ERC-20-Wrapped Bitcoin (WBTC) Launches on Ethereum Network

Colin Muller

The Wrapped Bitcoin (WBTC) network has gone live, and at time of writing 65 bitcoin have been “wrapped” into Ethereum ERC-20 tokens.

WBTC is simply a method of representing bitcoin as an ERC-20 token, so that it may be more easily manipulated within the Ethereum ecosystem. Each WBTC is backed one-to-one with an equivalent amount of bitcoin.

One of the main selling points of WBTC is that it incorporates tradeable bitcoin into Ethereum decentralized exchanges (DEXs) such as IDEX.

How Does It Work?

In practice, the function of WBTC will be perhaps less laissez faire than it initially sounds. Rather than being a free function that users can employ to wrap their own bitcoin, a complicated supply chain has been set up by some big crypto entities to deliver the tokens - complete with Know-Your-Customer and Anti-Money-Laundering checks (KYC/AML).

Users wanting to wrap their bitcoin will have to approach “Merchants,” offering the bitcoin asset and completing KYC/AML through them. The whitepaper states that “Merchants are required to hold the identity information of the user securely.”

wbtc1.png(source: WBTC whitepaper)

But the Merchants themselves do not mint tokens. Only “Custodians” can actually mint WBTC coins, and only when requested to do so by designated Merchants - and at this point the sole Custodian is BitGo.

The whitepaper states that “[i]n some sense custodians are trusted in the wrapped framework, as assets could be stolen or they might not honour the one-to-one backing.” Custodians posses the private release keys for WBTC tokens which they issue, and only they can disburse bitcoin back to Merchants upon request.

wbtc2.png(source: WBTC whitepaper)

"Third parties" will conduct quarterly audits of all WBTC to ensure the corresponding bitcoin asset are stored by the Custodians, according to the whitepaper. All Custodians and Merchants are holders of multisignature keys, which are required to manipulate WBTC contracts on sidechains.

All of this is to say that: Not just anybody can wrap their bitcoin into WBTC. Rather, the function within WBTC’s process is highly curated. While BitGo is currently the only Custodian, there are currently eight Merchant members of the network.

Owning, Occasionally Trading Bitcoin Is Legal in China, Prominent Lawyer Argues

Sa Xiao, a Council Member at the Bank of China Law Research Association, has recently argued that both owning and “occasionally” trading bitcoin in China is legal, as the country’s regulations currently don’t outright ban cryptocurrencies.

Speaking to local news outlet Beijing News, Xiao argued China’s regulations of virtual property include the right to trade as the owner sees fit. The lawyer’s views are in sharp contrast to those revealed by Chinese authorities, who have banned cryptocurrency trading, initial coin offerings, and more.

He noted that while owning cryptocurrencies has never been illegal in the eyes of Chinese authorities, it may be possible to be punished for dealing with cryptocurrencies. Specifically, he noted that running a BTC trading business that leads to client losses may lead to a punishment according to criminal law.

Notably, the Shenzhen Court of International Arbitration has late last year ruled cryptocurrencies like bitcoin should be protected by law as property, in a case that saw two parties dispute cryptocurrency possession at the end of a contract.

Similarly, the Shanghai Hongkou District Court in China recognized cryptos, including ether, should be protected by law, in a case where a defendant refused to return 20 ETH to an ICO investor.

Xiao didn’t specificy what could be seen as “occasional exchange” or more between individuals, nor did he point towards any figures in specific.

Earlier this year, it was reported the Chinese government was looking to ban all cryptocurrency mining in the country, in a move that would severely affect mining firms taking advantage of cheap energy in some of China’s regions.

Local investors’ interest in cryptocurrencies like bitcoin has seemingly been growing, so much so some believe bitcoin’s recent surge to test the $8,000 mark was aided by Chinese buyers. This, as the crypto’s rise coincided with US President Donald Trump announcing tariffs on hundreds of billions of dollars worth of Chinese goods.

Recently Garrick Hileman, a Macroeconomics Researcher at the London School of Economics (LSE) and the head of research at Blockchain.com, noted that the value of the Chinese yuan appears to be inversely correlated to that of bitcoin.