There is a very common question on why is there a need for Wrapped Bitcoin (WBTC) when there are several atomic swap markets to exchange Ethereum (ETH) with Bitcoin (BTC) like AtomicDEX and NebliDex.
Now that there are multiple atomic swaps markets to exchange Ethereum (ETH) with Bitcoin (BTC), such as AtomicDEX and NebliDex, what would the purpose be for wrapped Bitcoin to exist?
For clarity, Wrapped BTC (WBTC) is an ERC20 token backed 1:1 by bitcoin which enables bitcoin holders to use tokenized Bitcoin in Ethereum-powered decentralized applications and to trade it on decentralized exchanges.
When tokenizing BTC to WBTC users go through a merchant and the BTC will be held by a custodian. The Bitcoin holders BTC is sent to the merchant. The merchant sends it to the Custodian. The Custodian waits for six confirmations and a transaction is created to mine new WBTC token on Ethereum. Wrapped bitcoin is not real Bitcoin it is an ERC20 token which operates on the Ethereum Blockchain. However, it is backed 1:1 by Bitcoin through the token’s minting mechanism. It is not the actual bitcoin.
For clarity on the basics, When Bitcoin is represented as a token it will be possible to use it in other smart contracts and DeFi lending protocols. Tokenization as opposed to the atomic swaps process opens up a full range of possibilities. You can use the WBTC as a collateral and borrow and lend against it. Atomic swap is a process and WBTC is a token – by tokenization of Bitcoin. You can keep it in an ETH wallet and you can use it across ERC-20 smart contracts and apps.
The good thing about atomic swaps is that it makes it possible for users to trade between different blockchains trustlessly. However, in some cases atomic swaps are less desirable. This is because in an atomic swap negotiation both the participants should be active on the blockchain at the time of the transaction. It is not possible to perform an off-chain atomic swap and set it for future execution.
WBTC can be used as a collateral in the platform, which accepts it. Tokenizing an asset leads to lot of possibilities. Offline orders can be posted and trading can happen in a trustless manner.
WBTC is a better mechanism or exchange. When you hold WBTC you are not actually holding Bitcoin. The ability to stake WBTC in the fast growing DeFi space and make double digit profits is a major attraction. This it can help earn investment income.
Steven is a technology-focused writer with a strong interest in emerging digital trends and innovation. With experience spanning both travel and online projects, he brings a global perspective to his reporting and analysis. His work reflects a practical understanding of how technology, markets, and digital platforms intersect, offering readers clear insights into developments shaping the modern tech and crypto landscape.
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