Review on Wrapped Bitcoin by Temitope Babatunde
Advantages Of Wrapped Bitcoin
With new technology comes new innovations. Millions of people today have come to learn about blockchain technology and smart contract with the benefits that they can offer. The largest cryptocurrency network with many and varied usage is Ethereum. Since btc has it's network and no smart contract now come the innovation of wBtc which is a token on the ethereum blockchain but with same monetary value as real btc, so that while holding btc, if wrapped can function on the platform of ethereum, and does every thing like erc20 token.
This bring many advantages to the btc holders, this can help them to enjoy the benefits of holding real btc but at same time be interacting with ethereum network and participate on all the activities there. There is flexilibility to convert from wBtc to real Btc and vice versa. It can even allow them to participate in DeFi they can give their btc to a platform and they will be earning something for doing that and will also go and use their wBtc in another platform for staking or something else and at same time they will be earning rewards.
The usage of wBtc can come in various model, for example, one can rely on a firm to help maintain the value of one's asset, so this model is centralized, but it saves one from all technical hurdles. There is trustless model which can be seen as decentralized type, because the user will have to interact directly with the smart contract. And the third model is Synthetic, the asset that will be locked in a smart contract and one recieve synths token that will have the value of the real btc.
In conclusion, the is growing technology and many still remain to be seen, so when use it one must do so with caution.
Pros
- It acts as bridge between bitcoin network and ethereum network.
- Because it is in 1:1 ratio with real bitcoin, users can be interactng with wrapped bitcoin, while still own real bitcoin elsewhere.
- It helps decentralize exchange to have more liquidity.
- Since wrapped bitcoin is on ethereum network, the transaction can be conducted cheapily and fastly than on the btc network.
- Since it is on ethereum blockchain, it can easily interact with the smart contract of ethereum thereby giving the users access to various functionality which is not possible on btc network.
- Staking, users can gain reward by staking their wBtc on a DeFi platform.
Cons
- If the wBtc is entrusted to third party there is risk that such person can unlock real btc and left with fake btc.
- There may be concentration of power since there is a centralized third party that is managing the wBtc.
