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What is Wrapped Bitcoin (WBTC) and Wrapped Ethereum (WETH)

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Unknown Speaker  0:01  

Welcome to the New To Crypto podcast designed to guide you through the crypto landscape with pinpoint accuracy created for the new and intermediate crypto investor. Join your host Crypto Travels Michael as he takes you through the different facets of getting started and succeeding in your crypto journey. New to crypto podcast brings you new episodes daily Monday through Friday with surprise bonus episodes sometimes on the weekend. Let me ask you, are you new to crypto don’t know where to start? Are you more experienced but have questions? Then you’re in the right place. This podcast is designed for you, coming at you from the training center in the lifestyle design studio. Here’s your host Crypto Travels Michael. 

 

Michael  0:51  

Hey, welcome to the podcast. Today’s gonna be a really interesting one. I’ve had people ask me about what is wrapped Bitcoin and what is wrapped Ether so, that’s what we’re gonna dive into today. So without further to do, let’s do it. Let’s jump into it. So what is wBTC? wrapped Bitcoin and wETH wrapped Ethereum. Let’s start by going over what wrapped tokens are. A wrapped cryptocurrency is an ERC 20 token that has the same exact value as the other asset it represents, the value can be pegged either to One to One backing with the underlying asset or through a smart contracts that negotiates a stable value. Wrapped tokens are designed to allow the use of cryptocurrencies across blockchains without forcing users to resort to selling crypto assets when they wish to trade on a platform utilizing a different blockchain. 

 

Essentially, a wrapped crypto token is a special cryptocurrency whose value is tied to the value of another currency similar to stable coins. The value which is tied to the fiat money like USD. using wrapped tokens allows the holder to preserve their original assets by securing them in a special digital vault. The original asset however, remains inaccessible to the original owner while the token is in circulation. So what is wrapped Bitcoin, wBTC is an ERC 20 token on the Ethereum blockchain that aims to bring Bitcoin into the DeFi world to do this, the token has been created to be exchanged with a value of one to one with Bitcoin to issue one wBTC. It is necessary to block one Bitcoin or one BTC. In the same way by burning or withdrawing one wBTC 

 

we get one bitcoin in return. Although wBTC is a widely used token and DeFi its custodian operation turns this token into CeFi or centralized finance token. Despite this, it allows users to do something that with Bitcoin, they cannot normally do interact with the Ethereum smart contract ecosystem and with it the whole growing world of dapps and DeFi that are being created on that blockchain become possible. So how does wBTC work? The way that Bitcoin works is quite simple. First, we have user interface that will allow us to make a deposit of BTC in exchange for wBTC. This system issues us a bitcoin address that is under the control of Bitgo, who will receive the BTC from the users interested in it. Once bitgo has BTCs in its possession, a wBTC issuance order is issued for the same amount of bitcoin that have been blocked in Bitgo. This token issuance happens on Ethereum and is possible thanks to Smart Contracts that have been built for this purpose. It is worth saying that the issuance must go to an Ethereum address since wBTC is an ERC 20 token, in the same way the reverse can be done being able to convert wBTC into Bitcoin, which is BTC. 

 

To maintain transparency wBTC has a public order book. From there users can check the amount of BTC blocked and the amount of wBTC Issued. It is also possible to observe the different transactions within the system. At the same time, you can also observe a token test looking at the addresses and the amounts of BTC block with those addresses. This makes the system quite transparent. Two of the most important tasks of wBTC is to create (minting basically) and burn burning wBTC tokens in such a way that the stability of the system is always perfect. wBTC is minted by a custodian which in this case is one of the stakeholders Bitgo, it ensures that your token is secure and merchants are the ones who initiate the minting process of wBTC and send bitcoin to the custodian, in return the merchants received wBTC tokens. As a customer you can buy wBTC

