Want to jump straight to the answer? You can buy WBTC on Coinbase.
Wrapped Bitcoin allows investors to interact with Ethereum’s blockchain while being exposed to Bitcoin. Each wrapped bitcoin is equivalent to the price of 1 bitcoin, and you can exchange one for the other on a cryptocurrency trading platform. You must be wondering, why not just buy Bitcoin?
Using Wrapped Bitcoin has several advantages over using Bitcoin on Bitcoin’s blockchain. WBTC is an ERC-20 token, which means it’s an Ethereum-based token. And since WBTC is an ERC-20 token, you can interact with DeFi protocols to receive loans, earn interest and much more.
What is Wrapped Bitcoin?
Wrapped Bitcoin (WBTC) is a tokenized version of Bitcoin on Ethereum’s blockchain. For the organization to mint WBTC, Bitcoin has to be deposited as a reserve. Each wrapped bitcoin is backed by a normal bitcoin, so the price of WBTC can be pegged to the price of Bitcoin.
Choosing to buy Wrapped Bitcoin instead of Bitcoin allows you to interact with any program that Ethereum tokens can interact with. For example, you can use decentralized exchanges with WBTC but not BTC. Decentralized exchanges offer a way to trade crypto without a centralized exchange or identity verification.
Another way WBTC is superior to BTC is that WBTC can interact with decentralized lending protocols on Ethereum. If you own WBTC, you’re able to stake it on Ethereum protocols like Uniswap or Kyber Network to earn interest on your bitcoin while still being exposed to Bitcoin’s volatility.
Using WBTC also gives you the option to take out cryptocurrency loans without needing a credit score. To do so, you’ll need to use a lending protocol on Ethereum’s blockchain, such as Compound. To get a loan using this program, you need to put up your WBTC as collateral. This is because there are no credit scores, so there needs to be collateral in case of a default.
Investors sometimes get loans using decentralized finance to leverage their positions. These investors benefit from both their bitcoin collateral and cryptocurrency loan appreciating, so long as they don’t default on their loan.
Brief History of Wrapped Bitcoin
Wrapped Bitcoin was created in January 2019 and was the first ERC-20 token to be pegged to Bitcoin’s price with a 1:1 ratio. WBTC was initiated as a joint venture between Bitgo, Kyber and Ren. WBTC is now controlled by a decentralized autonomous organization (DAO) to govern the protocol.
The DAO currently has 16 members, mostly consisting of DeFi based companies that develop on Ethereum’s blockchain. By using a DAO, these members, such as Kyber Network, Compound, MakerDAO and Bitgo, can vote on proposals to upgrade the WBTC network.
Step 1: Open an online account.
To buy Wrapped Bitcoin, you need to open an online account with a cryptocurrency exchange that supports Wrapped Bitcoin. If you already own Ethereum tokens, you could send them to a decentralized exchange like Uniswap and swap them for WBTC.
If you don’t already own crypto, you’ll need to make a crypto brokerage account. Some well known cryptocurrency brokerages that support WBTC are eToro and Coinbase Pro. To open an online account with either of these brokerages, you’ll need to provide them with personal information for regulation purposes, similarly to stock brokerages. To fund your account, you can connect a bank account or debit card.
Step 2: Buy a wallet (optional).
To keep your WBTC and other cryptocurrency investments safe, you should transfer them off of the exchange you purchase them on. You can either transfer them to a hardware wallet or a software wallet. Both are secure options, but hardware wallets are the most secure because they store your cryptocurrency offline on a physical device.
Best Hardware Wallet: KeepKey
Keepkey is a cryptocurrency hardware wallet that is simple and cost-effective. It looks like a thumb drive and connects to your laptop via USB. Storing your crypto on Keepkey secures your assets offline, so it’s impossible for your funds to be hacked.
Keepkey also shows you a one-time recovery phrase when booting up your wallet. You can use this recovery phrase to gain access to your cryptocurrency if the hardware wallet is physically lost or stolen.
Best Software Wallet: Argent
There are a lot of software callets on the market that are free to use and protect your cryptocurrency better than an exchange. With WBTC, you can use any Ethereum wallet that supports ERC-20 tokens.
Argent is a great option because its wallet lets you interact directly with DeFi protocols on Ethereum’s blockchain. This way, you can stake the funds in your wallet using Compound, Uniswap or other DeFi protocols and earn interest on your cryptocurrency tokens.
Step 3: Make your purchase.
Once you know where you plan on storing your WBTC, it’s time to make your purchase. On centralized exchanges like Coinbase Pro and eToro, you can place an order for WBTC as a limit order or a sell order.
Market orders will purchase your WBTC instantly at market price. Limit orders will be filled if a sell order is inputted at your limit price.
Trade or Sell Your Cryptocurrency
When you want to trade or sell your WBTC, you need to send your funds back to your crypto exchange. You can sell your WBTC for USD as a limit or market order, and transfer your money back to your bank once your order is filled.
If you want to exchange your WBTC for Ethereum or any other ERC-20 token, you can use a decentralized exchange to do so. Ethereum wallets like Argent allow you to swap between different ERC-20 tokens directly on their wallet interface.
Current Crypto Prices
Cryptocurrency prices have been skyrocketing as of late. As of February 2021, Bitcoin crossed $50,000 per coin for the 1st time. With more investors using WBTC to interact on Ethereum’s blockchain, WBTC has become the 14th largest cryptocurrency in existence.
Wrapped Bitcoin or Normal Bitcoin?
Some investors used WBTC to transact bitcoin faster and cheaper than on Bitcoin’s network. However, with transaction volumes significantly increasing, Ethereum transactions are more costly than Bitcoin transactions. Hopefully, transaction prices on Ethereum will fall later this year, with the Eth2.0 upgrade set to launch.
Wrapped bitcoin gives you access to many more finance products than normal bitcoin, as it operates on Ethereum’s blockchain. You can even use Ethereum tokens like TokenSets to automatically trade your WBTC back and forth with Ethereum.
If you aren’t looking to interact with Ethereum’s blockchain, it’s better to just buy Bitcoin since it’s more widely available and easier to transact. But keep in mind, WBTC opens up many new financial derivatives for crypto investors to take advantage of.
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