The Bitcoin network is secure and reliable but isn’t exactly known for doing smart contracts. Ethereum is the smart contract platform that everyone uses and is perfect for Dapps, decentralized exchanges and other smart contract uses. What if there was a way to get Bitcoin on to the Ethereum network?
Wrapped Bitcoin (WBTC) is the solution to that problem. The simple explanation is that WBTC is an ERC-20 token that functions like Bitcoin, is valued as Bitcoin and is treated like Bitcoin. In all intensive purposes it is Bitcoin.
How?
I will give a brief summary of how WBTC works but if you want to learn more go here.
There are 3 basic parties involved: merchants, custodians and users.
- The merchant initiates a transaction with the custodian. The merchants sends Bitcoin to the custodian and then the custodian sends the same amount of Wrapped Bitcoin back to the merchant.
- The merchant than swaps Bitcoin for WBTC from various users.
- The users use the WBTC on various Dapps and Dexs.
- All Wrapped Bitcoin and Bitcoin must be 1:1. For every Bitcoin the custodian holds there can only be 1 Wrapped BTC.
- If a merchant wishes to get the BTC back from the custodian they must “burn” the WBTC first. After that the custodian will send them back the BTC. This is called unwrapping the Bitcoin.
- Users can always trade their WBTC for BTC.
There are more details for how all of this works and I highly recommend going to the WBTC website link I provided above if you want to know more.
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