Bitcoin Wrapped In Ether – Yummy!

You can take two good things and combine them together to get the best of both. In LA’s streets you can get what some would consider one of the city’s iconic sandwiches. It is the hotdog wrapped in bacon. It brings you the meaty flavor of a hotdog with the greasy goodness of bacon. Now think about the top digital asset Bitcoin (BTC). What would you wrap it with if you were to compare it to a hotdog wrapped in bacon? How about Ether (ETH), the Ethereum blockchain’s token. BTC is your hotdog, while ETH is your bacon. It actually exists and it is called Wrapped Bitcoin (WBTC).

Wrapping one cryptocurrency with another uses the hotdog wrapped in bacon example as a simpler way to illustrate an analogy. Wrapping in this sense means to create a protocol to represent one cryptocurrency on another cryptocurrency’s blockchain. BTC can be represented on the Ethereum blockchain by issuing an ERC-20 token called WBTC. This allows BTC integration with smart contracts that can be traded on the Ethereum network using the ERC-20 standard.

In Wrapped Bitcoin, BTC is locked into a smart contract and issued as WBTC. This allows BTC holders to access DeFi systems on the Ethereum blockchain. It is as good in value as BTC which is verified by a Proof-of-Reserve system. This ensures a 1:1 peg between the issued or minted WBTC tokens and BTC. The actual BTC is still on the Bitcoin blockchain since you cannot store it on the Ethereum blockchain. The BTC is taken under the custody of the WBTC token issuer, so it is not directly with the WBTC token holder. It is maintained by a group called the WBTC DAO, who are the custodians of the BTC. The group’s members include blockchain-based organizations like BitGo, Ren and Kyber.

What is the purpose of WBTC?

As mentioned earlier, it is primarily for giving BTC holders a way to gain access to the DeFi markets. A large portion of the DeFi space uses the Ethereum blockchain and BTC is not directly compatible with it. It is a bridge that allows BTC holders to use DeFi protocols to provide liquidity or participate in other services that yield returns. WBTC is a way to bring the value from BTC into the DeFi space without having to convert BTC to ETH. BTC (as of 2020) has the largest cryptocurrency market cap and this is crucial in helping bring liquidity to the DeFi space as well as expanding on the collateral types available.

This is a great way for BTC holders to take part in the DeFi markets. Many BTC holders have plenty of value stored, but are not able to use it if they are HODLing. DeFi provides ways for cryptocurrency to earn even while HODLing, using decentralized protocols like Uniswap, Curve and Yearn. Most DeFi protocols will only support ERC-20 or ETH since they execute from smart contracts on the Ethereum blockchain. WBTC is a protocol that allows BTC to be wrapped in an Ethereum ERC-20 token. Holders would not need to convert their BTC to ETH during this process.

Minting WBTC

To enter the DeFi space, Bitcoin holders would have to deposit their BTC into a smart contract of a WBTC issuer (e.g. BitGo, Coinsquare, etc.). This can be a digital exchange or DEX (Decentralized Exchange) that accepts BTC. Once the BTC has been deposited, WBTC tokens are minted that have a 1:1 value to the BTC that was deposited. Once the holder receives their WBTC, they can now use it for loan collateral, providing liquidity and swapping for other tokens. Digital exchanges will most likely require a KYC (Know Your Customer) in compliance with the law before the WBTC can be issued. On a DEX or over-the-counter it is not required (check with the exchange requirements always). The WBTC can be cashed out to either BTC or ETH.

Another way to get WBTC is through a DEX like Uniswap. Instead of depositing BTC into a smart contract, anyone who holds ETH can purchase WBTC. It requires connecting a digital wallet like Metamask to perform the transaction with ETH. The WBTC is already available in the market and it does not require BTC for purchase in this case. Since WBTC is an ERC-20 token, it can be purchased with ETH very easily.

Other Uses For WBTC

WBTC can be put to use in DeFi yield farming protocols. This allows WBTC holders to put their digital asset for lending and trading purposes. In return, the WBTC holders earn yields as a their return on investment. These yields are fees collected from the transactions. Rewards can be issued in the form of governance tokens, which allow the holders to participate in digital governance through voting. This provides holders a way of participating in decisions that govern these protocols.

Yield farming requires the holders to deposit their WBTC. In return, they are issued another token. Examples of these tokens include SNX (Synthetix token), REN (Ren Project token) and BAL (Balancer token). The tokens are specific to which protocol is used by the yield provider. To learn more about yield farming, there is an article on Coindesk that explains it a little bit further. (Link here)

The Best Of Both

Wrapped Bitcoin brings the best of two blockchains. It is a way to interoperate between two digital assets at the protocol layer. The value of Bitcoin and the decentralized applications on Ethereum. BTC is the digital asset while ETH is the protocol that utilizes it for liquidity, trades and financing. The Ethereum blockchain is serving as a transaction layer that can bring more capital into diverse markets. Bitcoin can provide the capital, as institutional investment grows in the digital asset. WBTC provides a way for investors to bring capital for yielding returns using the Ethereum blockchain.

Disclaimer: This is not financial advice, just reference. Do your own research always to verify information.

The Cardano Principles For Scalability, Interoperability and Sustainability

Cardano is a unique cryptocurrency project that is based on sound principles rooted in science and engineering. Its application goes beyond financial systems, but implements a blockchain that covers a wider variety of applications. While it is available as a coin on digital exchanges, it does not yet have an actual use case (as of this posting). It is a development in progress that aims to nail the foundations for a well designed blockchain.

