What Is Wrapped Bitcoin?
Written by John Alewine, Crypto Guidance
Published ยท Updated
Wrapped Bitcoin is a token on another chain, usually ERC-20 WBTC on Ethereum, that is supposed to be backed one-for-one by real bitcoin sitting with a custodian. You did not move bitcoin onto Ethereum. You took an IOU that DeFi can use in an AMM or as collateral. It is a wrapped token whose underlying happens to be BTC.
Who This Is For
People who want bitcoin exposure inside Ethereum DeFi and are willing to trust the wrapper. It is not for someone whose whole point of bitcoin was self-custody with no extra company in the room. If that is you, keep BTC on Bitcoin, or use a Bitcoin ETF in a brokerage if you wanted securities-law exposure instead.
How It Actually Works
- A merchant sends BTC to the custodian. The contract mints WBTC to an Ethereum address. Redeeming is the reverse: burn the token, receive BTC, if the custodian is solvent and open.
- WBTC is the famous brand. Other wrappers exist, with different custodians and different histories. The ticker is not the reserve.
- Price should track BTC. If the wrapper is doubted, it can trade off. That is a depeg of a receipt, not of bitcoin itself.
Risks I See in Sessions
- Calling WBTC "my bitcoin." Your claim is on a custodian and a contract. Read who holds the keys. This is closer to an exchange IOU than to a UTXO you control.
- Using a random "BTC on ETH" token that is not the wrapper you think it is. Check the contract address.
- Forgetting that a wrap and unwrap can be a taxable disposition. I am not your CPA. I am telling you to ask one. Tax guide.
When It Matters
Any DeFi recipe that wants "BTC" on Ethereum. If you do not need that recipe, you do not need the wrapper. Hold the real thing.
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