Wrapped Bitcoin explained. Bridging the gap between Bitcoin and Ethereum

Wrapped Bitcoin (WBTC) is an ERC-20 token on the Ethereum blockchain that represents Bitcoin in the Ethereum ecosystem. Each WBTC token is backed 1:1 by Bitcoin, held in custody by a network of trusted custodians. This allows users to interact with Bitcoin on the Ethereum network, unlocking various decentralized finance (DeFi) applications and smart contracts that support ERC-20 tokens.

WBTC enables Bitcoin holders to access the vibrant ecosystem of decentralized applications (DApps) and financial services built on Ethereum, including decentralized exchanges (DEXs), lending platforms, and yield farming protocols. By wrapping Bitcoin into an ERC-20 token, WBTC brings liquidity to the Ethereum ecosystem and expands the utility of Bitcoin beyond its native blockchain.

The process of wrapping Bitcoin into WBTC involves a series of steps to ensure transparency, security, and decentralization. Bitcoin holders who wish to convert their BTC into WBTC can do so through authorized merchants or custodians. These entities facilitate the minting of WBTC tokens by locking up an equivalent amount of Bitcoin in a verifiable and auditable manner.

Once the Bitcoin is locked in custody, an equivalent amount of WBTC is minted on the Ethereum blockchain and credited to the user's address. Conversely, users can redeem their WBTC for Bitcoin by burning the tokens, which triggers the release of the underlying Bitcoin from custody. This process ensures that the supply of WBTC remains fully backed by Bitcoin at all times.

WBTC offers several use cases and benefits for both Bitcoin and Ethereum users. For Bitcoin holders, WBTC provides access to a wide range of DeFi applications and services, allowing them to earn interest, participate in decentralized trading, and access liquidity without selling their Bitcoin holdings.

For Ethereum users, WBTC enhances liquidity and interoperability within the Ethereum ecosystem. Traders can use WBTC as a trading pair on decentralized exchanges, while developers can integrate WBTC into their smart contracts to enable new financial instruments and applications.

Additionally, WBTC mitigates some of the limitations of Bitcoin's network, such as slower transaction times and higher fees, by leveraging the speed and scalability of the Ethereum blockchain.

As the bridge between two leading blockchain networks, Bitcoin and Ethereum, WBTC plays a crucial role in facilitating cross-chain interoperability and expanding the utility of both cryptocurrencies. By tokenizing Bitcoin on Ethereum, WBTC unlocks new possibilities for decentralized finance, liquidity provision, and decentralized trading.

Moreover, WBTC enhances the composability of DeFi protocols by enabling seamless interaction between Bitcoin and Ethereum-based assets. This interoperability fosters innovation and experimentation in the decentralized finance space, driving the evolution of the broader cryptocurrency ecosystem.

In summary, Wrapped Bitcoin serves as a cornerstone of cross-chain integration, offering users the flexibility to leverage the strengths of both Bitcoin and Ethereum while tapping into the growing ecosystem of decentralized applications and financial services.