The exchange of information from one cryptocurrency to another is essential. The market needs to overcome the communication problem between the oldest and the biggest cryptocurrency networks like Bitcoin and Ethereum. The solution is wrapped tokens. Wrapped tokens are cryptocurrencies that are implemented in a different blockchain and are able to work in a blockchain that normally does not support it. Wrapped Bitcoin is one good example. Wrapped Bitcoin (WBTC) is an ERC20 token that has a direct proportional representation of bitcoin on a 1:1 ratio. It gives bitcoin holders the leverage to trade in Ethereum apps on decentralized exchanges and also is fully integrated in smart contracts, DApps, and Ethereum wallets.
Why use Bitcoin on Ethereum?
There are numerous benefits in using wrapped Bitcoin. The most significant reason that individuals want to wrap their BTCs is the fact that it offers integration to the Ethereum ecosystem, which has surely the largest cryptocurrency ecosystem. Here are some of the benefits:
Transaction Fees: Wrapped tokens are on the Ethereum blockchain so all the transactions that are conducted with WBTC usually cost less.
Transaction Speed: As we know time is so valuable in the crypto market because of the high volatility of cryptocurrencies. Faster transaction service is another advantage that wrapped tokens offer their owners. Using Wrapped Bitcoin in the Ethereum network is much quicker than buying or selling Bitcoin in its blockchain.
Liquidity: Wrapped Bitcoin brings greater liquidity to the market. We can increase the capital efficiency together with the liquidity of an asset, whether it is centralized (fiat currencies) or decentralized (cryptocurrencies).
Interoperability: The biggest advantage of wrapped tokens would be interoperability. With several staking protocols available as decentralized financial functionality, users can take advantage and use their Bitcoins on the Ethereum network by wrapping them. You can exploit them for different services, such as running DApps or DeFi services. Wrapped Bitcoin can also leverage Ethereum’s smart contracts
Enhanced Security: People have more control over their private keys in wrapped bitcoin and it can actually increase the security of their funds. Additionally, custodians (DAO, smart contracts, or multisig wallet) are focusing on secure exchanges.