 

via merchants like Coinbase, they will perform KYC checks to verify your identity before wrapping your Bitcoin. To unwrap your Bitcoin and essentially burn wBTC. You would also need to do it via a merchant. Similar to minting, merchants would request to burn wBTC and once confirm, the custodian sends the equivalent amount of BTC to the merchant. So let’s break down and go into what is wrapped Ether. wETH is an ERC 20 token whose main purpose is to facilitate the exchange of Ether for other ERC 20 tokens. The big question here is why can’t users exchange ETH for other ERC 20 tokens directly wETH. This token actually functions as a converter between Ether and tokens and all this is thanks to Smart contracts that facilitate this task. wETH transforms to a one to one ratio any ether that you send in a nutshell wETH is an ether stable coin which can then be converted into any other ERC 20 token you want on a Dex. Benefits of wETH are several advantages to using wETH, one of them is the upgrade of decentralized financial activities. 

 

What are the benefits of wETH? There are several advantages and one of them is the upgrade of decentralized financial activities with the Ethereum blockchain and the DeFi ecosystem. And it does more than just registering and validating transactions. Many decentralized applications or dapps are requiring their users to convert from ETH to wETH because of interoperability, it all goes down to making use of the ERC 20 standards. So like Bitcoin and Ether, ERC 20 tokens can be tracked on the blockchain, as Ethereum tokens are just a specific type of smart contracts that live on the Ethereum blockchain, using ERC 20 tokens to carry out all kinds of transactions is increasingly common in the cryptocurrency world. wETH enables gas savings within the Ethereum blockchain. This is because wETH is directly exchanged for other ERC 20 tokens on a Dex. This simplifies the trading of ERC 20 tokens by reducing the number of trading costs and fees on the Ethereum blockchain. As wETH is an ERC 20 token based on a smart contract. This facilitates the interoperability of Ethereum Dapps and dexes. 

 

wETH can be created by sending Ether to a Smart Contract where the Ether is placed on hold and in return wETH ERC 20 tokens are at a one to one ratio and they’re received. This wETH tokens can afterwards be sent into the same Smart Contract to be unwrapped or redeemed back to your original Ether. So this concludes today’s episode I have been asked before about what is Wrapped Bitcoin in Wrapped Ether. So I hope that this has provided an overview definitely like and subscribe to the podcast. If you’d like to send me a message, you can email me at show@newtocrypto.io again, that show@newtocrypto.io and chime in here tomorrow, and I’ll see you then. Until then make it a great day.

 

Unknown Speaker  8:38  

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By: cryptotravelsmichael
0

Table of Contents

What Is Wrapped Ethereum – WETH? 

Wrapped Ether (WETH) relates to the ERC-20 compliant version of ether; other ERC protocols can also be used to wrap ether. 

WETH is made by transferring ether to a smart contract, which puts the ether on hold in exchange for a 1:1 ratio of WETH ERC-20 tokens. 

This WETH can then be transferred back into the same smart contract to be unwrapped or exchanged at a 1:1 ratio for the original ether.

Ether, the Ethereum blockchain’s native currency, was made prior to the ERC-20 standard, along with other standards were put in place. 

As a result, ether is not ERC-20 compatible. It cannot be exchanged directly for other ERC-20 tokens in a decentralized way without the use of a trusted intermediary or the use of complicated technical applications. 

Devs wanted to wrap ether to upgrade it to the ERC-20 standard in order to easily manage WETH and other ERC-20 tokens within the same smart contract, rather than implementing two interfaces – one for ether and another for ERC-20 tokens – within the same smart contract, resulting in unnecessary difficulties.

What Is Wrapped Bitcoin – WBTC? 

Wrapped Bitcoin (WBTC) is an Ethereum-based ERC-20 currency that symbolizes Bitcoin (BTC). WBTC’s connectivity with Ethereum wallets, dapps, and smart contracts is a significant benefit.