We can consider Cardano a Third Generation Blockchain. The First Generation uses Bitcoin’s Proof-of-Work (PoW) consensus mechanism and the UTXO model. Ethereum forms the basis for the Second Generation, which implements Turing complete Smart Contracts or EDCC (Executable Distributed Code Contracts). The Third Generation, which include other cryptocurrency like EOS and Tron, were based on Ethereum but innovate on consensus mechanisms. Like other Third Gen blockchains, it was also issued using an ICO that raised $62 Million.

Cardano, like Ethereum, uses a smart contract based system. The token or digital asset used on the network is called Ada. Ada provides balances to users with the Daedalus digital wallet. Cardano is also a platform for technological innovation and development. It will provide an operating system layer for DApp (Decentralized Applications) that run on the Cardano network. These DApp provide an interface to smart contracts that execute code to transfer value (e.g. payments, transfers, change of ownership, etc.). Cardano will facilitate these transactions and record it on its own blockchain for immutability and transparency purposes.

Cardano has 3 main features in its blockchain.

  1. Scalability – The network must be able to scale to meet the demands for high volume transaction processing. The developers address the issue of scaling by adopting a different consensus protocol mechanism that is based on Proof-of-Stake (PoS). Scalable systems are faster and more efficient, which is what a blockchain needs in order to handle production level processing of transactions. The network architecture for Cardano proposes using RINA (Recursive Internetwork Architecture).
  2. Interoperability – Many blockchains cannot directly interoperate with one another. There are solutions now that allow for “atomic swaps”, which essentially provides a way for two blockchains to transfer value between each other. Prior to that, digital exchanges were the only way to go. That creates an intermediary which is something a blockchain using direct P2P transfers can remove. With a third party, the cost of transactions increases and it can be tampered, censored or rejected.
  3. Sustainability – Many critics have called Bitcoin inefficient and unsustainable in the long run due to the way it consumes resources. A sustainable system is always more ideal in terms of efficiency and reliability. Sustainable systems have a way to last thus ensuring some degree of surviving into the future. Many blockchain projects lack this feature and have to end for a variety of reasons.


The following are Cardano’s philosophical principles taken from their website.

  • Separation of accounting and computation into different layers
  • Implementation of core components in highly modular functional code
  • Small groups of academics and developers competing with peer-reviewed research
  • Heavy use of interdisciplinary teams including early use of InfoSec experts
  • Fast iteration between white papers, implementation and new research required to correct issues discovered during review
  • Building in the ability to upgrade post-deployed systems without destroying the network
  • Development of a decentralized funding mechanism for future work
  • A long-term view on improving the design of cryptocurrencies so they can work on mobile devices with a reasonable and secure user experience
  • Bringing stakeholders closer to the operations and maintenance of their cryptocurrency
  • Acknowledging the need to account for multiple assets in the same ledger
  • Abstracting transactions to include optional metadata in order to better conform to the needs of legacy systems
  • Learning from the nearly 1,000 altcoins by embracing features that make sense
  • Adopt a standards-driven process inspired by the Internet Engineering Task Force using a dedicated foundation to lock down the final protocol design
  • Explore the social elements of commerce
  • Find a healthy middle ground for regulators to interact with commerce without compromising some core principles inherited from Bitcoin


Cardano’s consensus algorithm uses PoS and is called Ouroboros. This determines how participating computers called nodes come to a consensus on the network. Instead of miners like in PoW consensus algorithms (used by Bitcoin), PoS requires staking funds to qualify or participate as a validator node. These “stakeholders” must contribute to secure and process blocks of transactions on the network and in return they will be incentivized in Ada. If a “stakeholder” is dishonest or attempts to attack the network, they can lose the funds they staked so there is a consequence. This aims to make “stakeholders” good faith actors rather than become bad actors. Once “stakeholders” validate a block it is added to the main network’s blockchain.

What makes Cardano different from other PoS-based networks is according to their own website:

“For a blockchain to be secure, the means of selecting a stakeholder to make a block must be truly random. An innovation of Ouroboros to produce the randomness for the leader election process is to do this by way of a secure, multiparty implementation of a coin-flipping protocol.”


Cardano also fosters a development community since it is an open source project. There are no barriers to entry for those who want to contribute, but is mostly on a voluntary basis. Developers are rewarded in Ada for their efforts. Cardano’s code is available for others to use in order to develop applications for the platform.

At the moment, Cardano is being managed by the IOHK (Input Output Hong Kong). They will be a part of the project until 2020 according to their contract.


The main programming language used in Cardano is Haskell which is functional, strong and static typed. One of the reasons it was used is due to its reliability in mission critical systems. They provide a solid and secure foundation for back end systems that handle massive workloads. This means the code and logic is stable enough to be able to scale and provide reliability with little room for failures.

In functional programming if there is a function f(x) that we want to use to calculate a function g(x) to get the results of yet another function h(x). Rather than solving in sequence, it can be simplified to a single function:


This provides a mathematically simpler way of computing. These form the foundations for Cardano Smart Contracts. It aids in Formal Verification to prove how a program acts and what its results will be. This gives Cardano a “High Assurance Code” property.


Cardano follows a road map for its development. It is divided into 5 phases called eras: Byron, Shelley, Goguen, Basho and Voltaire. It is now in the Voltaire era in 2020, which will decide the digital governance used on the network.

For more on the road map, click here.


Like any cryptocurrency project, I don’t suggest buying their token just because the project looks good on paper. This is how Cardano is like. While it is based on a sound foundation, it has not yet been applied to solving real world problems. It offers a theoretical solution that is yet to be proven. If it does deliver on its goals, Cardano’s prices may not really go up either, since it depends on the asset’s liquidity and volume. The project looks promising and that can spur certain expectations.

Note: This is not financial advice. DYOR always to verify facts.