Wrapped Bitcoin (WBTC) is a new cryptocurrency that has just launched and is sure to be of interest to traders who use contract for difference. Now live on the Ethereum blockchain, the new token is reportedly backed one-to-one by Bitcoin and is a joint project from Kyber Network and Ren (formerly Republic Protocol), both of which are decentralized exchange (DEX) startups, along with cryptocurrency custody company BitGo.
The first announcement about the project was made in October 2018 when Benedict Chan, BitGo chief technology officer, said WBTC would have “the stability of Bitcoin and the flexibility of Ethereum.” The token’s website now clarifies that the aim is to introduce greater liquidity to the Ethereum ecosystem by allowing a seamless transition between Bitcoin and Ethereum.
In an official blog post, WBTC is described as being “utilizable across all applications which have integrated Kyber’s liquidity protocol for decentralized token swaps.” This is possible due to the use of atomic swaps, a technology that involves exchanging cryptocurrencies directly on a peer-to-peer basis which means it doesn’t need a crypto exchange or any other third party intermediatory.
The WBTC press release blog also states that WBTC smart contracts have been audited by third-party firms including Coinspect, Solidified Technologies and Chainsecurity. They also state that an exact 1:1 ratio of minted WBTC to BTC is publicly available as proof of reserve.
When the joint initiative was announced last year WBTC caused a stir as it would become the first ERC20 token backed 1:1 with BTC. The parties involved in the project are open in their desire to see it as the beginning of a multi-institutional framework protocol which will eventually be able to tokenize any type of asset.
WBTC was officially launched on the Ethereum network on On Jan 30, 2019, and has already started to be traded on various exchange platforms. Eight merchants will initially be carrying out the conversion between WBTC and BTC and obtaining WBTC through these merchants involves a required Know Your Customer (KYC) process. As well as developers Kyber Network and Ren, Set Protocol, Prycto, Airswap, Dharma, Ethfinex and Gopax will make up the merchant base.
The announcement detailing the launch of WBTC says that the new token will become an integral part of the process of developing decentralized exchanges. “Further compelling new applications and use cases will be identified, explored and implemented as the ecosystem continues to grow and actively innovate,” it says.
A question of centralization
One of the advantages for wallet providers and exchanges that will come from WBTC is reduced costs and lower overheads. These will follow as a result of an ability to support multiple currencies through the need for only one Ethereum node.
However, some observers have pointed out that the project is centralized to a degree because Bitgo will hold the keys to mint new tokens. The project also holds similarities to the stablecoin concept as it uses proof of reserves. The whitepaper outlining the details of WBTC in operation points out that many cryptocurrency assets use the reserve method, as do government issued bonds.
“This is the case with tether, trueusd, USDC, digix (gold), globcoin (a mix of fiat currencies), and AAA reserve (governmental bonds),” the whitepaper notes.
As might be expected the launch of WBTC topic has created a great deal of interest amongst crypto and blockchain communities and has caught the attention of CFD forex traders too. Many attempts at making stablecoins work have already failed.
Some commentators have pointed towards calling the wrapped coin innovative is wide of the mark and questioned the motives behind WBTC. As a new ERC20 token being used to exchange ETH and BTC on a 1:1 basis it seems superfluous to some as it isn’t actually needed to simply make the desired exchange in the first place. However, as trading on IDEX in both ETH and WBTC is now possible it will allow Ethereum to support trading natively, which many investors will find attractive.
In terms of CFD trading on crypto forex markets, WBTC isn’t likely to have a massive influence right away. If it proves to be a success it could impact on the way that exchanges work in the future and that is definitely something that will be worth keeping an eye on for anyone interested in crypto markets.