In an official blog post, California-based blockchain security firm BitGo announced the development of a new Ethereum-Based token—Wrapped Bitcoin (WBTC). For the first time, this digital asset will be tokenized with full proof of reserve, backed 1:1 with Bitcoin.
Powered by significant decentralized projects like Kyber Network, Republic Protocol, MakerDAO, Dharma, Airswap, IDEX, Compound, DDEX, Hydro Protocol, Set Protocol, Prycto, RadarRelay, and Gnosis, the new token will be launched in early January 2019.
BitGo will provide custody of the Bitcoin and tokenize it by minting WBTC. According to the announcement, “WBTC users will be able to utilize Bitcoin in a wide variety of new decentralized use cases, including on decentralized exchanges (DEXs), as collateral for stable coins or lending, for payments and flexible smart contracts within the Ethereum ecosystem.”
Every Bitcoin will be accounted for on a dashboard displaying addresses and balances, and users will be able to verify on the blockchain each Bitcoin that is held in custody. This can be done by comparing the exact number of Bitcoins stored with the total supply of WBTC in circulation via a blockchain explorer like Etherscan.
BitGo hopes that this ‘transformational community effort’ to bring Bitcoin to the Ethereum network as an ERC20 token will usher the stability and value of Bitcoin to Ethereum’s extensive ecosystem of decentralized applications.
“It’s an exciting opportunity for us to build on our mission: making digital currencies usable for business,” believes BitGo.
— WBTC strives to infuse greater liquidity to the Ethereum ecosystem including decentralized exchanges (DEXs) and financial applications. Presently, the majority of trading volume occurs on centralized exchanges with Bitcoin. WBTC aims to bring about a change by bringing Bitcoin’s liquidity to DEXs and making it possible to use Bitcoin for token trades.
— WBTC standardizes Bitcoin to the ERC20 format, creating smart contracts for Bitcoin. Thus, making it easier to write smart contracts that integrate Bitcoin transfers.
— Maintaining various nodes and managing multiple types of transactions in order to support multiple currencies can be difficult and complicated. With WBTC, things will become easier, as exchanges, wallets, and payment apps will have to handle only an Ethereum node.
How WBTC works?
Receiving: To receive WBTC, a user requests tokens from a merchant. The merchant then performs the required KYC/AML procedures and verifies the user’s identity. Once completed, the user and merchant execute their swap, with Bitcoin from the user transferring to the merchant, and WBTC from the merchant transferring to the user.
Minting: It is the process of creating new wrapped tokens. Minting in the wrapped framework is initiated by a merchant and performed by a custodian.
Burning: Burning is the action of redeeming Bitcoin for WBTC tokens, and only merchant addresses can do this. The amount to be ‘burnt’ is deducted from the merchant’s WBTC balance (on the chain), and the supply of WBTC is then reduced.
During its launch in January 2019, Kyber and Republic Protocol will pre-mint WBTC tokens from their own Bitcoin inventory to provide initial liquidity and make WBTC available for atomic swaps with users. BitGo will be the initial regulated custodian while WBTC will also be supported in BitGo’s enterprise wallet as well as any exchanges, payment or Dapps services using Kyber. Taiyang Zhang, CEO Republic Protocol added,
“The addition of atomic swap technology to the WBTC initiative will allow users to deposit and withdraw BTC/WBTC securely and with confidence, which will assist in enabling WBTC adoption to reach the masses.”
Regarding the initiative Benedict Chan, CTO of BitGo asserted, “We are really excited to tokenize the most widely accepted cryptocurrency on Ethereum. I think this is a great application of the flexibility and power of blockchains, and it’ll drive greater interoperability and utility throughout the entire ecosystem.”
Back in 2017, with the aim to tokenize gold, BitGo created Royal Mint Gold (RMG). BitGo now goes one step further and sees the tokenization of ‘digital gold’ with the WBTC initiative.
Established in 2013, BitGo is a blockchain company founded by Mike Belshe and Ben Davenport. In September 2018, BitGo acquired a state trust company charter in South Dakota to become a certified cryptocurrency custodian. As a custodian, BitGo is subject to regulatory oversight in compliance with know your customer (KYC) and anti-money laundering (AML) policies.