More and more often and not only in relation to Bitcoin we hear about wrapped token, that is wrapped versions of the same cryptocurrency.
To explain it as simple as possible, when you buy a cryptocurrency such as Bitcoin (BTC) in addition to the classic token there is also another version of the same digital currency on exchanges, that is WBTC, acronym which stands for Wrapped Bitcoin. This situation now occurs for many cryptocurrencies, but it also creates confusion for inexperienced investors who are faced with two versions of the same token, which also have the same price trend, without understanding that there is a difference.
Wrapped token are the attempt with which technology tries to overcome one of the limitations of Blockchain platforms, that is the fact that they do not communicate with each other.
Bitcoins operate on their own Blockchain which is, for example, different from that of Ethereum and therefore there is not communication between the two. It is created in this way: a wrapped token that is a cryptocurrency anchored to Bitcoin, but from a technological point of view capable of working on another Blockchain.
This need is given by the fact that the different Blockchains have different functionalities and different costs and their lack of dialogue is a huge limitation for users at the moment.
Let’s see what Wrapped Bitcoin (WBTC) are by comparing them with Bitcoin (BTC) and also trying to understand what they are used for in general in the world of cryptocurrencies.
What are Wrapped Bitcoins (WBTC) and how are they different from Bitcoin (BTC)?
The Bitcoins are cryptocurrencies built to operate on a specific Blockchain platform for their exclusive and confidential use and therefore they cannot be transferred and used on a different Blockchain such as Binance Smart Chain or Ethereum, just to give two examples.
It exists a version of wrapped Bitcoin (BTC), or the WBTC that instead work on Ethereum, so as they exist in BBTC, that is a version of Bitcoin wrapped to be compatible with Binance Smart Chain.
The WBTC and the BBTC are tokens that define themselves anchored to the mother cryptocurrency, in this case Bitcoin.
Wrapped tokens follow the same market trend and their price varies according to that of the cryptocurrency to which they are anchored and from which they were created.
In other words, 1 WBTC always counts as 1 BTC.
The operation, that is anchoring to another asset, is similar to what happens for example in the case of stablecoins, which are cryptocurrencies linked to a fiat currency. Tether for example is a stablecoin pegged to the dollar for which 1 USDT is always worth $ 1.
Wrapped token and interoperability between Blockchain
To understand what a wrapped token really is for, a useful example is first of all to clarify the differences between BTC and Ethereum.
Bitcoin are a cryptocurrencies that operates on a Blockchain dedicated to it and not open source. Ethereum instead is an open source Blockchain that is where everyone can build applications and has its homonymous native cryptocurrency which is called ETH and which is a ERC-20 token. The potential of Ethereum is precisely that of being an open and free Blockchain.
Now, Ethereum for these characteristics has become very popular for other applications that need a Blockchain to work, such as NFTs, many of which are built on Ethereum.
Bitcoins in this working on their own Blockchain are much less versatile than many other cryptocurrencies. This requires that for the exchange with other digital currencies the most suitable are expensive centralized platforms (CEX). Otherwise WBTC can for example be exchanged for ETH or any other currency supported by this Blockchain using decentralized exchange platforms (DEX) operating on the same line in this case Uniswap. For BEP-20 tokens, those who work on Binance Smart Chain, such as the specific wrapped version of Bitcoin (BBTC), the most decentralized exchange is instead PancakeSwap.
What are the advantages of a wrapped Bitcoin?
The creation of a wrapped token in addition to allowing communication between different Blockchains also has other advantages, first of all it increases the catchment area and the capital that flow into the cryptographic asset and then in some cases it also allows a significant reduction in costs for users.
More and more often when a new cryptocurrency is launched, more versions of the same token are able to operate on different Blockchains as well to reach a wider audience, as vast as possible.
Creating a wrapped token is an operation that anyone can accomplish and for which Binance always makes available to everyone the tool Binance bridge.
In conclusion, by buying a wrapped token for example Bitcoin, you still invest in BTC, a cryptocurrency that follows this price trend on the markets, but you have a token available that can operate and interact with applications built on different Blockchains such as Binance or Ethereum.
Read also: How to find the best new cryptocurrency coins
Bitcoin (BTC) and Wrapped Bitcoin (BTC), how does the price change on the markets?
Before concluding, we remind you that as far as price trends are concerned, wrapped tokens are anchored with a 1: 1 ratio to the collateral asset. The price change therefore of Wrapped Bitcoin is identical to that of Bitcoin, with small differences of a few cents that can occur every $ 1,000 and attributable to the different liquidity of the markets. In any case between BTC and WBTC there is full price equivalence.
Wrapped tokens operating on Binance Smart Chain are more popular. Why?
If we leave aside Bitcoins and their wrapped version, today wrapped tokens are very useful for fresh cryptocurrencies birth.
This is because the first listing of a cryptocurrency usually takes place on decentralized exchanges DEX or in any case it takes some time before listing on popular CEX exchange platforms such as Coinbase, e-Toro, Crypto.com, etc.
This is the reason why more and more wrapped versions of tokens, including Bitcoin, are created, that can work on alternatives such as Binance where costs are very low. Likewise, the popularity of Binance Smart Chain increases for the minting of NFT, again due to the reduced costs compared to Ethereum.