Wrapped BTC provides customers with better liquidity and involvement. Although the Ethereum network handles transactions more quickly than the Bitcoin network, Bitcoin holders no longer have to wait. 

Transferring Bitcoin between exchanges is substantially faster with WBTC.

1 Bitcoin can be changed to 1 Wrapped Bitcoin through a WBTC collaborator, and vice versa. WBTC was intended to allow Bitcoin users to engage in Ethereum-based decentralized finance (DeFi) apps. 

The BTC that underpins WBTC is publicly verifiable thanks to a proof of reserve system that validates the 1:1 relationship between minted WBTC tokens and Bitcoin held by custodians. 

The WBTC DAO, which now has over 30 members, is responsible for the upkeep of WBTC. BitGo, Ren, and Kyber were the original founders.

There are several advantages and one of them is the upgrade of decentralized financial activities with the Ethereum blockchain and the DeFi ecosystem.

- Crypto Travels Michael

Here's What We Discussed in Detail in This Interview

[00:01 – 02:14] Opening Segment

  • Welcome to another incredible episode 
  • An intro to Wrapped Tokens
    • ERC20 token with the same exact value as the represented asset
    • Value pegged by one to one backing or through smart contracts
    • Use cryptos across multiple blockchains without having to sell
    • Keep assets in a special digital vault
    • Inaccessible while the token is in circulation

 

[02:15 – 05:39] What is Wrapped Bitcoin (WBTC) 

  • A breakdown of the purpose of WBTC
    • ERC20 token on the Ethereum blockchain 
    • Aims to bring Bitcoin into the DeFi world
    • One Bitcoin Blocked per creation of one WBTC
    • Once one WBTC is burned, one BTC is returned
    • Custodial operation turns this in CeFi (Centralized Finance)
    • Interact with the Ethereum ecosystem
  • How WBTC works in practice 
    • User interface allows you to deposit BTC to get WBTC
    • Receive a Bitcoin address from BitGo
    • All possible through Smart Contracts
    • The reverse can be done as well: WBTC to BTC
    • How WBTC stays secure and transparent through the Custodian
    • How to Unwrap WBTC

 

[05:40 – 09:17] What is Wrapped Ethereum (WETH)

  • The main purpose of WETH
    • ERC20 token to facilitate exchange 
    • Ether stablecoin that can be converted into other ERC20 tokens
  • The advantages of using WETH
    • Upgrade of decentralized financial activity
    • Ability to interact with DAPPS – Decentralized Applications
    • Enables gas savings
  • How it’s created
    • Sending Ether to smart contracts
    • Ether is placed on hold
    • Receive WETH at a one to one ratio
    • Can be Unwrapped to the original token
  • Final words 

Killer Resources

HOW TO REACH TO CRYPTO TRAVELS MICHAEL

Final Thoughts

Wrapped cryptocurrencies make it possible to use crypto assets on blockchains where they aren’t native.

Bitcoin (BTC) and other prominent cryptos have been added to smart contract networks, such as the Ethereum ecosystem, as a result of this interoperability hack.

Smart contract platforms and prominent decentralized finance (DeFi) applications benefit from wrapped cryptocurrencies since they boost their utility and liquidity.

Wrapping cryptocurrencies can also be used to transfer ERC-20 tokens or take advantage of blockchain capabilities that a crypto asset may not have on its native chain.

Wrapped cryptocurrencies such as WBTC and WETH have increased liquidity and accelerated cross-chain asset transfer, which has benefited Ethereum’s DeFi ecosystem in particular.

These assets have improved the much-needed interconnectedness across the numerous ecosystems of the blockchain community, allowing for new types of composability and collaboration.

The New to Crypto Podcast is designed to guide you through the crypto landscape with pinpoint accuracy. New episodes are added daily. Be sure to subscribe to the podcast and listen to all of the episodes to help you in your cryptocurrency journey.

I’d love to hear from you! Email me at show@newtocrypto.io and let’s chat.

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