What’s Wrapped Token or Coin?

by | Feb 11, 2023 | Learn | 0 comments

Various types of technology used in Bitcoin and Ethereum blockchains, for example, make secure utilization between them impossible. However, wrapped tokens provide a way to circumvent these limitations and give users the opportunity to use non-native assets hosted on the blockchain. The origin of the term ‘wrapped’ refers to the original asset being placed into the wrap. In this sense, the wrap acts as a digital vault that allows for the wrapped asset to be created and hosted on another blockchain.

Similar to how stablecoins are pegged to fiat currency to maintain value, wrapped tokens are pegged to other cryptocurrencies. Wrapped tokens aim to overcome the limitations of different blockchains by allowing information to be freely transferred between them. Like other cryptocurrencies and fiat, wrapped tokens can be exchanged with other cryptocurrencies and fiat relatively easily. Wrapped tokens aim to make cryptocurrency more accessible to those who do not want to use specific blockchain features, but do not want to exchange incompatible assets with others. Instead, they allow them to hold one type of token and its wrapped counterpart while still accessing various decentralized features.


What Does it Mean When Tokens are Wrapped?

When tokens are wrapped, it means they can exist on a blockchain that is otherwise not compatible. Wrapped Bitcoin and Ether are pegged to the value of their respective unwrapped tokens. To help the wrapped tokens maintain their value, custodians hold an equivalent value in BTC or ETH. Wrapped crypto is popular because it enhances the functionality of unwrapped tokens by increasing the number of ways they can be used. Wrapped coins will likely continue to increase in popularity as the real-world use of cryptocurrency continues to grow. As Bitcoin and Ethereum continue to grow in popularity and more of their uses emerge in our daily lives, wrapped coins must continue to increase in popularity.


How Do You Unlock Wrapped Tokens?

To unlock wrapped cryptocurrency, whether it be BTC, ETH, or even wrapped XRP, you first need to send it to the appropriate custodian. Using BTC as an example, the wrapped minting process involves sending BTC to the selected custodian who holds the wrapped assets in reserve. The custodian will mint wrapped BTC tokens on the Ethereum blockchain before sending back an equivalent amount of WBTC. To unlock wrapped tokens, the process simply occurs in reverse. Sending WBTC back to the custodian will grant the sender the right to receive an equivalent amount of Bitcoin as a reward and the custodian typically burns the wrapped token. This process is similar to other wrapped cryptocurrencies.


Is Wrapped Bitcoin the same as Bitcoin?

In terms of price, Bitcoin and Wrapped Bitcoin are the same. The main difference lies in the blockchain technology they use. While Bitcoin is represented on its own blockchain, it cannot be held on the Ethereum blockchain because it uses a different protocol. However, Wrapped Bitcoin is an ERC-20 token. This means it can appear on the Ethereum blockchain. This usage allows WBTC holders to access the world of Ethereum DeFi, decentralized applications, and smart contracts. For people who want to focus their investment on Bitcoin, WBTC allows them to do so while also accessing other uses for their cryptocurrency, which otherwise might not be possible. Because Wrapped BTC is pegged to BTC, the two currencies have an intrinsic link that cannot be ignored.


Should I buy Wrapped Bitcoin?

Like other financial investments, buying Wrapped Bitcoin should be something you think about carefully. Cryptocurrency is a volatile market with no guarantee from federal or commercial entities. Wrapped Bitcoin is a good investment because it is tied to the value of Bitcoin, which is the largest cryptocurrency in terms of market capitalization. For people who want to invest in cryptocurrency for the first time, Wrapped Bitcoin has various uses that can be an attractive first dive into the world of cryptocurrency investment. Similarly, this is a good investment for those who already have other crypto assets because of the various uses that are possible. When you hold WBTC as well as BTC, you increase your chances of using your assets in real-world applications.


Is Wrapped Bitcoin better than Bitcoin?

Both Wrapped Bitcoin and Bitcoin have positive features that make investing in them an attractive option. It is difficult to say which is better because both are popular, valuable, and can be used in real-world applications. Depending on how you plan to use your cryptocurrency assets, WBTC or BTC will be more suitable. There are also other wrapped cryptocurrencies that you can buy and exchange for your Bitcoin, which increases the functionality of the pegged token. In short, both BTC and WBTC are attractive investments although the use of the tokens is slightly different. Wrapped and non-wrapped Bitcoin are established crypto currencies that are recognized globally by large financial institutions. If you want to start your investment journey in cryptocurrency but are not sure where to start, BTC or WBTC could be the perfect choice for you.


Is Wrapped Bitcoin safe?

Yes, Wrapped Bitcoin is safe if bought from a trusted source. Because this token uses the same blockchain technology as Ethereum tokens, it is a safe investment, and you are unlikely to become a victim of malicious actors as long as you buy only using reputable cryptocurrency exchanges. Using a secure exchange to buy and trade Wrapped Bitcoin is a smart thing to do because it keeps your assets safe while also helping you access the best offers.