Bitcoin backed Ethereum

Bitcoin and Ethereum are the two largest cryptocurrencies. They are behemoths of the crypto world. Crypto investors tend to fall in to two categories. Bitcoin maximalists and Ethereum maximalists who believe that one day “the flippening” will occur and Ethereum will steal Bitcoins crown. But now the two are to come together a new coin will represent the crypto marriage between Bitcoin and Ethereum.

In January a new token was launched. The token was launched on the Ethereum blockchain and is backed one-to-one by Bitcoin, the worlds largest cryptocurrency. Being ERC20 tokens, these can then be used freely on the ETH network.

There are some big names behind this project. Decentralized exchange startups Kyber Network and Republic control are both backers along with cryptocurrency custody company BitGo. There is also strong support from many other Ethereum based projects and many have suggested they will support adoption for the token once it is released.

Some of the big name who have publicly said they will participate as launch members include MakerDAO, Dharma, Airswap, Gnosis, IDEX, Radar Relay, Compound, DDEX, Hydro Protocol, Set Protocol and Prycto.

The purpose of the coin is to provide the utility of bitcoin on the Ethereum network. The “wrapped bitcoin” or WBTC token can facilitate any decentralized application running on the blockchain.

CTO of BitGo Benedict Chan called it “the best of both worlds,” and characterized WBTC as possessing both “the stability of bitcoin and the flexibility of ethereum.”

Chan told CoinDesk:

“It’s very similar in some ways to how people created banknotes that represented a pound of gold. A pound of gold was heavier and it took longer to trade. You could use a note which represented a pound of gold and it was well accepted.”

BitGo will be the primary custodian in charge of holding the reserve bitcoins to back the minted WBTC tokens that will be in circulation on the Ethereum blockchain.

BitGo is the market leader in institutional-grade cryptocurrency investment services. They provide security, compliance, and custodial solutions for blockchain-based currencies. They are the world’s largest processor of on-chain bitcoin transactions, processing around 15% of all global Bitcoin transactions, and $15 billion per month across all cryptocurrencies. BitGo has over $2 billion in assets in wallets, and a customer base that includes some of the world’s largest cryptocurrency exchanges and spans more than 50 countries. In 2018, they launched the BitGo Trust Company, the first qualified custodian purpose-built for storing digital assets..

Unlike many other stablecoins that are pegged to fiat currencies the WBTC token will have complete proof-of-reserves that will be available on both of the blockchains.

“The beauty of that is all we have to do is put up a webpage and show all the addresses that have the bitcoins … and at the same time, people will be able to check how many WBTC are in existence just by looking … on the ethereum blockchain,” said Chan.

In addition to the bitcoin custodian, there will also be registered “merchants”. The merchants will be responsible for distributing and redeeming WBTC tokens to all users. These merchants are currently listed to be the Kyber Network and Republic Protocol, merchants complete transfers of WBTC for bitcoin and vice versa, via atomic swaps.

Atomic swaps allow two way cryptocurrency trades across different blockchain platforms without the risk of one party defaulting on their side of the agreement.

The project is envisioned to be a community-driven effort and they hope to onboard multiple custodians and merchants in the longer term. As a result when the network is officially launched next year, a decentralized autonomous organization (a DAO) will also be activated. Its purpose will be to oversee the ongoing development of the project.

Luu explained in an interview with CoinDesk:

“One of the main reasons why many projects support this initiative is because there’s a DAO that’s going to govern the whole project including making major upgrades, adding more features, adding more merchants, even adding new custodians as well.”

What is at this time unknown is which companies will head up the DAO. The structure of the DAO has not been disclosed and it is at this moment unclear how DAO members will propose and vote on changes to the WBTC token.

The source code to be publicized on code-sharing platform GitHub at a later date, Luu has stated that decentralized leadership will be a key component to the success of the WBTC token.

“I think it couldn’t be that successful if the initiative is owned by Bitgo or by Kyber [Network] or Republic [Protocol] alone,” said Luu.

WBTC is not the only project seeking to provide a BTC ETH hybrid. Wanchain (WAN) has been developing a very similar project. With Wanchain users can deploy proxy tokens on other networks that can be used and transacted with. They have so far managed to successfully link their own blockchain to the Ethereum network and plan to have full chain compatibility with the Bitcoin protocol, following the launch of their 3.0 testnet.

RSK is another project which is worth attention. They are focused on facilitating cross-chain smart contract execution between the Bitcoin and Ethereum blockchains. Their approach is somewhat different but the ultimate goal is similar, linking the two largest blockchains.

At the time of writing WBTC is trading at $4800 which is roughly a $20 dollar premium on its pure Bitcoin counterpart.

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