Bitcoin will soon be available on the Ethereum network via a new Ethereum ERC-20 token called Wrapped Bitcoin (WBTC). This will allow users to exchange Bitcoin on Ethereum-based decentralized exchanges (DEXs), and use Bitcoin on Ethereum decentralized apps (Dapps). Every WBTC will be backed 1:1 by Bitcoin in a reserve operated by BitGo, a qualified cryptocurrency custodian.
Merchants affiliated with Wrapped Bitcoin will send Bitcoin to BitGo, who will store them in a secure wallet, and simultaneously create a smart contract that generates the token. Unlike stablecoins like Tether, Gemini Dollar, PAX, and USD Coin, audits will not be required to prove reserves, since all data about WBTC will be viewable on the blockchain in real-time. BitGo CEO Benedict Chan says, “The beauty of that is all we have to do is put up a webpage and show all the addresses that have the Bitcoins… and at the same time, people will be able to check how many WBTC are in existence just by looking… on the Ethereum blockchain.”
Merchants can also burn WBTC and redeem the Bitcoins and, therefore, users can deposit the tokens with merchants to receive Bitcoin. This will keep Wrapped Bitcoin pegged at a 1:1 ratio with Bitcoin at all times.
Users can obtain WBTC from merchants that are officially part of the network but users must go through know your customer (KYC) and anti-money laundering (AML) requirements before receiving Wrapped Bitcoin.
The decentralized exchanges Kyber Network and Republic Protocol spearheaded the WBTC project, but numerous other Ethereum DEXs have already jumped on board, in addition to some Ethereum Dapps. These include MakerDAO, Airswap, IDEX, Radar Relay, Hydro Protocol, Compound, Dharma, Set Protocol and Prycto.
WBTC is becoming an Ethereum-wide movement since a token that represents Bitcoin has been sought on the Ethereum network. This will allow Bitcoin to easily be traded on DEXs, which can lead to an increase in trading activity and liquidity. Additionally, Dapp users can use Bitcoin instead of an Ethereum token. Bitcoin is the most stable, most reputable, and most valuable cryptocurrency, and crypto users generally prefer it for business purposes, versus using other crypto which can be quite volatile.
WBTC seeks to constantly evolve under the guidance of a Decentralized Autonomous Organization (DAO), planning to progressively add more features, merchants, and custodians. Loi Luu, the CEO of Kyber Network, says, “One of the main reasons why many projects support this initiative is because there is a DAO that is going to govern the whole project including making major upgrades, adding more features, adding more merchants, even adding new custodians as well.”
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