized exchanges and financial applications, addressing the need for increased trading options and accessibility. 

WBTC simplifies the tokenization of assets, speeding up transactions and enhancing transparency, which benefits various DeFi use cases and enables secure and efficient asset management. WBTC serves as a crucial link between two major blockchain networks, offering a bridge for Bitcoin users to leverage the benefits of Ethereum while maintaining the stability and trust of the original cryptocurrency.

What Is the wBTC Token?

wBTC tokens, functioning as ERC-20 tokens, have versatility in their application within the Ethereum ecosystem, facilitating their use in decentralized exchanges (DEXs), lending platforms, and various DeFi protocols. wBTC can be transferred, traded, and used just as any ERC-20 token. 

Minting and Burning Wrapped Bitcoin

Minting and burning Wrapped Bitcoin (WBTC) tokens is a fundamental process that ensures the creation and redemption of wBTC in a secure and transparent manner. Minting refers to the process of creating new WBTC tokens. It is initiated by a merchant and executed by a custodian. To mint wBTC, the following steps occur:

  1. The merchant initiates a transaction to authorize the custodian to mint a specific amount of wBTC to the merchant's Ethereum address.
  2. The merchant sends an equivalent amount of Bitcoin (BTC) to the custodian. This BTC will serve as collateral for the newly minted wBTC.
  3. The custodian awaits the BTC transaction's confirmation. 
  4. Upon confirmation of the BTC transaction, the custodian initiates an Ethereum blockchain transaction to generate the designated quantity of wBTC tokens. These freshly minted wBTC tokens are subsequently accessible for utilization within the Ethereum network (ERC-20 tokens).

Burning, on the other hand, involves the redemption of wBTC tokens for Bitcoin. Only merchant addresses have the authority to perform burning. 

The process works as follows:

  1. A merchant initiates a burning request, specifying the amount of wBTC they wish to redeem for Bitcoin.
  2. The specified amount of wBTC is deducted from the merchant's wBTC balance on the Ethereum blockchain.
  3. In response, the supply of wBTC is reduced by the amount that has been redeemed.
  4. The merchant receives an equivalent amount of Bitcoin (BTC) in return for the burnt wBTC, effectively converting wBTC back into its underlying asset, Bitcoin.

These minting and burning processes ensure that the total supply of wBTC in circulation is always fully backed by an equivalent amount of Bitcoin, maintaining the 1:1 peg.

It's crucial to emphasize that you can easily trade your WBTC for BTC and vice versa on centralized exchanges like CoinEx.

wBTC Statistics (Nov 1, 2023)

wBTC Statistics

Features of wBTC

  1. Bitcoin-Pegged (1:1): The most important feature of Wrapped Bitcoin (wBTC) is its 1:1 backing. Each wBTC token is fully collateralized by an equivalent amount of Bitcoin (BTC). This means that for every wBTC token in circulation, there is a corresponding Bitcoin held in reserve. This ensures the value of wBTC is always directly tied to the value of Bitcoin, maintaining a constant and transparent peg.
  2. Interoperability: wBTC features interoperability between the Bitcoin and Ethereum blockchains. wBTC represents Bitcoin as an ERC-20 token which is compatible with Ethereum's smart contract infrastructure. This allows users to seamlessly move Bitcoin onto the Ethereum network. This interoperability enables Bitcoin holders to access the features and advantages of the Ethereum ecosystem such as fast transactions and DeFi.
  3. Transparency: wBTC operates on a model of complete transparency. The supply of wBTC, the collateralization of BTC, and the transactions related to minting and burning are all visible on the Ethereum blockchain. This transparency builds trust in the system and ensures that users can verify that each wBTC token is genuinely backed by Bitcoin.
  4. Decentralization: While wBTC operates with a consortium of institutions, it follows a decentralized model, unlike traditional centralized solutions. This consortium collectively manages and governs wBTC, reducing reliance on a single central authority. This decentralized approach aligns with the principles of blockchain technology, promoting decentralization and security.
  5. Efficiency: wBTC simplifies the process of transferring Bitcoin into the Ethereum ecosystem. It streamlines the tokenization of assets and eliminates the need for intermediaries in cross-chain transactions. 
  6. Use Cases: wBTC introduces various use cases, including enhanced liquidity for decentralized exchanges (DEXs) and DeFi applications. Bitcoin holders can now participate in Ethereum-based financial activities, lending, trading, and token sales while leveraging the speed and flexibility of the Ethereum network. Institutions, exchanges, and wallets can also benefit from the simplified management of multiple cryptocurrencies through wBTC's interoperable model.

How to Buy wBTC Tokens?

CoinEx is a global cryptocurrency exchange, trusted by 5+ millions of users worldwide with 100% reserve. With its 700+ tokens supported, including WBTC, users can now trade easily and seamlessly. To purchase WBTC tokens on CoinEx, follow the steps below.

  1. Create an Account: Start by signing up for a CoinEx account.
  2. Deposit Funds: After logging in, deposit funds into your CoinEx account using any supported cryptocurrencies or deposit methods available on the exchange. Having funds in your account enables you to execute trades seamlessly.
  3. Navigate to WBTC Trading Page: Once your account is funded, go to the dedicated WBTC trading page on CoinEx. You can find a search box and enter the term WBTC to swiftly locate the trading pair associated with WBTC tokens.
  4. Choose a Trading Pair: Select the trading pair WBTC/BTC to trade WBTC against BTC (Bitcoin).
  5. Specify the Purchase Amount: Determine the quantity of WBTC tokens you want to purchase. Input the amount in the trading interface, which will calculate the corresponding cost based on the current market price.
  6. Execute the Trade: With the specified amount, proceed to execute the trade. Confirm the details, and if you are satisfied, submit the order. 

By following these comprehensive steps, you can easily trade WBTC tokens on CoinEx, taking advantage of the available trading pairs.

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