A new project called Wrapped Bitcoin (WBTC) will soon allow Bitcoin-backed tokens to be circulated on Ethereum. The token’s release has been scheduled for January 2019.
WBTC will combine the strengths of two leading coins. Bitcoin has consistently led the crypto market and is widely used throughout the crypto world. Ethereum, although second-place to Bitcoin in terms of market cap, is the leading platform for blockchain development.
With these things in mind, WBTC will blend Bitcoin’s ubiquity with Ethereum’s extendibility, allowing Bitcoin-equivalent tokens to be used in Ethereum-based dApps and decentralized exchanges.
Creators and Partners
The WBTC project is led by BitGo, Kyber Network, and Republic Protocol. BitGo is a wallet and crypto custody provider; as such, it will hold the project’s BTC reserves. Meanwhile, Kyber is a liquidity protocol that will enable users to easily swap their BTC and WBTC tokens.
Various decentralized exchanges and crypto projects have also partnered with WBTC, the most notable of which are MakerDAO, IDEX, and Gnosis. Several other projects are also listed in last week’s announcement, and the project will seek out further adoption as the January release approaches.
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The WBTC token is generated in a manner similar to stablecoins like Tether. WBTC cannot be mined; instead, it is minted and backed by a reserve of BTC tokens that are held by a custodian. As a result, the price of WBTC will be pegged to the price of Bitcoin, avoiding some of Ethereum’s volatility.
Generally, users will obtain existing WBTC tokens from merchants. However, tokens must also be created and destroyed. When users convert their WBTC tokens to actual Bitcoin, those WBTC tokens will be burnt. Meanwhile, new tokens can be minted by the custodian with the approval of merchants and community members.
Because both WBTC and BTC operate on public blockchains, users will be able to see that the project’s BTC reserves actually exist, ensuring that the two supplies are kept at a 1:1 ratio. WBTC’s reserve status will be prominently displayed on the project’s dashboard. The various WBTC partners will also form a DAO and routinely audit these balances.
Reception and Alternatives
The community reaction to WBTC’s announcement has been mixed. Some are critical of the project’s reliance on a centralized supply of tokens, which puts control in the hands of a few groups.
Centralization is not strictly necessary to create a cross-chain solution: Dogethereum, for example, bridged Dogecoin and Ethereum and implemented a two-way peg without using a centralized reserve.
Kyber Network has laid out some of the factors that led WBTC to choose a centralized reserve model over alternatives, such as atomic swaps and two-way relays. They concluded that some degree of centralization was necessary:
“Evaluating all these approaches, it was very clear that the current state of the industry and technical progress would not permit for a completely decentralized yet practical user-friendly solution.”
It is hard to predict whether WBTC will win over the crypto community in January. Regardless, efforts such as WBTC may go a long way toward uniting previously competitive blockchain platforms.
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