In this article, I will guide you through the buying process of WBTC (Wrapped Bitcoin). You may know that WBTC serves a great purpose as it enables holders of Bitcoin to seamlessly function on the Ethereum-based DeFi ecosystem.
I will explain the process of buying WBTC, how to go about selecting an exchange, how you can smoothly set up a wallet, and how you can convert it with ease in order to provide secure transaction experience for your purchase.
What Is WBTC?
Wrapped Bitcoin (WBTC) is an Ethereum-perfect ERC-20 token that is equivalent to Bitcoin (BTC). It encompasses the usage of Bitcoin within Ethereum-based decentralized finance (DeFi) applications, for example, lending, borrowing and yield farming
WBTC is backed by Bitcoin at a rate of 1:1 to maintain value and liquidity. This bridging of networks increases the usefulness of Bitcoin and brings greater liquidity in the DeFi market.
How To Buy WBTC
Purchasing Wrapped Bitcoin (WBTC) is a rather basic activity, although there are measures you have to take in order to ensure that it’s done safely. Here’s a step by step way of how you can get started:
Select a Cryptocurrency Exchange
In the first step, you will be required to pick a Fully-fledged cryptocurrency exchange that allows you to purchase WBTC, popular choices tend to be Binance, bitget, and Coinbase.
Open An Account
For the chosen exchange, you will first have to register for an account, this can be done by providing an email address, choosing a password and verifying the account as per the regulations of the country.
Add Funds To Your Account
Now you will have to transfer some funds into your trading account which can be done using a number of methods including, bank transfers, Google/Apple pay or a credit/debit card.
Go To the WBTC Trading Pair
After you have added funds into your account, head over to the trading section of your exchange and search for the WBTC trading pair (for example WBTC/USDT or WBTC/BTC).
Fill in Order
Choose whether you wish to order for a WBTC using the present price (market order) or set a price you wish to pay for it (limit order).Provide the quantity of WBTC coins that you want to order and approve the transaction.
Make sure to Secure Your Assets
After making a purchase, you will need to take steps to protect your WBTC by transferring it to a private wallet. wallet can either be hardware, software or on mobile depending on your choice.
Stay Updated
Monitor the trade conditions and any developments regarding WBTC and Bitcoin since time-to-time or up-to-date information can guide you in choosing when to invest or not to invest.
How Are WBTC Wrapped Bitcoin Created?
Wrapped Bitcoin (WBTC) acts as a link between an issuer’s Bitcoin and the DeFi ecosystem on Ethereum by allowing users to exchange Bitcoin for an Ethereum-compatible token. This enables users of Ethereum applications that they use to maintain the value they have held in their Bitcoins.
A WBTC token is issued by a custodian like BitGo who mints it while storing the user’s transaction BTC. For users to receive WBTC tokens they need to send their BTC to the custodian. To convert the WBTC back into BTC, users need to request a swap through a DEX or CEX and if successful the WBTC is burnt and enables users to retrieve their BTC back.
The protocol is controlled by a decentralised autonomous organisations (DAO) known as the WBTC DAO which is responsible for the development and maintenance of the protocol. These custodians and merchants control bitcoin assets on behalf of users employing the WBTC network.
Pros And Cons
Pros:
Liquidity in DeFi : WBTC gives an opportunity to Bitcoin holders/ investors to earn on DeFi protocols based on the Ethereum blockchain by providing liquidity.
Faster Transaction: WBTC is running on the Ethereum blockchain, which means that transactions can cost less and be completed more quickly than on Bitcoin’s network.
Syncretism: WBTC helps to use the resources on Bitcoin for the purposes of smart contracts and decentralized applications dApps at the Ethereum network.
Cons:
Centralized Custody Risk: A risk from the issuing party of WBTC being a custodian is that there is dependence on that party because no trust can be allocated to them in terms of stamping transactions.
Dependency on Ethereum: WBTCs as well as their scope and value are solely based on the Ethereum network which may enforce gas fees and be restricted by scale limits.
Not Fully Decentralized: There are custodians for the bitcoins used to issue WBTCs and so they remain bounded and dependent on these custodians which invokes a measure of centralization on a system pegged against a Bitcoin.
Alternatives To Buying WBTC
Earning Yield or Staking via WBTC Smoothly
In order to generate interest or a yield on your WBTC assets, you can join in ondecentralized finance (DEFI) activities on platforms like Aave, Compound or MakerDAO. When you stake WBTC, you are able to provide support to the liquidity of DeFi ecosystems which as a result of this passive earning.
Simply Providing Liquidity in DeFi Pools
You can provide them with WBTC at decentralized exchanges like Uniswap or SushiSwap and in return, you earn transaction fees and other rewards. It would also be suffice to say that for DeFi pools that use WBTC and its derivatives, they tend to be rather lucrative, however they come with the risk of impermanent loss.
Airdropping of WBTC
There are DeFi protocols, platforms who are willing to airdrop some WBTC for free, this process allows them to capture more participants within their ecosystem. While new DeFi platforms are launching, there are airdrop events along with promotions, these two always go hand in hand.
Miners Wrapping Bitcoin On Their Own
One option that is available to users is wrapped bitcoin minting for people who mine bitcoin, easy access to WBTC is then available as BTC can be swapped for WBTC. For this type of trading, intricate knowledge on the Ethereum and Bitcoin networks is needed.
WBTC For Reward Programs
Trading, DeFi services such as trading exchanges that deal with crypto currencies reward people with WBTC once a cusomter engages in a deed such as lending, staking or even trading.
Conclusion
To sum it all up, investing in WBTC only requires selecting a reputable exchange, creating a wallet, and completing the transaction. It doesn’t matter if you purchase WBTC from bitcoin, or any other coin, always ensure to avoid high fees and ensure safety. Investing in WBTC allows you to reach the Ethereum’s DeFi network while still maintaining the value of Bitcoin but in a more flexible form.
