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Last updated on July 11th, 2023 at 11:29 pm

Bitcoin and Wrapped BTC are two different cryptos, as the latter is an ERC20 token, which is meant to act as a tokenized version of the bitcoin. WBTC is the tokenized version of BTC that allows its users to enjoy the perks and innovations on dApps and DeFi platforms running on Ethereum. Every WBTC is backed by one BTC.

Before a BTC can be tokenized into the wrapped version, the user must send the BTC to a verified merchant. The merchant is given the custodial authority to hold the BTC from the user while allowing the user to mint WBTC.

Another way to get WBTC, which is a lot easier than the aforementioned, is to exchange Ethereum-based tokens like USDT for WBTC on decentralized exchanges.

Similarities and Differences Between Wrapped BTC and Bitcoin

Wrapped BTC is not the same as Bitcoin though 1 WBTC is backed by 1 BTC. WBTC does not operate on the Bitcoin blockchain but acts as an Ethereum-based token. Though it may be backed by Bitcoin, it is important to note that 1 WBTC does not mean that the user is holding a BTC.

Since WBTC is on the Ethereum chain, it has lost some of the features that are visible in the Bitcoin blockchain. For starters, WBTC doesn’t benefit from the security architecture of the Bitcoin blockchain because it is not based on it. It depends on the Ethereum network for security. Since WBTC is hosted on Ethereum, it can’t enjoy the perks of making instant payments through the Lightning Network. Does that mean that WBTC holders do not enjoy perks from holding the wrapped version of BTC?

WBTC has opened up a lot of innovations that were not possible with BTC. For instance, with WBTC, its holders can utilize the different functionalities available in the decentralized finance realm.

Why is WBTC booming?

With the coming of WBTC, it is not surprising that the token is blossoming because it is opening upholders of Bitcoin to new features that were once unseen. According to coinmarketcap.com, Wrapped BTC has a market cap of $7,615,086,991.87, which allows it to occupy the position of one of the tokens with the highest market volume.

WBTC has skyrocketed because of several reasons, which are an increase in the value of BTC and the efficient DeFi space.

Common Use Cases of WBTC

As mentioned earlier, the underlying concept surrounding the creation of Wrapped BTC is to allow its holders to enjoy the perks linked to decentralized finance.

Some decentralized finance protocols with lending services allow potential borrowers to use Wrapped BTC as collateral.
Secondly, this Ethereum-based token can be placed in lending pools to earn interest to its holders.
Thirdly, some yield or liquidity mining platforms allow users to earn rewards when they place their WBTC into the pool.
Finally, WBTC holders can get involved in derivatives trading activities like margin trading.