Wrapped Bitcoin attempts to bridge bitcoin and Ethereum.

Wrapped Bitcoin (WBTC) is a token that represents Bitcoin on the Ethereum blockchain. It allows Bitcoin holders to use their BTC in Ethereum-based applications like decentralized exchanges (DEXs), lending protocols, and yield farming platforms. By wrapping Bitcoin into an ERC-20 token, WBTC bridges the gap between the Bitcoin and Ethereum networks, enabling interoperability between the two ecosystems.

How Wrapped Bitcoin Works

Wrapped Bitcoin is created through a process called token wrapping. To mint WBTC, a user sends Bitcoin to a custodian. The custodian locks the BTC in a secure wallet and mints an equivalent amount of WBTC on Ethereum. This means that for every 1 BTC locked, 1 WBTC is issued. The reverse process—called burning—destroys WBTC on Ethereum and releases the corresponding BTC from custody.

This system depends on off-chain coordination and trusted custodians. It’s not fully decentralized, but it offers a practical solution for using Bitcoin in DeFi applications that are built on Ethereum.

Why Use Wrapped Bitcoin?

Bitcoin is the most valuable cryptocurrency by market cap, but it lacks native support for smart contracts. Ethereum, by contrast, is the leading platform for decentralized applications. Wrapped Bitcoin allows users to tap into Ethereum’s DeFi ecosystem without selling their BTC. With WBTC, Bitcoin holders can:

• Trade on decentralized exchanges like Uniswap or Curve
• Provide liquidity and earn yield
• Use BTC as collateral for loans on platforms like Aave or Compound
• Participate in DAO governance if WBTC is accepted

Risks and Limitations of Wrapped Bitcoin

While WBTC increases Bitcoin’s utility, it comes with tradeoffs:

• Custodial risk: WBTC depends on custodians and merchants. If these entities fail or are compromised, user funds could be at risk.
• Centralization: Unlike Bitcoin, which is decentralized by design, WBTC relies on a consortium of institutions to manage the process.
• Regulatory concerns: Custodial wrapped assets may be subject to legal and compliance challenges, especially across jurisdictions.

Alternatives to Wrapped Bitcoin

Wrapped Bitcoin is not the only way to bring Bitcoin into DeFi. New protocols are exploring trust-minimized, non-custodial methods for bridging Bitcoin to other chains. Projects like hemiBTC and others aim to reduce the need for trusted intermediaries by using decentralized networks, multi-party computation, and Bitcoin-native verification.

These alternatives keep Bitcoin closer to its original trust model while still making it useful in smart contract environments.

Final Thoughts

Wrapped Bitcoin is a key tool for bringing Bitcoin into the world of decentralized finance. It offers a way to earn yield, trade on DEXs, and access new financial tools—all while staying exposed to BTC. But it’s important to understand the underlying mechanics and risks. For those seeking a more decentralized option, new approaches are emerging that could offer a better blend of security and usability.

If you’re asking, “What is Wrapped Bitcoin?”—it’s a bridge, not a replacement. It brings the value of BTC to Ethereum, expanding the role of Bitcoin in modern crypto applications.