What is supported by Bitcoin ERC20 (WBTC)? How Bitcoin could change

November 8, 2018 Ethereum

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TL; DR

WBTC is a Bitcoin-supported ERC20 token that combines bitcoin's liquidity and public awareness with the Ethereum developer ecosystem.
The WBTC could help enhance the utility of Bitcoin by allowing it to be used in Dapps and in decentralized exchanges
The Ethereum network could now benefit from a "2 token system" in which WBTC acts as a current token and ETH acts as a network token

The hype about innovations in the crypt space seems to come in waves. In 2017, we saw an increase in utility tokens and ICOs. 2018 saw an increase in security tokens and stable currencies. Now that we are heading for 2019, it seems like an innovation called "Wrapped Bitcoin" (or WBTC) can start generating a lot of buzz.

What is the WBTC?

WBTC is an ERC20 token with bitcoin backed. It takes the concept of a stable currency (a cryptocurrency that is backed by a "stable" resource such as the US dollar or some other fiat currency), and applies it to Bitcoin, allowing the value of the WBTC to be anchored from 1 to 1 with BTC .

The invention was developed by the Republican Protocol, the Kyber network and the guardian crypt BitGo and will be launched in 2019.

Its main objective is to combine the liquidity and public awareness of bitcoin with the Ethereum developer ecosystem.

According to the CEO of the Protocol of the Republic Taiyang Zhang, "The WBTC remains in circulation until Bitcoin support is withdrawn and the equivalent WBTC is burned in. This method is similar to how TUSD works, except that the WBTC has the advantage of ease of transparency with all deposited funds. that are completely configurable on the chain. "

Loi Luu, CEO of Kyber networks, considers WBTC to be an instrument to help expand the use of BTC in areas such as exchanges, loans and token payments.

Companies behind WBTC will form a decentralized autonomous organization specifically for this project. This DAO will serve to perform WBTC chain checking to ensure it is always supported with a 1 to 1 ratio with Bitcoin.

We explore the various cases of use:

Cross chain transactions

One of the main features of the Republican protocol is Atomic Swaps, which enables cryptocurrencies to be processed through different Blockchains. The WBTC opens the doors to atomic exchanges that traders must use for the exchange between BTC and WBTC. This essentially means being able to pay for things that are named in the ERC-20 token with Bitcoin and vice versa. This innovation would increase the adoption of Bitcoin by creating utilities for it through various Dapps. Also, using WBTC, it should be faster and cheaper for users to send Bitcoins than the Bitcoin network, which can become quite expensive during times of intense traffic.

Using Bitcoin inside Dapps

While hundreds of new Dapps continue to be released, it helps to be able to use a cryptocurrency that is anchored to Bitcoin to get access to services on these Dapps. For example, a Dapp like Augur could have all the predictions played in WBTC instead of ETH. Likewise, decentralized trade on Ethereum could have the WBTC token as the base currency on which everything contrasts. In both cases, it gives these applications access to Bitcoin's massive liquidity, opening the door to big investors to put their money in more tokens and Dapps ERC20.

ICOs could now also raise funds in Bitcoin, since WBTC works on the Ethereum network and can be incorporated into ICO smart contracts. There is no need to choose between running a Bitcoin node, Ethereum node or any other ERC-20 token node.

Decentralized Bitcoin ETFs?

The development of an ERC-20 token that is anchored at the price of Bitcoin opens up new possibilities for investment vehicles based on smart contracts.

Investors may decide to purchase BTC by purchasing WBTC through an encrypted fund. Taking WBTC into account, investors can use smart contracts to secure monthly dividend payments or customize their risk tolerance level by automatically negotiating a sum (or between funds) based on their returns.

Could WBTC replace ETH?

One of the fascinating implications of this innovation is its potential to transform Ethereum into a "2 token network". ETH has long been regarded as a token used primarily for payment of transaction fees, however the popularity of Ethereum and its internal function of ICO and Dapps have led many to perceive it as a cryptocurrency traditional. Now with the introduction of the WBTC, the Ethereum network could have an official currency currency and a currency for network transactions. This distinction would allow both tokens to be appropriately evaluated by the market based on what they were primarily designed for. This could result in a depreciation of the ETH and the loss of its position as top 3 cryptocurrency in WBTC. However, the increase in the number of transactions that WBTC would have made to the Dapp ecosystem could result in a significant increase in the value of the Eth. In either case, the Ethereum network would benefit significantly from an ERC-20 token supported by Bitcoin.

KYC and AML controls

A potential disadvantage of the implementation of WBTC is the need to conduct KYC and AML checks, a process that many cryptic purists believe are going against the ethos blockchain of decentralization and privacy. As stated on WBTC.Network, this process will be necessary to receive WBTC or get your Bitcoin back. Although the KYC and AML WBTC controls would be more compliant with regulations and attractive to institutional investors, it could also represent a significant barrier to the use of regular crypto users, particularly those using decentralized exchanges or DAPs offering financial services. .

Another negative factor to consider is whether the encryption users will be fine giving their bitcoins to a custodian in exchange for WBTC, which means they no longer own private keys for their BTC. Most of the encrypted enthusiasts believe that if you do not own the private keys of your Bitcoin, you do not own it at all. A similar debate goes on among those who choose to store their crypts in exchanges against rigid portfolios or packages. However, by keeping WBTC, it becomes increasingly clear that you are not the owner of your BTC, as you must respect the KYC and AML process to recover it.

Conclusion

Ultimately, WBTC seems like a brilliant innovation that will surely increase the utility of Bitcoin, the value of the Ethereum network and the adoption of cryptocurrencies as a whole. The project is still in its early stages, so it remains to be seen how users will react to KYC or custody issues. At the moment, WBTC seems to be on track to generate the same type if anticipating that security tokens, stable currencies and utility tokens have done before.

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