WBTC - A New Community-Led Initiative
Francesco Dell'Agata, November 11th, 2018
Over the last few months, a new community-led initiative has been started by like-minded individuals across a number of companies in order to morph together the Bitcoin and Ethereum Blockchains. Introducing, “an ERC20 token on Ethereum backed 1:1 by Bitcoin” – which means you will be able to store it safely using any cryptocurrency hardware wallet.
Kyber Network, Republic Protocol and BitGo are the companies behind the innovative idea - A new standard in Crypto: “Wrapped tokens” as they are called, follow a centralised model, but instead of one ruling institution, there is wide involvement where a group of companies all work together with different roles to work towards one common goal. WBTC will open the floodgates to new solution in the cryptocurrency space, which will prove that it is possible for two Blockchains to co-exist, whilst providing the users in the ecosystem with the best of both worlds.
The proposed ERC20 token backed by Bitcoin, will allow Bitcoin to become more valuable – and be utilised under different scenarios such as decentralised applications (Dapps), smart contracts, financial products and other features present on the Ethereum Blockchain.
Tokenising an asset – such as the WBTC token, undoubtedly brings numerous benefits to numerous parties involved in the Blockchain and cryptocurrency space such as:
- The act of tokenising “assets” -i.e. WBTC tokens, brings faster transaction/settlement times
- Assets in a Blockchain brings the ability to transact without intermediaries and it encourages assets to be “atomic swapped” and exchanged via decentralised exchanges
- Custodianship of assets brings higher levels of security to the network
- The widely adopted ERC20 standard has been adopted by a large number of institutions within an ecosystem comprising of wallet providers, exchanges and Dapps
- Blockchain technology offers higher levels of transparency, primarily thanks to the network’s ability to show the number of tokens available, minted tokens, burned tokens and set smart contract rules across Blockchain
- Increased liquidity is brought to not only centralised exchanges – but also decentralised exchanges, which is an upcoming industry trend in the crypto world
- Interoperability across different Blockchains is achievable in the near future - and it will bring benefits not only tied to monetary exchange, but also lower fees, smart contracts and decentralised nodes
- Policies and rules can be enforced in the network and this promotes a more transparent and governed ecosystem
Two key take-away points from above:
An increasingly interesting trend worth reiterating, is the one of decentralised exchanges – thanks to the WBTC, decentralised exchanges will be able to increase access to liquidity with a token that has all the benefits and enhanced functionalities provided by the Ethereum Blockchain. As Bitcoin is swapped for WBTC tokens, this will bring more liquidity in the decentralised exchanges ecosystem.
The DAO & Atomic Swaps
The “swapping” between Bitcoin and WBTC tokens will have atomic functionality built-in, which will mean that user funds are exchanged rapidly and securely – this is largely due to the community-led effort behind a decentralised autonomous organisation (DAO). Such organisation will have no central authority and will be solely governed by the community behind the WBTC initiative. The members of the DAO will be able to transparently and publicly, perform audits to ensure WBTC tokens are being correctly accounted for and that custodian wallets match the smart contract balances. In addition, any newly proposed enhancements to the network will need to be voted.
Figure 1: Wrapped Tokens Whitepaper v0.1 “A multi-institutional framework for tokenising any asset” (October 5th 2018).
In regards to the figure above, the successful implementation and technology behind the WBTC token is made possible thanks to a number of players in the ecosystem: a custodian, merchant, user and the WBTC DAO member. For more information about the roles, please see the WBTC Whitepaper.
In essence, the emergence of wrapped tokens not only brings numerous benefits to the users of these tokens – but at the same time, the “tokenisation of assets” have kick-started a wave of investment in the ecosystem, which will even see other cryptocurrencies in the ecosystem adapt a similar idea. An important future aspect of cryptocurrencies will be their suitability to be used as a fast, cheap and reliable payment method – both by crypto enthusiasts and the wider community not involved in crypto.